Connected consumers make tech, entertainment firms cooperate.

Instead of creating individual products addressing specific needs, electronics firms are collaborating with entertainment companies on technical standards to create a “digital lifestyle ecosystem” that can distribute content to multiple devices.

While consumers’ thirst to acquire and create entertainment content has created tremendous growth for the technology and entertainment industries, those companies are trying to make it less confusing for consumers to manage digital media.

For instance, technology providers are working with record labels to improve the compatibility of media files by distributing unprotected MP3 files online or installing Internet connectivity in television sets that allows video downloads without a PC.

“The computing industry as we knew it no longer exists,” said Satjiv Chahil, senior vice president of global marketing for HP, at the 2007 International Consumer Electronics Show in Las Vegas. “The consumer electronics industry used to be something that computing companies had very little to do with or knew little about, but now we’re looking at this industry from the standpoint of digital entertainment.”

So far, that transition has been profitable. According to the Consumer Electronics Association, factory-to-dealer sales of CE products reached approximately $146 billion in 2006, a 13 percent increase from 2005. TV sets accounted for nearly $26 billion in revenue, up from $19 billion in 2005, and portable entertainment device sales reached $9.5 billion, up from $7.3 billion in 2005.

And consumer sales have become important to PC manufacturers, according to Tim Bajarin, president of research and consulting firm Creative Strategies. Bajarin said consumers account for about 12 percent of global technology spending, and within five years, that figure is expected to reach 30 percent.

But maintaining growth will depend in part on making technology easier to use — and allowing consumers to access their digital content from different types of devices, according to Scott Symers, chairman of the Digital Living Network Alliance and vice president of Sony Electronics’ network system and architecture division.

“What’s missing is not technology — we have plenty of technology,” Symers said. “What’s missing is a transition plan for how consumers will use technology four to five years from now.”

For instance, Mary Francia, vice president of sales and marketing for Philips’ consumer electronics division, said media files in incompatible formats — such as files from Apple’s iTunes music store not working on Microsoft’s Zune music player — has hampered overall market growth.

“We haven’t met the promise of delivering content everywhere,” Francia said.

Another common problem is that files are encoded to play on specific devices. A movie file intended for viewing on a portable media player with a three-inch screen has to be compressed to reflect the player’s limited storage capacity, but that file would look terrible if displayed on a 50-inch flat-screen TV.

As consumers demand access to digital content on a variety of devices, technology and entertainment companies are working on alternative distribution methods. In mid-January, online DVD rental firm Netflix said it would allow subscribers to watch streamed movie files on their PCs.

In addition, entertainment companies are holding preliminary discussions about offering movie downloads in bundles that include multiple copies of the movie formatted for different devices, such as a full-length DVD with a smaller file to be transferred to a portable media player.

“The content companies see the opportunities and are starting to pursue them,” said Symers. “Until now, content has been offered in [company-specific] silos, and ‘Take it or leave it’ is not a compelling choice for consumers.”

Similarly, technology companies are trying to make it easier to move content from room to room, such as saving a program to a digital video recorder in one room but watching it in another. To enable such sharing, cable providers and hardware firms are offering “whole-home DVRs” that allow content stored on one set-top box to be streamed to another device.

Several technology firms are offering storage devices intended to serve as media servers on home networks, but such devices haven’t taken off.

Digital rights management (DRM) software and piracy also are clouding the picture — even when a content provider lets consumers shift digital files among different devices, the provider needs to be concerned about those files being downloaded online.

“Most of us will pay a fair price for fair use, but for most consumers, DRM just gets in the way,” said Eric Kim, senior vice president of Intel’s digital home group. “If a product experience is not simple, consumers won’t bother. Simplicity turns out to be a challenge because simple solutions require technological sophistication.”

While content providers and tech firms make DRM more palatable to consumers and content easier to share, the distrust of the past is fading, according to Giel Rutten, senior vice president and general manager for the home business unit of NXP Semiconductors.

“Technology and entertainment companies understand the importance of cooperation,” Rutten said. “It’s much better than it was three or four years ago.”

By Dave Pelland
Courtesy of http://www.kpmg.com