What Home Entertainment Technology Will Win?

    October 30, 2008

There has been a lot of new news lately around the idea of home entertainment and media and I wanted to write a post reflecting on recent announcements coming out of Microsoft on their Media Center platform in Windows 7, the new XBox 360, an increasing role for Netflix’s "watch now" technology and today’s announcement regarding Netflix by TiVo.

Put simply, the battle for your living room and the dollars associated with your living room is heating up and I believe that 24 months from now there will be clear winners and losers. The next 24 months will likely represent the biggest changes we’ve seen yet for mainstream America’s media consumption.

First lets talk about the losers.

1. Cable and satellite providers. The economy is bad. There has never been a better time to cancel your cable and satellite service. As more and more digital media content is being made available through other sources, there becomes less and less of a reason to put up with overpriced cable and satellite TV. The service is bad, the service is expensive, and it’s a high reoccurring fee that is just the type of thing that consumers will look to cut out of their lives as they baton down the hatches. What’s more, Comcast is probably especially susceptible to losing internet customers in this downturn as well as they’ve received a lot of negative PR over their bandwidth caps which could increasingly hit consumers as more and more streaming video (and especially streaming HD video) comes into play.

The lone hold out will likely be the sports fanatic who simply cannot get by on network TV sports alone.

AT&T may fare better than traditional cable and satellite providers because they are aggressively rolling out their high speed fiber Uverse service and *requiring* consumers to buy their TV service in order to get the much faster than cable/dsl internet speeds. It’s kind of chump that they do this if you ask me, but hey, only the strong survive right?

2. Apple. Apple computer’s AppleTV has been a huge flop. Just like Thomas Hawk told you it would be over two years ago when I first dubbed AppleTV the iDongle. I followed that post up with another 10 reasons why the iDongle would fail about a year and a half ago. Apple’s mistake was that they sacrificed user functionality over a desire to tightly control your content and charge you up the ying yang for it. By not including a DVD player (something cheap and easy that they could have done) with AppleTV they force you to buy the content from them rather than more cheaply through a Netflix DVD subscription plan. By not including a DVR they force you to either pay them to watch your network TV commercial free or watch it without them and see the commercials. Apple really missed the boat with this one and could have been well positioned had they done like they did on the iPod and focused on the hardware and giving users functionality while not worrying as much about the content. In the end they would have made more money on both hardware and content, but as it is now the box is too restrictive and will be limited to a niche Apple fanboy audience who love anything Apple makes no matter how crappy it may be.

3. Roku. A lot of fanfare was made when the Roku box first came out with people saying it was the best thing ever, blah, blah, blah, blah. While having a few month lead time on comparable streaming Netflix boxes, as Netflix broadens their streaming service to other platforms it just won’t make sense to buy a Roku box when you can already get streaming Netflix on more popular and currently owned devices. More on the Roku here.

4. Movie Theaters. A lot of people say that the movie theater business will be resilient in this upcoming downturn in the economy. After all, movies thrived during the Great Depression right? True point. But back in the Great Depression there was no HDTV, no Netflix, no DVDs, no giant plasma TV screens or home theater sound systems. The movie theater has been a rip off with greater home entertainment competition for the last 3 years, but the economy has been good and people still went to the theater anyways (albeit in declining numbers). Not anymore. Watch the movie theaters go the way of the dinosaur as the consumer tightens back and chooses more economical entertainment at home vs. going out. If you’ve always wanted a photograph of your favorite theater’s neon sign, now’s the time to get it before they go out of business.

5. Blu-Ray. Blu-Ray players and discs are too expensive and a rip off. Sony won the battle by becoming the de facto high def DVD standard after wiping HD DVD off the map, but they lost the war. With streaming high def content and free OTA HDTV there is no need to pay all that money for Blu-Ray.

Now on to the Winners.

1. Netflix. Clearly Netflix has made the right move in investing so heavily in streaming technology. Netflix’s DVD rental and watch now service are both winners. In the past week we’ve seen announcements that Netflix will begin streaming it’s service on both Microsoft XBox 360s and TiVo units. If you have either of these units there is a strong case to be made that with a three disc Netflix plan for $19.99 a month you can have better content to watch at any given time than you can with your cable or satellite provider. If I were Netflix I’d start pumping this message big time. Why pay Comcast or DirecTV $80 a month when you can get better content from Netflix for $20. This is a clear value proposition for the consumer. Even in a bad economy people need something to distract them from their daily woes. And while people might not shell out $80 to take a family of 5 to the movie theater (parking, popcorn, soda, wayyy overpriced tickets, etc.) or pay $80 a month to Comcast or DirecTV for TV, they will pay $20 a month to get a very strong substitute from Netflix.

2. Microsoft XBox 360. The new Microsoft XBox 360 is out just in time for Christmas and may be the most tempting thing for people to try and buy even in this bad economy. Microsoft and Netflix announced this week that they will begin streaming *high def*, yes *high def* content to this new box. They are going to start with only 300 high def titles, but watch for this to rapidly expand in the near future.

Microsoft’s going to try and get a pound of flesh out of you of course by requiring an XBox live "gold" membership which is also kind of chump in my opinion, but this new box is clearly a winner.

3. Microsoft Media Center. Microsoft’s Media Center technology is getting better and better. Charlie Owen, from the Media Center team over at Microsoft, put out a great post earlier this week highlighting some of the things that we have to look forward to with Windows 7.

Many of Media Center’s changes are cosmetic — a cleaner better designed layout and interface. But there are some substantive content changes as well. Probably most significant, the next version of Media Center will support the H.264 high def video format. This means that high def H.264 video files can now be consumed on your television through a Media Center PC or Media Center extender. The significance of this is that the H.264 compatibility opens up the Media Center to a very popular format used for cheap pirated video content. Now I’m not advocating video piracy with this post, but the fact of the matter is that millions of people watch pirated H.264 format video on their computers every year. Now instead of having to watch the latest pirated episode of Dexter on your computer alone, you can now actually watch it from the comfort of your couch with your XBox 360 Media Center extender.

The power of Media Center plays in perfect concert with the power of the XBox 360.

All XBox 360s act as Media Center extenders. This means that if you have a Vista PC in your home (and more and more people do/will every day) you can stream your photos, music, home videos, and TV complete with a DVR if you have a TV tuner in your PC.

Could be a winner / could be a loser

1. TiVo. TiVo is certainly a consumer favorite. People that own them are very, very passionate about them. In addition to a new DirecTV service coming out next year and current offerings on the cable company platforms, TiVo today announced their own partnership with Netflix in what has been a much talked about on again / off again sort of relationship over the past four years or so. Being broadly rolled out in December, the new service will put more than 12,000 titles on the TiVo platform coming from Netflix. The service won’t be available on all TiVo units (it will work on Series3, TiVo HD, and TiVo HD XL units) but makes a TiVo a much more compelling option for consumers.

TiVo already has one of the best DVRs in the business and this new Netflix streaming option makes it even more attractive. Still, TiVo is an expensive option. Consumers either have to pay a $12.95 per month annual fee with TiVo or they have to pay an additional $400 charge for lifetime service. These high fees may keep some consumers away from TiVo as an option. Also there is no confirmation yet from TiVo that they will be offering the HD streaming option that the new XBox 360 will.