Who Will Win the Battle for Your Living Room in the Next 24 Months?

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.

17 Replies to “Who Will Win the Battle for Your Living Room in the Next 24 Months?”

  1. I have to say that I absolutely LOVE my AppleTV. I cannot imagine not having it. However, I don’t use AppleTV/iTunes to obtain any of my content. I do agree that some sort of integration with Hulu, Netflix, Blockbuster, o something of the sort would be amazing. However, there is youtube integration. Now that youtube is starting to host TV shows, maybe this could come to fruition. While the AppleTV is not a perfect all-in-one device, I don’t think it should be written off.

    Yes, while I am a Apple fanboy and do appreciate most things Apple. I do have to say that this post definitely has Microsoft fanboy flavor all over it :o)

  2. I agree with you on most of that, bar Blu Ray. I think there’s still a strong, if declining, market for ownership of a physical product, and the sort of people who buy these products are increasingly the sort of people who want the ultimate in quality. Blu Ray is for them.

    There’s also the PS3, which is a big selling unit. That and normal Blu Ray devices are expensive, but there is probably far more room for (the inevitable?) price cuts than in the other techs you mention.

  3. Great post, Thomas. I’m actually considering buying one of the newer Xbox’s for two three reasons

    1. Mine has been serviced twice and now the DVD is getting a little finicky (once a week get a “disc is unreadable” error that requires rebooting the machine)

    2. New machines have HDMI outputs, my old original Xbox does not

    3. The newer machines offer a bigger hard drive (I have the 20 GB, about 14GB of which is available) and I’d like at least the 60GB one if I’m going to be streaming HD video through it

    I was also debating switching to Comcast because of creeping prices from my current cable provider (RCN, a smaller east-cost shop) but the bandwidth cap definitely deters me.

    I would have no issue telling RCN to switch me to whatever the cheapest possible package until the Red Sox start up again (at which point I’d spring for the more expensive one so I can watch in HD.)

    Now if I could somehow stream or download games through the Xbox….

  4. Agree on most of your points, disagree on a few. For starters, I have zero interest in gaming. So I found the Netflix Roku box a very good deal. $99. All the movies you can watch included in the Netflix monthly fee I’m already paying – no paying for XBOX gold or whatever you call it. I wouldn’t assume people will just buy an XBOX as a media center or for the Netflix. It’s like the same argument made for a PS3 instead of a stand alone Blu-Ray player. Not everyone is into gaming, and it seems like a waste to pay for a gaming console you’ll never use. The smart thing Netflix is doing is trying to enter as many devices as possible. Even a Samsung Blu-Ray player was recently announced with the service.

  5. Joe, I don’t consider myself an Apple or Microsoft fanboy actually. Both do different things well. My own personal tech is actually a pretty good mixture of the two. I use Media Center and XBoxes for my home media stuff, but my primary everyday computer is a MacBook Pro and I use an iPhone, which I think is vastly better than what Microsoft has to offer in the mobile market.

    Apple’s offering just doesn’t meet the broad need because they’ve kept it so closed. Now Netflix watch now, heck, no DVDs period. No DVR, etc. Apple makes it difficult to get competing content into their system because they want you to buy all of your content from them. That is short sighted in my opinion.

  6. I agree with some of your points Thomas, but don’t necessarily agree with your winners. Here’s why:

    The Xbox 360 is a game machine that can act as a very limited extender for Media Center. Its noisy and it handles limited video formats. Its definitely a player in the scheme of things, but not one to “take over the living room.”

    Microsoft MediaCenter has so much potential. But unfortunately Microsoft doesn’t see that potential for consumers as anything more than a “add-on” for their operating system. Until they see it as a standalone product, allow for better extenders, DVD Streaming, softsled (not just allowing streaming – but true server-client HTPC and less DRM false alarms it will never be the end-all of the living room either.

    I say this as a true HTPC fan and knowing that online video will become more-and-more important to the viewer. But I think another company will step in and take that lead away from Microsoft unless they stop focusing on the OEM’s and high-end CE guys.

    Thats my opinion anyway.

  7. I love netflix and my dvr. There never seems to be anything on the television when I actually have some time to sit down and watch it. On Netflix I especially love to have tv series on the queue and I can’t bear the thought of watching Lost or Mad Men with commercials. Actually I can’t bear to watch tv commercials at all (what did we ever do before dvr and tivo?) so I am fan of any technology that deletes it from my life.

  8. AppleTV: As Steve Jobs has said numerous times, it’s just a hobby (inasmuch as a company can have a hobby). The year the AppleTV came out, they were focused on the iPhone and Leopard; this year they’ve been focused on the iPhone 3G and the new laptop manufacturing process. A lot of things have been neglected because of those, not just the ATV. You know how successful things can be if Apple chooses to pay attention to them. ATV so far has not been one of those things, but I don’t think that qualifies it as a flop (Zune or Vista, however, may qualify, if popular opinion is any indication). A flop would be Apple releasing the next new iPod and nobody bought one for Christmas.

    Blu-ray: There is no streaming content that matches Blu-ray’s best features. You might get 720p or 1080i streaming with Dolby Digital, but no one is streaming full 1080p with uncompressed PCM audio… there’s a world of difference between DD5.1 and uncompressed PCM. Although, if I could choose, I’d actually be okay with 480p video and uncomp. PCM because, to me, the quality of the soundfield is far more important than the quality of the video (I’m not saying video quality isn’t important; just not as important), but I digress. BD discs are exactly the same price point as DVDs were when they came out in 1996 and the difference in quality (sound and video resolution) between DVD and BD is just about the same as there was between VHS/broadcast TV and DVD. Now, as in 1996 with DVDs, most people don’t have a TV/stereo that can really showcase a Blu-ray disc’s content so for those people it’s probably not worth it, and they aren’t the target demographic. The price will drop as the number of titles and players sold increases. If I recall correctly, a lot of movie studios refused to go DVD until a million players had been sold (Spielberg, at least, named this number explicitly for Dreamworks’ participation).

    OTA HDTV: Get out of the city some time and you’ll realize what you’re smoking. And I don’t mean even that far. I live just east of the Hayward hills, less than 25 highway miles from the Bay Bridge, and guess what? There is no OTA HDTV out here to speak of because all the HD transmission towers are near the Bay or in Stockton/Tracy/Fresno/Fairfield (maybe one in Concord) — none of them has line of sight to here. A third of the Bay Area’s population lives in similar situation (though obviously not necessarily this particular geographic location). Remember, the federal law said analog TV broadcasts had to be shut off when a market reached 80% HD coverage or February 2009, and the SF area is nowhere near 80% coverage.

  9. Thomas, you left out another obvious Winner: The PS3. It has BluRay, a great download service that is just now hitting its stride AND you can get streaming services and bring your own rips to it. Don’t count this guy out.

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