Don Kennedy

Managing Director

IDG Communications

Obstacles&

OpportunitiesThe Whitebox Channel Goes Home

Don KennedyManaging Director

IDG Communications ANZ

The vision

Media Center PC Games Console

Appliances/Home Security Systems

Digital Mobile Devices

Digital Cameras/Camcorders

Wireless Connectivity

Home Theatres(Audio & Video)

Where we are – the pluses

• Consumer acceptance of many types of digital products– Cameras/camcorders– Multimedia mobile phones– DVD players– MP3– Micro-storage devices– LCD and plasma screens

Where we are – the pluses

• Consumer acceptance of many types of digital products– Cameras/camcorders

– Multimedia mobile phones

– DVD players

– MP3

– Micro-storage devices

– LCD and plasma screens

• The Digital Living Network Alliance

Where we are – the obstacles• Market

– Weak broadband uptake in Australia

August 31, 2004

Broadband hits the million subscriber mark in

Australia, but higher speeds – not lower prices – will

drive future growth A.T. Kearney report predicts a “quiet revolution” for 2005 in entertainment,

voice and data applications AROUND 15% of Australian households and 30% of small to medium enterprises will have broadband by year’s end, with subscriber numbers doubling to one million over the past 12

Broadband growth

Digital TV growth

The number of pay TV subscribers . . . rose 8.3% in 2003-4

1,000,000 broadband+ 825,000 cable (non-digital)+ 275,000 digital cable 2,100,000

The 10% (non)solution

Where we are – the obstacles• Market

– Weak home PC network uptake– Early adopters (only) for digital home networks

– Security issues– Legacy investments– Ease of use issues– Where’s .net?

• Technology– Standards and technologies are not all here yet

(802.11e, Ultrawideband, HomePlug, IPv6)

Even more issues in AustraliaAustralians are missing out on a TV program recording service that has cult status in the United States because of a lack of co-operation between broadcasters on technical standards

Where we are – the obstacles

• No compelling case for consumers at the mass market level

0% 10% 20% 30% 40% 50%

Digital Camera

TV

Stereo

Addtl Desktop

Addtl Laptop

Security System

Home Mgmt

PDA

Scanner

Printer

None of the Above

What Do Consumers Want to Connect?A survey of households with PC networks

Survey of 1,079 US Internet households

© 2003 CEA and Parkes Associates

n = 198

0% 10% 20% 30% 40% 50%

CD or MP3 tomultiple receivers

DVD to multipleTVs

Audio from PCs toCE

Video from PC toCE

Interest in Multimedia Networks

Survey of 1,079 US Internet households© 2003 CEA and Parkes Associates

What consumers want

• Digital home products should be easy to instal, provide obvious value and be affordable

• Products must interoperate with each other and with existing consumer electronic devices like TVs and stereos

• Device communication and collaboration with each other must be simple and seamless

Source: DHWG Working Paper

Consumer Value Propositions

• Greater convenience and ease of use

• More flexibility in selecting a range of products from different vendors

• Content in the home can go mobile (and mobile content can come home)

• Confidence purchases will work together and are future proof

Source: DHWG Working Paper

What the industry needs

• Adapters that bridge the CE, mobile and PC worlds and support consumer’s existing home devices

• CE, mobile and PC vendors must routinely deliver new and exciting digital home products that meet consumer needs for functionality, reliability, performance and simplicity

What the industry really, really, really needs

• The widespread adoption of multimedia networking components is contingent upon the availability of compelling entertainment content – the kind end users will want to access, download, store and stream

Should the Channel Go Fishing in the Home Pond?

Value Chain of Home Networks

• Digital Content– Audio/video (including interactive)– Games– User-created pictures, movies

• Access– ISPs, Cable/Satellite, Digital Free-to-Air, Multimedia

Phone Services

• Platforms– Products– Service, support, installation, help desk

DIGITAL CONTENT

DIGITALACCESS

Key drivers of digital home market

Broadband55%

Media Center PCs24%

Digital TV13%

Mobile Telephony

1%

Other7%

Source: ARN Reader Survey

DIGITAL PLATFORMS

Channel expectations for growth

Government5%

Small Business45%

Home Entertainment

43%

Other7%

Source: ARN Reader Survey

Channel expectations for growth

0%

20%

40%

60%

80%

100%

PlasmaScreen

LCDScreen

GamesConsole

A-V DigitalCamera

Camcorder MediaCenter PC

Source: ARN Reader Survey

Where the IT channel isn’t

0%

20%

40%

60%

80%

100%

PlasmaScreen

LCDScreen

GamesConsole

A-V DigitalCamera

Camcorder MediaCenter PC

Source: ARN Reader Survey

The changing landscape

• The new competition from white goods distributors

• New business models moving into mass market products

• New products and services to sell

Convergence diverges

• A-V VARs– Early adopters and gadget lovers pay premium

for new features and improvements– Sophisticated users require installation, service

and support

• Infrastructure specialists– Convergence technology a minor percentage of

total cost (e.g., of a home)– Price is king and brand loyalty unlikely

And some not so new threats

Another channel buster?

• YES– Proven model

– Same products at lower prices

– Spend money on marketing, not retailing

– Use storefronts for product review and comparison

• NO– Customers need detailed

information and advice

– Home networks require service and support

– Technology will continue to change and upgrades/updates will involve technical decision-making

The opportunities

• Begin selling digital convergence products NOW and expand to include traditional CE products

• Broaden your solution offerings to include integrated entertainment networks

• Develop expertise in-house to become an early player in the architecture and building space. This is a long-term investment

Action Items

• Educate your company about digital convergence

• Stay on top of new trends in digital home products– Interactive gaming– Tivo– Photo sharing

Obstacles&

OpportunitiesThe Whitebox Channel Goes Home

Don KennedyManaging Director

IDG Communications ANZ