Consumer electronics manufacturers, broadcasters and national regulators are now facing a multitude of operational and strategic dilemmas as a result of the increasing complexity of digital communications. The speakers at the recent Intellect Conference considered these issues from the perspective of their sectors.
Steve Dowdle, CEO of Sony UK, examined the issues facing global manufacturers. The UK accounts for only 4% of worldwide TV demand, while the industry experiences increasing engineering constraints. How can global manufacturers, therefore, justify investment in a UK-specific service? Meanwhile retailers focus on selling televisions and not boxes which are essential at the moment to facilitate the flow of digital communications. Therefore Mr Dowdle argued that the industry needs ‘horizontal market’ universal standards which not only would have larger audience potential but also give manufacturers economies of scale, better ROI and result in more competitive prices.
Moreover he urged the industry to support the Open IPTV Forum (a pan-industry initiative that will take the next generation of IPTV to the mass market) and to lobby the government for open solution and transparency of the digital communications.
In response, Lord Stephen Carter, minister for Digital Communications, confirmed that broadband connectivity is a national priority at present and a 2MB broadband has already become standard. However the next challenge is to ensure that the entire country can benefit from this standard and substantial funding is required for this purpose. He suggested that approximately £1-1.5 billion additional funding would be required between 2009 and 2017 to achieve country-wide broadband connectivity. The government is currently “making a market” to achieve this. Lord Carter has also confirmed that the government is planning to give Ofcom legislative powers to fight intellectual property piracy which is currently rife in the digital communications market.
The issue of common standards and democratic access to digital media was again considered by Erik Huggers, director of BBC Future Media & Technology, who described the principles of the BBC Canvas programme which, utilising a plug-in device (sold on a ‘one-off payment’ basis), would enable customers to access broadband-enabled programmes using different types of products. Audiences increasingly want TV content on demand. Meanwhile there are no common IPTV standards and the future for free-to-air TV is still unclear therefore the Canvas programme is an approach which deals with market complexity while minimizing consumer confusion. Mr Huggers said that this process is not only about facilitating access to the hugely popular BBC iPlayer but about “democratisation of the living room”.
The merits of paid-for television services were presented by Gerry O’Sullivan, director of strategic product development at BSkyB. The Sky broadcaster now offers 33 HD channels which are shown through 7 million HD-enabled sets in the UK. Although the Sky programmes initially focused on sports, movies and music, the demand for its recently launched news channel is growing fast. The income from subscriptions helps Sky to sustain investment in new technology and maintain wide broadcasting coverage.
Future entertainment formats
The future shape of the entertainment sector was forecasted by David Lewin, director & principal consultant of Plum Consulting. An average ‘consumption’ of entertainment at present is 4.5 hours per day and it is likely to grow. However, the format and ways of accessing it will differ significantly in the future. Among the most important technology drives of the future will be improvements in the storage and processing power of components (by 2028 they will be up to 1000 times better), up to 250 times improvements in the capacity of wireless networks; home servers which will be able to store over 20,000 hours of HD/3D video and personal devices able to store 1000 hours of HD/3D video. The internet is likely to be the prime source of entertainment and internet-based offers will be more interactive, participative and personalised. There will be greater user-generated content and new combinations of video, music and text.
However there are two consumer-focused uncertainties in this context: Will the majority of consumers prefer more interactive and participative internet-based entertainment or will they opt for more passive, traditional formats? Also will the majority of consumers be prepared to pay a significant premium for entertainment on the move?
Mr Lewin predicted that in the global context future entertainment will be internet-based rather than delivered by traditional broadcasting and print media. With only a few broadcasters remaining on the market, the entertainment sector will be dominated by global internet service providers offering either free content with targeted advertising or paid-for content advertising free. Local services will be struggling to compete with these global service providers and content providers will sell direct to end users as well as via aggregators.
He also suggested the likehood of the following scenarios:
- Wireless becoming commonplace – with cellular and Wi-Fi working as components,
- A bright future for Wi-Fi and
- Wide spread of modular devices with wireless interoperability.
Digital consumer of the future
The constantly advancing technology makes consumers increasingly demanding, warned Dave Tansley, partner at Deloitte, Technology, Media and Telecommunications. Through the digital networks they have more choice of products and services, which are instantly available from the comfort of their homes. Many of the offers are highly personalised, perfectly matching their specific needs. Yet, at the same time these benefits present many challenges, such as serious breaches of security, privacy issues and the fact that there are still serious problems with making access universal, particularly for people with special needs. Also “at the moment there is no equilibrium between how much information to give away and how much to protect,” commented Mr Tansley.
In such a context he suggested that the successful retail solutions for the future will combine the old with the new, where old fashioned service will complement the latest technology. However it will be important to create a demand for new products.
The potential of the internet and its advantages as a sales channel for consumer electronics was described by Piet Coelewij, vice president of Hard Lines at Amazon. He argued that many of the technical consumer goods, such as CE, SDA and MDA are moving online and the majority of purchasing decisions in these sectors are influenced by the internet, which has already reached a 69% penetration rate in the UK. In the overall EU market, the sales of CE online increased by 15% during 2008, of MDA – 20% and of SDA – 26% (source: GfK). According to Amazon’s own records, the sales of consumer electronics grew by over 20% during the last four years. Mr Coelewij attributed Amazon’s success in the CE sales to the fact that the company, focusing on product selection, price competitiveness, product availability and convenience of delivery, provides consumers with exactly what they want.