The rise of Internet-connected devices is arguably the most significant step forward in content management and delivery since the commoditization of broadband. Connectivity has entered not just retail-oriented products such as game consoles, TVs, and Blu-ray players but also set-top boxes from pay-TV operators and hybrid terrestrial services.

Today, approximately 17% of all U.S. broadband households own at least 1 Internet-connected device, with game consoles accounting for the lion’s share of these products. Also, these devices are beginning to show their potential in household entertainment. Approximately 30% of U.S. households with an Internet-connected CE (about 5% of all U.S. broadband households) used the device to rent at least 1 movie in the past month.

Defining Connected TV Devices
At this stage, companies have shifted their focus from the hardware to the services (i.e., to bringing the online experience to connected TV devices). The main player in this space has been Yahoo!, which entered early with its Connected TV applications. Google entered in 2010 with a connected TV effort that includes hardware from Logitech and Sony.

Both approaches incorporate a long-term interactive advertising model, but the immediate goal is to reach as many platforms as possible. Google’s approach is a combination of specific apps such as access to Netflix and YouTube combined with an open Internet browser experience via Chrome. Yahoo!’s model is apps-driven. It remains to be seen which user experience will succeed.

To supplement “over-the-top” Internet content, major manufacturers have forged partnerships to enable video-related services on their systems. In France, LG Electronics has partnered with France Telecom to offer the Orange portal (including information, news, live radio, and video-related content) on LG’s connected TVs. TeliaSonera has partnered with Philips to provide VoD distribution services to Philips’ Net TV. Owners of Samsung’s connected TVs and Blu-ray players can directly stream Hulu Plus content via the Hulu Plus app. TV Everywhere solution providers, including thePlatform and ExtendMedia, are moving their content management services straight to connected CE devices.

Expect even more and varied partnerships between manufacturers and content providers, including newspapers and magazine publishers, social-networking sites, music and gaming portals, online commerce sites, and user-generated video sites.

Connected TV displays are high-definition televisions with embedded technology to allow them to connect to online content sources. Though the connected TV is still in its infancy, technology providers can still serve the market with a library of applications that focuses on specific applications.

PC-to-TV Connections
Even before Internet-connected consumer electronics were widely available, consumers were taking a do-it-yourself approach in bringing an Internet experience to the television screen. Wired connections such as HDMI and component/composite cables are common ways to link home computers to a high-definition television display, but wireless adapters are being used in about 20% of connections.

In fact, 12% of U.S. broadband households use PC-TV connections to watch online video on a TV screen.

Connected Blu-ray players offer consumers features similar to those found on connected TVs but at a lower price. The market opportunity for these devices is significant. After a slow start, worldwide sales hit an estimated eight million units in 2009, and Parks Associates forecasts annual sales will exceed 140 million units by 2015.

Next-generation game consoles such as Microsoft’s Xbox 360™, Nintendo’s Wii™, and Sony’s PlayStation®3 represent a new category of device capable of acting as media servers or adapters. Given their prominent location in the household’s entertainment center, consoles are ideally positioned as bridges between online media and television access. More than 40% of U.S. broadband households with Internet-connected game consoles use them for VoD on at least a monthly basis.

The CE industry is taking its cues from the experience of connected console developers, who have to date been the most successful in linking premium content streams and downloads to their devices (witness the rapid growth of users of the Xbox LIVE and the PlayStation Network). Although online video services are targeted as a current-generation deployment, expect to see deployments of feature-specific apps on a growing number of connected televisions and other products, as manufacturers open their developer communities to a growing number of content creators. Of course, as the recent hack of the Sony PlayStation Network (along with the Music Unlimited Service powered by Qriocity) has demonstrated, companies need to account for user security, particularly as the migration from personally owned media to cloud distribution continues.

Digital video players that can access online video and other content broadly divide into 2 categories:
1. Devices such as Apple TV and the Roku Video Player, which provide a premium VoD service.
2. Others that link to broad online video content such as Blip.tv, Break.com, and Dailymotion, among others.

Digital video players face significant hurdles in the U.S., where households feel they already have enough black boxes. To be successful, these devices have to define a unique role, either as a complement to existing subscriptions (the Roku Player), an extension to consumer storage products (the Seagate and Western Digital products), or an embedded solution for a set-top box. The latter will be a prominent case in Europe given the emphasis on hybrid set-top boxes that incorporate the functions of terrestrial broadcast television reception and online video access.

3D TV
3D was the favorite topic of the CE industry last year, but sales of 3D TVs did not match this excitement. However, when put in perspective, 3DTV experienced a better consumer reception than HDTV. While high-definition sets were present at trade shows in 1998, it was not until 2002 that more than one million sets were sold in the U.S. in total. In 2010, sales of 3D TVs reached an estimated 1.6 million units in North America and 3.7 million units worldwide in 2010.

Going forward, the recent introduction of 3D sets with passive instead of active glasses will lower cost of ownership and incentivize purchasing.

In essence, 3D is here to stay. The cost differential of implementing stereoscopy in consumer electronics is relatively low and will get closer to zero in the coming years as development costs are amortized, meaning manufacturers will start to include it as a standard feature in their devices. In 2014, 80% of TV sets sold in North America will be 3D-capable. While 3D may not increase the size of the flat-screen TV market, it will certainly hold a solid share of flat-panel TVs sold.

Information for this article is excerpted from the Parks Associates’ report  Connected CE Consumer Tracker and Outlook  by Kurt Scherf.

About the Author
Kurt Scherf, Vice President, Principal Analyst, Parks Associates, studies developments in home networks, residential gateways, digital entertainment, technology development in the housing market, and residential and building management and controls. For more information, visit www.parksassociates.com.

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