Home Theater View

2005 In Review / CES 2006 Review, Pt. 5: Convergence

Part V, the final installment of my post-CES chronicles; each of these posts includes a quick look back on 2005 trends and a quick discussion of products introduced at CES 2006. This installment: Convergence

In 2005…

Windows XP Media Center Edition PC sales finally took off – but as replacements for home PCs (wherever in the home they may reside, not necessarily the living room), and using traditional vertical box form factors, not the electronics-rack-style Home Theater PC. With Microsoft dropping the requirement for TV tuners, many of the XPMCE PCs were just that – regular PCs with a nifty 10 foot user interface for media control. Meanwhile, PVR functionality was integrated into the cable and satellite box in a big way, and moved time shifting into many more homes. The tech media declared place shifting the next big thing. Place shifting, the notion of watching your content anywhere you are using a web browser, was first introduced by Orb Networks (limited to PC-based content), followed by Sony’s LocationFree TV (control primarily of live TV) and then by Sling Media’s SlingBox (which allows viewing and control of nearly all content, including shows saved to a TiVo or ReplayTV).

At CES...

Sling Media introduced a Windows Mobile client for the SlingBox, solving one of the big problems of place shifting: very few people spend so much time on the road that they would be willing to buy a gadget to gain access to their home content. But moving the content to any Windows Mobile smartphone is more generally useful; everyone has some down time in their schedule that could be filled with even more TV! SlingBox for Windows Mobile also bypasses a lot of the services that wireless carriers are hoping to sell to consumers directly, and in this sense, it is an extremely disruptive technology.

2005 In Review / CES 2006 Review, Pt. 4: Media Formats

Part IV of my post-CES scribbles; each of the next few posts includes a quick look back on 2005 trends and a quick discussion of products introduced at CES 2006. This installment: Media Formats

In 2005…

The warring HD disc camps (HD-DVD and Blu-Ray Disc) could not achieve compromise, but did not actually ship anything to the market, either. With nearly no support from content owners, SACD and DVD-Audio essentially died in 2005.

At CES 2006…

Toshiba hyped its first HD-DVD player at the modest price of only $499. In contrast, Pioneer announced a single Pioneer Elite Blu-Ray Disc player for $1800. Sony is still expecting to sell PS3’s with BD playback capability (and a reasonable price point), but no live PS3 units were shown at the show. In general, 2006 does not look like the year of prerecorded HD disc adoption. Pricing is too high, the available content library is too small, and there's the whole format war issue. Worse, the DVD revolution is winding down, and even on an HDTV, many consumers will find that DVD is “good enough” regardless of the outcome of the format war.

2005 In Review / CES 2006 Review, Pt. 3: Audio

Part III of my post-CES rantings; each of the next few posts includes a quick look back on 2005 trends and a quick discussion of products introduced at CES 2006. This installment: Audio

In 2005…

Apple’s iPod ate up whatever audio interest there was left after the purchase of that HDTV. The audiophile approach (ignore it and it will go away) didn’t work, the competitive approach (building servers or portable products that compete with the iPod head on) dramatically didn’t work – though there were a handful of exceptions, and the conciliatory approach (if you can’t beat ‘em, join ‘em) of building iPod docks and add-ons got very, very crowded. One of the more notable exceptions to the “don’t compete with the iPod” rule was Sonos, which piggybacks on existing PC-based music libraries and distributes audio wirelessly around the house. The key to success here is both the flawless user interface and the premium consumer price point. Typical CE pricing would not support the margins Sonos needs to survive, but the Sonos system is still within reach of many consumers, as opposed to custom installed distributed audio systems which can often cost an order of magnitude more.

At CES 2006...

We saw more of everything. Competing with the iPod were several nano clones, Toshiba’s new (and impressive) GigaBeat Portable Media Center, and several Windows Media Center or set top box whole-house server products for storing your music collection (some piggybacking on Intel's new VIIV campaign). The server efforts were at least partly conciliatory, as most included Apple iPod docking capabilities.

2005 In Review / CES 2006 Review, Pt. 2: Speakers

Part II of my post-CES ravings; each of the next few posts includes a quick look back on 2005 trends and a quick discussion of products introduced at CES 2006. 

In 2005…

To try to appeal to the flat panel TV crowd, speaker manufacturers at all price points built flat speakers, small speakers, and speakers intended to be mounted on the wall (some with just one cabinet to simplify wiring, or wireless rear speakers). Big brands did well with these offerings, but they tended to pull sales from elsewhere, not grow the category.  The other approach was to develop a line of in-wall speakers, some with high end pedigrees and/or THX certification. Unfortunately, it takes time for CEDIA installers to pick up new brands (installers are a conservative bunch, as you don’t ever want to have to service something installed in a wall or built into a cabinet), so the jury is still out on this strategy.  To compensate for lower ASPs and margins, most speaker manufacture was moved to Asia.

At CES 2006…

We saw more of the same. What we have not seen yet are Chinese speaker manufacturers selling direct to U.S. consumers under their own brand names, taking the Aperion.com business model and eliminating the middleman (Aperion). That has started in the enthusiast space to a degree with companies like nOrh, but has not moved into the mainstream. Yet.

We also saw one company move decidedly in a different direction: Jamo introduced the 909's, a $15,000 pair of speakers that do not have a rear cabinet.  The idea is simple: no enclosure, no possibility for audible colorations of the sound due to the cabinet. From a market perspective, this makes even more sense - audiophile consumers who are willing to have a free standing set of speakers in their room probably want to show them off.  Why not let them really show off the guts of the speakers by doing nothing to hide them? If Jamo is smart, it will release lower priced versions of the 909's including a center channel and matching surrounds for home theater (the surrounds will probably need cabinets for wall mounting).

2005 In Review / CES 2006 Review, Pt. 1: Flat Panels

I have just returned from CES 2006 in Las Vegas, where 150,000 geeks showed up to gawk at the bodacious sights to see in Las Vegas (103" plasmas) and ignored everything else (it seemed like half the shows in Vegas were dark). I'll be breaking out the next few posts into a quick look back on 2005 trends and a quick discussion of products introduced at CES 2006. 

In 2005…

LCD, Plasma, and DLP TV sucked the life (or, more accurately, the money) out of every other aspect of home theater.  Prices on the big panels dropped enough that consumers who weren’t looking to upgrade did, and in most cases, all the money went to the display.

At CES 2006…

1080p was the spec to beat – everybody had at least one product with full progressive 1920x1080 resolution. New technologies included real world demos of SED and LED-based DLP systems without color wheels. The other big trend holding down pricing is the influx of no-name brands sourcing panels from the same fabs as the big brands and selling it direct for less. In cases where the display/upconversion electronics in the no name brands are good, this presents a major problem for the majors. And even when the quality is lousy, the glass is often the same (or just a generation or so behind), so the specs look good on paper, and the price looks great.

Sony's Qualia Hunt Ends Without a Kill

The high end of the market is evolving: mainstream brands offering the same thing - only better - are having a tough time.  A couple of months ago Sony pulled the plug on its Qualia brand, despite excellent reviews of its SXRD projector and RPTV sets.  It seems Qualia was one luxury Sir Howard Stringer couldn't afford in his reorg.  No reasons were given for the move, but I'd speculate that having a high R&D halo brand only helps when the main consumer electronics business it fuels makes money.  Since Sony is losing money across the line, it makes more sense to build the high end technology into mainstream products themselves, hopefully enabling a bit higher margins and injecting some profitability down the line.

That isn't to say that the high end is dead - far from it.  The key is to provide a unique and differentiated experience.  Two examples:

• When I met with Kaleidescape earlier this year, they emphasized not just the features and functions added to their $25,000 -$50,000 video archiving and distribution systems, but also the growing number of customers they have.  Kaleidescape is an example of a high end product that is not just a slightly better DVD player, but with the new bookmarking features, an entirely new way to watch movies. Movies start up in the right aspect ratio without any setup, resume exactly where they're left off, and can be set to jump just to specific scenes - similar to listening just to specific music tracks across a genre instead of listening to an album at a time.

• The D-Box lineup is another high end product creating a new market - something like an amusement park ride, physically moving your couch around in synchrony with the movie.  This is a step well beyond bass shakers that vibrate your couch when something goes "boom."  The D-Box X3ME (supposed to be pronounced "extreme") line recently added vertical motion to its entry level line.  Entry level is a matter of perspective: the MSRP is $10,000. An add-on field installable system is $4,299 plus either $3,000 for the controller or your own PC plus an $800 kit. The idea is to extend this beyond "the sky is the limit" crowd, but it is still a very high end product by anyone's definition.

-avi

Sonos Expands Distribution Through the Front and Back Doors

Sonos announced today that Tweeter will be carrying the eponymous product at more than 150 retail locations throughout the U.S. (mostly in the Northeast).  Tweeter is now the largest retailer in the country to carry the Sonos Digital Music System, and Sonos claims a "quality over quantity" approach to signing up retail partners. Nonetheless, Sonos is on track to have 500 retail location partners by the end of 2005, the first holiday buying season that Sonos is available.

Tweeter should be a good fit for this mid-tier product: Sonos fits in between the half dozen $200 - $300 streaming music players on the market (none of which have found many buyers) and custom whole house audio systems, which start in the $2000 range with MusicCAST systems from Yamaha, but often end up costing $10,000 - $50,000 for any serious system retrofitted into existing construction by a custom installer.  Sonos starts with the premise that you're already storing your digital music on a PC - why would you want to duplicate that? - but rather than simply stream the audio to a single location, Sonos provides a premium distributed listening experience akin to high end whole house audio products.

I had an interesting conversation this week with a Sonos executive.  Without downplaying the Tweeter distribution relationship, Sonos is also excited about their presence at Best Buy.  Oh, they couldn't get in the front door at Best Buy - and the product requires considerable explanation on the sales floor, and Best Buy's merchandising requirements aren't geared for small startups like Sonos.  But Sonos is in Magnolia stores, which Best Buy bought back in 2000, and is now expanding into mini-stores within Best Buy's big box format.  This provides Sonos with the best of both worlds - the traffic that a Best Buy generates with the higher sales touch of a specialty retailer.  It also helps Sonos maintain its premium brand without diluting it by appearing on the mass market shelf next to a $39 DVD player.

-avi

Format Wars II: Revenge of the DVD

Tekrati picked up my post last week on the death of VHS, and implied that I said that Blu-Ray and HD-DVD killed off VHS.  Nothing could be further from the truth!  I often question whether there's any mass market demand for a high definition format in the first place (and before I get flamed, yes, there is strong enthusiast demand.  I certainly want to go beyond 480p).  But only 11% of households have an HDTV, and anamorphic ("enhanced for widescreen") DVD looks pretty darn good on those sets.  We're also going into the format war without clear and massive support from the content providers (many of the titles expected to launch this Christmas season for HD-DVD have been pulled).  In my opinion, the real key will be Sony's PS3, which is supposed to have a Blu-Ray drive.  Will it ship on time?  Will it be affordable?  Will it be a huge hit based on its gameplay, and build an installed base of Blu-Ray players with consumers who would be reluctant to buy a high definition disc player on its own merits?

Regardless, the Blu-Ray/HD-DVD format war is a fiasco of the first order, and doesn't affect existing formats in any way. Plain old DVD killed VHS. DVD sales are slowing, but that's just a natural consequence of format saturation; in other words, once people build up their initial library of DVD titles, they stop buying as often.  But we aren't seeing consumers holding off on DVD purchases because they anticipate the high definition release of the material. 

I was somewhat surprised that Beuna Vista's backing away from VHS didn't receive more press.  But this week Video Business reported that LucasFilm is releasing Star Wars Episode III: Revenge of the Sith on DVD only.  It seems that the recent Star Wars movie releases performed spectacularly on DVD, but did so poorly on VHS that many retailers sent back their VHS stock to the distributor and had to be destroyed.  Also worth noting: Video Business says Buena Vista will eliminate VHS entirely next year; I expect the rest of the studios to follow.

-avi

Engadget's Walk Down Memory Lane

Engadget unceremoniously posted a version of its witty, sardonic take on all things gadgety (including some home theater content) circa 1985, as if Engadget started out as a BBS (Bulletin Board System - a pre-pre-pre-cursor to web sites).  Was today April 1, and I missed the memo?  This is brilliant, brilliant stuff. 

Of course, there wasn't much of a home theater industry back in 1985 - which in and of itself is interesting, showing just how fast this market has grown.  The best you could do then was HiFi VHS and a 35" TV -- RPTVs were just too dim to work well for most, and front projection was even more unusual.  (No flames, please - yes, I know Runco and several others were around, but this was still before the dawn of Dolby Pro-Logic surround sound).  The big home theater news was getting the new VHS VCR to stop flashing "12:00," now that VHS vs. Beta was effectively over, and the quick rise - and even faster consolidation - of the mom and pop video rental business.

Without any real home theater industry to catch my interest, my focus was on the hot technology of the day - the PC industry.  These were the days of the Coleco Adam (with daisy wheel printing and proprietary tape drives), the Macintosh launch with MacWrite and MacPaint in shades of gray, and Compuserve. When Bill Gates really was as young as he looked. The incredible move from 12" floppies to 8" floppies to 5.25" floppies to 3.5" floppies. Making your fingers forget WordStar keyboard shortcuts to learn WordPerfect keyboard shortcuts. Borland. TRS-80. Atari vs. Intellivision vs. Colecovision.

The comments section on Engadget's 1985 entry shows a clear generational divide: those who remember the era fondly, and those born too late, who are puzzled by the quaint specs and outrageous prices of the day. In its own way -- new companies, rapid obsolescence, completely new technologies -- the PC industry in the 80's was just as exciting and fluid as home theater or even the mobile phone/music/imaging/game/GPS/PDA market is today. The key difference is that those of us who remember the tech of that era were, well, geeks. You had to actively seek out information about the latest chipset or software company, mostly in industry-specific press or at trade shows (tough, but not impossible, to do when you were in high school).

The biggest difference today is not the technology, but the culture, which often takes longer to change. Today, there are Personal Technology columns in every mainstream newspaper. My mother has an LCD TV, Wal~Mart sells several Home Theater In a Box systems, my wife has a cameraphone, and I can't go to the synagogue without getting pestered with questions about which smartphone to buy or where to position surround sound speakers.  Displays and mobile devices are evolving faster than most folks can keep up with them - the product lifecycle of a cell phone is brutal. But if you're in the market today for a 42" plasma TV or a converged phone/iPod/camera, you aren't necessarily a geek - just a regular consumer.

-avi

Woot.com Sells $1.3 million in TVs over 22 Hours

Woot.com has built on its relationship with InFocus and yesterday the one-item-per-day online outlet store flexed the power of its unique retail model: it sold out an allotment of 450 new (not refurbished) 61" ultrathin (6.85" deep) DLP RPTVs over 22 hours for $3000 each.  InFocus sweetened the deal further with a $500 rebate.  This TV typically cost $5,000 - $8,000, and includes 2 ATSC tuners, an NTSC tuner, a Windows CE-based web browser, and all the trimmings.

With woot's flat $5 shipping, this leads to some remarkable statistics:

Item Quantity: 450
Item Price: $2,999.99
Total Sold: $1,349,995.50
Last Order time: 10:05 PM Central Time (new items are offered at midnight, Central Time, so that means the entire sale took 22 hours)
Order Pace: a $3,000 TV sold every 2 minutes, 55 seconds, or $61,094.47 an hour.
Shipping Cost: $5
Shipping Total: $2,250
TV Weight (w/ stand): 189.5
Total Weight: 85,275 lbs
Rebate by Infocus: $500
Infocus Payout: $225,000

Obviously, Woot will be paying a bit more than $2 grand to ship 85,275 lbs. of merchandise direct to customers' homes. 

In marked contrast to most Woot items, the order pace started slow - very few items moved in the first hour, as customers digested the information about the set and asked spouses for permission.  If you follow the flow of conversation in Woot's forum, you find a clear pattern: initially, woot regulars whined about the high cost of the item (some Woot items sell for as little as $10 or $20).  Then, as word got out about the deal, a flurry of new customers posted their excitement and celebrating their purchasing savvy (or impending divorce due to differing monetary priorities -- in one case, if the poster is to be believed, marriage counseling would be a far better use of his $3,000 than an HDTV). Woot appears to be following the Costco model and broadening its customer base by offering higher end products to be found in what was always designed to be a bit of a treasure hunt.

The key question other retailers must ask is how this will affect pricing going forward.  Will consumers tune out Woots as one-time sales - almost like a lottery win - or will this drive down pricing as customers expect to find "finds" going forward?

-avi

Coping with the Death of Audio

At a macro level, it's pretty clear that audio component sales are dropping, while displays - flat panel and DLP rear projection sets in particular - are consuming the bulk of consumer outlays.  So what is a company that specializes in selling high end audio components to do?  Audio Advisor started out as a catalog retailer of high end audio toys (they're now on the Internet as well), and each catalog used to feature pages after page of amps, preamps, integrated amps, high end CD players, extremely expensive record players for analog lovers, and digital audio doodads that supposedly improved CD audio quality for digital lovers.  At the other end of the catalog retailing price range, Crutchfield used to sell dozens of entry level and mid-priced receivers and DVD players. 

With sales of these products down, these retailers could try to compete for video dollars and sell plasmas and LCD panels, but going up against big box retailers and PC-based online outlets (such as Dell.com) is a recipe for suicide - without incredible volume, margins on displays can actually be negative.

Crutchfield has instead decided to focus on the auto side of its business.  Auto sound has remained strong, and auto displays - for movies or GPS navigation - have absolutely exploded.  While local stores still have an advantage in terms of installation, Crutchfield's online store benefits from selection tools and advice wizards that simplify the process of figuring out what you can actually use in your car.

AudioAdvisor never sold auto sound products, so that route would be a significant departure.  Instead, the company is turning to furniture and cables.  Cables are high margin products that have always been featured in the catalog, but now more than a quarter of the catalog features at least one interconnect, speaker cable, or replacement power cable as part of the layout.  The other new gear category is furniture.  AudioAdvisor has a 16 full pages (out of 76) dedicated entirely to furniture - mostly stands for the video displays its customers are buying elsewhere instead of upgrading that preamp.

-avi

When the walls are open, Microsoft's moving in

I was at Microsoft's Preview Day today in New York, which for me was largely about mobile devices (see my bio). One thing that came across clearly, however, was the centrality of Windows XP Media Center (XP MCE) to Microsoft's overall consumer plans.  This reminded me of an interesting case study in Digital Connect about a custom installer, Silicon East, which has a somewhat unique specialty putting systems into new construction. That's nothing new - when the walls are open, it's the best time to put in home networking gear, and the walls are never more open than during new construction. But rather than get Mr. New Homeowner to buy a typical custom installation A/V system, Silicon East is pushing PC's with XP MCE. 

This should be a pretty tough sell, as the notion of using a PC as a media hub still hasn't hit mass adoption yet - at best, builders are content to wire up a house for broadband and create a media nook where a plasma TV can be hung on the wall.  Silicon East gets around this by selling the builder first.  They actually go out to builders and hook their offices up with MCE boxes.  The latest version of XP MCE is nearly as slick as a TiVo (and far more versatile - I'm typing this column on one); once the builders are hooked, they demonstrate it to potential customers in the model homes.

Silicon East gives up some margin figures (7% on hardware, 30% on service), and notes that they turn down business that's likely to be unprofitable (any time the customer uses the term, "Dell"). The initial foray is almost a loss leader - once the customer is hooked, there are follow on opportunities for display sales, system extensions, and all kinds of home automation.

-avi

Yes, it was a live demo... also a misleading one

Back in February I wrote about Microsoft's Lightspeed IPTV demo at CES and linked to BusinessWeek's skeptical coverage.  Well, the magazine was just biding its time and this week they completely skewer the initiative (subscription required), highlighting the endless delays in commercializing it.  It seems the impressive demo I saw at CES was real.  The problem is that the technology doesn't work for millions of users at once, which is kind of important for the operators who want to broadly deploy it.  Live and learn.

Still, TV over IP seems somewhat inevitable. Japan and Korea have DSL service 10x faster than what U.S. operators provide and at lower prices. I'd think that deploying dramatically faster DSL would both solve many of the technical problems with IPTV and at the same time provide the service justification for consumers to upgrade to broadband (or even switch from cable modems).

-avi

Retail Goes Custom

There's a new big box retail mini-chain (5 stores) here in Northern NJ, Electronics Expo, and it is unlike any other big box retail store I have seen. The CEDIA custom installation market is growing at double digit rates, and Electronics Expo is essentially a gigantic showroom for flat panel displays, front projectors, and more flat panel displays. The highlight of the store is the second level - a walkthrough of a 'model home' with flat panel displays absolutely everywhere. Extremely high end receivers - though no separates - are arrayed in two of the rooms on the main floor, but the speaker selection is paltry and tops out at mid-tier brands (Polk's LSi line and Monitor Audio). There is a whole house audio system on display (Yamaha's MusiCAST), a few MP3 players out front, and small counters for digital cameras and camcorders near the entrance.

Some observations:

• The first page in Electronics Expo's brochure highlights the availability of CEDIA custom installation for its products. Given the product selection and pricing, installation services should be a significant profit driver for Electronics Expo.
• Consumers are spending money on video, not audio, and that is the focus on the sales floor: high end video. The selection is not what a videophile would consider high end, but close.
• It's clear you can't compete with Best Buy, Circuit City, Target, or Costco on cameras, computers, DVDs, video game systems, and even most TV categories.
• Pricing is almost ludicrously high; nearly everything was MSRP, and the sale prices were not competitive with sale prices elsewhere or online.
• The store's square footage is equivalent to a small Circuit City. The level of sales help was equivalent, too -- nowhere near as knowledgeable as at many small specialty retailers.

Bottom line: Electronics Expo has a nice showroom format, which could seriously hurt specialty retailers, forcing those without significant high end clientele (those who demand truly high end systems, not just "better than at Best Buy") to become full time custom installers, and drop their retail storefronts. But Electronics Expo is counting on the continued desirability - and premium pricing - of flat panel displays. Given the poor sales help and high fixed costs for the big box showroom format, if prices on high end panels drop, Electronics Expo is going to have to find something else to sell. I have long advocated that Best Buy dedicate more floor space to lifestyle demonstrations, custom installation, and front projection; if it does so, it could bury Electronics Expo on price.

-avi

When Manufacturers Don't Manufacture, What Are They?

I wrote earlier about Outlaw's new 990 audio processor, and was left with a few questions. They've since posted a FAQ that not only answers my questions, but also provides rare public insight into industry practices for cross-company parts sharing. Audio is a lot like the automobile industry - creating a platform is enormously expensive, and companies often share development to keep costs down. Sure, there are a few boutiques that create everything themselves from scratch, but custom efforts are enormously expensive, limiting the potential market size.

Outlaw uses the three different models shown below for product development, and so do all the other specialty brands to one degree or another, regardless of their distribution model. The selection of which development path to use is determined by the specific product, its cost, complexity and its anticipated volume. Going back to our first offering, the Model 750 amplifier, we have never hidden our relationships with some of the industry's leading manufacturers. Remember that out process is not unique, and only a few of the "major" brands actually design and manufacture their own processors from the ground up. We know of no company in the "internet only" market that totally designs and builds all of their processors on their own.

The FAQ continues to describe which of its products were designed, manufactured, licensed out, or licensed in. Outlaw exclusively sells direct online; I don't know if that completely explains their openness. But they are hardly alone, and got me thinking of some other common business models:

• Brand A designs, someone else manufactures for Brand A. Very few - if any - of today's manufacturers actually manufacture everything they sell. In some cases, a company will manufacture one type of product, but not others.  For example, Sony manufacturers most of its TV sets, but practically none of its headphones.
• Brand A designs and then its design is "sublet" to Brand B to defray costs. Brand B rebadges the design with mostly cosmetic changes and sells it as its own. This has long been the way most vendors obtain their universal remote controls, but it happens in high end audio whenever a vendor specializes in one component but needs to offer retailers a complete product line to get distribution.  For example, Lexicon has been rebadging Bryston amplifiers for years.
• Brand A designs the core chassis (in the case of a processor or receiver), core technology (in the case of MP3 players and digital cameras) or driver/crossover (in the case of speakers), and Brand B rebadges it with changes. These changes can be cosmetic, substantive, or both.  For example, most MP3 players - including the iPod - are based on chips from PortalPlayer. Companies can use PortalPlayer's software (technically "firmware," in this case), use just some of it, or write their own from scratch.
• Brand A and Brand B share development costs on the core technologies, then customize the surrounding technologies for differentiation. Examples here include Sony and Samsung's jointly owned LCD fabrication plants; LG and Philips have joint ventures in plasma TV manufacturing. But in each case, the video processing, scaling, types of inputs, and case design are all different, leading to different performance characteristics and pricing.

-avi

New/Old Audio Technologies New Again: Part Two

Outlaw just announced a new pre/pro (the surround sound processing portion of a receiver without the amplifier section), the model 990, and its a doozy: a high end version of the company's 950 for only $1099. More surprising than the product itself is Outlaw's secrecy about it - while some analysts (including yours truly) were briefed on this last year, this is the first public indication the company has made that they were even working on a new pre/pro, and it should be shipping within the next month or two. The change in strategy was due to the flack the company took during the oft-delayed development of the 950. Not surprisingly, there has been some grumbling on the forums that not enough notice was given on the 990... damned if you do, damned if you don't. This was the right decision though - publicly slipping announced shipping dates damaged the company's reputation and angered the customer base, while surprising the market only means a few lost sales for customers who bought something else in the meantime.

The standout feature most will notice are fully balanced outputs, to go with a future Outlaw amplifier with balanced inputs. Most people assume that balanced outputs - found on professional and some audiophile gear - are superior to regular RCA jacks. Thus, from a marketing perspective, the 990 has something to crow about.  However, the reason why balanced inputs/outputs appear on professional gear is not because it adds a magical element to the sound, but because it allows for very long cable runs without signal degredation.  In most home environments, this is irrelevant, and balanced signals at the very least add cost (the cables are more expensive) and may actually have a slight negative impact on the sound.

Even discounting the balanced outputs, the 990 looks like a bargain compared to most pre/pros, which start in the $1500 range and quickly climb from there. Component quality is higher than the 950, though this may be overkill: I was given a chance to review a 950, and found its noise floor to be extremely low and its sound quality to be transparent. The 990 offers tremendous flexibility for bass management for all sources, and has stereo subwoofer outputs. All the usual surround modes are included, along with Dolby Headphone (and a headphone jack). All analog video can be converted to component, and DVI switching is included. The 990's software is upgradeable, and, as an Internet-only retailer, this is something Outlaw is likely to take advantage of down the road. However, there are a few open questions:

• There's no word on automatic room callibration, though some sort of setup routine is included. [Update: the 990 provides automatic setup of speaker levels and delay times using an included microphone.  Automatic room callibration is not available, but could be provided as a software upgrade in the future.]
• The 950 has an audio delay and click problem when switching inputs; hopefully that issue has been resolved in the 990.
• Presumably, the 990 is not hardware upgradable, which means that HDMI switching can't be added down the road. This is not so much a technical problem - for most setups, DVI switching is practically the same thing - but a marketing issue. HDMI switching would eliminate the additional cable clutter and expense of carrying digital audio signals to and from certain components. [Update: The 990 is not hardware upgradable. The company's explanation why HDMI switching was not included is not terribly convincing.]

We will likely get a 990 in for a full review. My review of Outlaw's LFM-1 subwoofers can be found here (links to JupiterReasearch's Home Theater Watch) and my review of Outlaw's 7700 amplifier is here (links to Secrets of Home Theater).

-avi

New Online Retail/Marketing/Research Channel: Woot.com

At 1 AM EST every night? morning? something extraordinary is happening to online retail. Woot.com is an online outlet for tech overstocks and refurbs, but its unique business model is opening up some intriguing possibilities for building an installed base for a certain breed of product. The store offers one item per night at dramatically discounted prices - popular items sell out fast, and aren't replenished.  A new item goes on sale the next night. The item descriptions are cheeky, the online forum is relatively uncensored, and the audience is extremely geeky (and proud of it.  Though the site definitely attracts a few too many teenagers with time on their hands).

Some items are mundane - such as coffee makers and toys -- or just ordinary -- such as iPods and computer speakers. But once a week or so the site offers technology about a half generation behind, seeking an audience. This may have started out as a pure overstock play, with woot buying what didn't sell to early adopters, but it is now evolving into companies approaching woot with products they still hope may catch fire.  The best example is Omnifi streaming audio players from Rockford Fosgate: one night the site offered 1,000 home/car bundles for $199, another night just the home unit for $79. In both cases company reps were in the online forum to answer questions, guage interest, and get feedback.

Tonight's woot is a refurbished InFocus ScreenPlay 4800 DLP home theater front projector. For $499. The projector sells new for $1,200, but the percentage and magnitude of savings isn't as interesting as the price point itself: at $499, front projection may be used by completely different buyers or for new applications.  The online forum provides a limited method of obtaining feedback on who/how the product will be used, but feedback mechanisms could be expanded.  If so, how long will it be before vendors sell a few hundred units of new products at cost on woot simply as a method of market research?

-avi

iPod Rips Through "Pretty Face Syndrome"

BusinessWeek has an article in this week's issue titled, "The Crisp, Clear Sound of Rising Profits" [registration req'd] on B&O's recent uptick in business. After years of stagnation, the company is rolling out dozens of new initiatives in high end audio systems for exclusive automobiles, yachts, and penthouse suites at the MGM Grand in Las Vegas.

That's all well and good, but those are relatively small markets with high investment required to enter.  In other words, they're brand-building activities, not core products. Bose and Harman are exceptions: they make real money in their auto divisions because they've built the business over the past decade(s) across multiple auto product lines.  High end brands like McIntosh and Linn who are offering systems in cars as expensive options (or for cars with limited production runs) is at best a break-even marketing expense. Linn has even admitted as much.

Product innovation is given some ink: a $1,600 PVR is on the way, and the company's BeoLab 5 speakers have been critically well received (I haven't auditioned them) - no word on sales figures, though. The problem here is simple: B&O products have tended to be high priced art pieces.  There's nothing wrong with selling art, except when they're supposed to make music, too. The expensive B&O products I've heard have sounded terrible. The new CEO admits as much, calling it "a gap between our image and our performance... the 'pretty-face syndrome.'"

It will take more than a new product or two to change my impression (and the company's home theater loudspeakers appear to be based on older B&O designs).  What's worse is that the high end of audio is moving away from spending tens of thousands of dollars on top flight design to spending hundreds of dollars on top flight design ...from Apple. Bose had the right idea when it put together a $300 iPod speaker dock -- as long as they understand that it obviates the need for any of their standalone products. Home theater systems are safe, for now, because their purpose is video, not music. While B&O offers speakers that can be sold for home theater use, it doesn't sell packaged home theater systems in the $2,000 - $3,000 range like Bose does.  Custom installers selling higher priced gear are looking for audiophile performance or invisible in-wall options -- not B&O style art pieces. 

So where are the profits coming from?  Clues come later in the article: lower expenses. Roughly a third of the company's employees were laid off, and dozens of stores were closed. The company is planning to moved some production out of Denmark and over to Eastern Europe.

That's good operations management, but not a strategy.  I seriously question B&O's product development priorities.  I would expect them to capitalize on what's left of the brand and attack Bose in mid-priced packaged systems, move into custom installation in a big way, or both. Why why why an overpriced PVR?  It had better absolutely set the world on fire because it's competing amongst a sea of struggling PVR vendors, not to mention Microsoft and cable operators. In the meantime, the iPod is melting away the design-oriented audio business.

-avi

Consolidation in the Display Business

The New York Times today reports (free reg. req'd) two separate deals: Fujitsu is selling its LCD display manufacturing to LCD leader Sharp, and Matushita (known in the US as "Panasonic") is hooking up with Hitachi to jointly manufacture plasma displays.  Bottom line here: prices are dropping too fast to go it alone if you aren't dominating the field.

-avi

Is technology moving too fast for consumer acceptance?

Former colleague Joe Wilcox notes that most computer brands are met with cognitive dissonance when they journey into consumer electronics. Joe is definitely on to something (though his observations are backed by admittedly anecdotal evidence -- don't you think that's something you guys over at JupiterResearch should be testing empirically?)

Another part of the problem, though, is that consumers are slow to fully understand the implications of digital technology - never mind convergence.  (OK, I'm working with entirely anecdotal evidence here as well, but bear with me). When I meet new people and invite them to watch a movie in my home theater, the first question I get is how big my TV is.  I usually respond that the TV is besides the point, we watch movies on a projector.  This is invariably met with blank stares, followed by, "a projector?  How do you watch movies?  Don't you have DVDs?" Saying, "yes, it's a digital projector" results in polite affirmative nods but usually the same deer-in-the-headlights look in their eyes.  (One person actually asked whether I have a projectionist.)  Only once you walk people through the steps does the whole concept click into place.

Here are the steps:

1. Start with the familiar, in this case, business projectors: "You know how you have digital projectors for notebooks when you give a PowerPoint presentation?"
2. Tie in well understood entertainment technologies: "The technology in those projectors can also be used to display DVDs."
3. Now you can explain product specifics: "Unlike a business projector, our digital projector is optimized for showing movies and watching HDTV."
4. Talk about DLP vs. LCD, rainbow artifacts, or black levels at your peril.

I expected this situation a few years ago, but despite four generations of DLP since my first projector, little has changed.  This isn't unique to home theater projectors, a category which has little mass market awareness.  How many consumers understand HDTV at even the most basic level - meaning they can differentiate between the format and plasma televisions?  I've been using the Zenith ZHDTV1 antenna in my basement, and, not surprisingly, its distinctive shape generates a lot of questions as to what, exactly, it is.  When I say it's an HDTV antenna I get those blank stares again - "you can get HDTV using an antenna?" 

The implications of the digitization of everything requires a cognitive leap. (For an extreme example, take my mother, please.  When I described Sony Ericsson's s710a megapixel cameraphone to her, she asked "how can they fit such a nice camera into a phone -- where does the film go?")

Companies that have walked consumers through these steps have benefited.  Consumers are just now beginning to wrap their heads around MP3 players because Apple built a simple vertically integrated system from content to consumption.  Similarly, Echostar has had tremendous success -- though much less publicity -- with their integrated HDTV TV/satellite/installation bundle.

HP and Optoma have the right idea with DVD/player/speaker all-in-one units, but they can't assume that consumers will understand what you do with them, never mind why they need one in the first place.  As another example, I think Sonos' distributed audio system is brilliant - it takes advantage of your PC's existing music library and spreads the wealth.  But I hope the company can survive on sales to custom installers and early adopters for a while, because it's going to take the rest of the world a long time before the concept sinks in.

-avi

CES 2005: Trends

I spent most of my time at CES focused on mobile devices, but did note a few overriding trends:

• The story of the show was definitely flat panels, which were everywhere.  LG showed off a particularly interesting integrated plasma/HDTV tuner/DVR, and Samsung showed off a plasma so big you couldn't get it down the stairs and into my basement even if you took out a second mortgage to pay for it.  On the opposite end of the pricing spectrum, there were countless Asian importers with booths at the show displaying large LCD and plasmas at much lower prices.
• The other big deal at the show was that the focus of the computer industry is solidly on the living room - Microsoft, Intel, and HP all had huge booths dedicated to moving audio and video around the home.  The problem with Media Centers for me has always been cost and form factor.  HP's new HD Media Center looks especially sweet because once you're talking about HDTV the price jumps dramatically (the only standalone HD-DVR on the market costs $1,000), and the new horizontal cases look like they belong in your A/V rack, not your desk.
• Conversely, there were barely any new portable media players introduced other than the Olympus m:robe (a strong iPod mini competitor which I have in for review, and which looks gorgeous).  I take this as an indication that other than the video players (which have problems getting content unless you have a Media Center PC), Apple has this market completely locked up.  Now that the iPod shuffle appears to be the Next Big Thing, watch for copycat products (not that copycats will succeed - when pricing is down to $99 to start with, how do you compete with cachet?).
• In projectors, CEDIA was the land of $2,500 - $3,000 720p LCD boxes with automatic iris adjustment and great contrast from Panasonic and Sony.  CES was the TI DLP team's chance to strike back: BenQ showed me a great 720p DLP HD2+ projector for around $3,000 (the 7700).  Several products debuted with TI's new DarkChip such as BenQ's 8720; pricing on those is above $10,000, but the HD2+ products were nearly as good. This looks like it will work out so that custom installers will recommend the higher end products while enthusiasts buying/installing on their own will gravitate towards the $3,000 products.  ...but we're not done.  A slew of sub-$2,000 DLP projectors with 480p or 576p resolution were also introduced.  I didn't see any of them at the show, but Evan Powell over at ProjectorCentral has a good recap.

My final trend is a question: could CES be getting too big to be relevant?  It's always been hard to get around the show, and the weather didn't help (when it snows in Vegas it's fair to say hell has frozen over). Next year CES kicks the Adult Video show out of the Sands and takes over that venue, too.  But at the same time, CEDIA has been getting a lot of the big home theater announcements, the wireless device vendors are saving their news for CTIA, and the mobile media player market is all focused on MacWorld.

-avi

CES 2005: New Remote for Custom Installers

UEI launched the Nevo SL "Pronto killer" touch screen remote control here last night in Las Vegas, and it's got two really interesting features: a better programming interface than Philips offers for the Pronto (not that that's saying much - the Pronto programming environment is terrible), and built in WiFi. WiFi could be used for just about anything - the remote is based on a version of Windows Mobile - but at least initially the idea is to stream media from one PC to another. Now, that may seem a bit ahead of its time, but according to Current Analysis*, 11% of all consumer PCs sold this holiday season were XP Media Centers, so there's beginning to be an installed base for this sort of thing. Store your digital photos on the PC in the bedroom, stream them over to the Media Center in the den - all using the same remote. An adapter will be available to use WiFi to act as an IR blaster; not quite as good as full RF support (coming later in the product life cylce, I'm told) but it should allow installers to hide gear in a cabinet or closet and control it via the Nevo SL.

The Nevo SL isn't as comprehensive as offerings from Crestron, nor does it offer state-sensing add-ons (also coming later in the product life cycle). At $799, it's also nowhere near as expensive as those offerings, and competes directly against the Philips Pronto. UEI's extensive code database is included, but unlike recent versions of the Pronto, no provision for automatic configuration is included. This would be a deadly omission if the product was aimed at consumers, but UEI assures me that the product will be sold through the CEDIA custom install channel. That makes sense, but someone should tell their marketing department: none of their literature, press releases, signage, or press kits breathes a word about custom installers or how this product can benefit them. This isn't just a failure to communicate benefits, it actively works against UEI: if I were a custom installer, I'd be afraid that consumers - enthusiasts, mostly - would think that they could buy this remote themselves, leading to channel conflict. As Home Theater View has advocated in the past, channels need to be considered for their individual needs.

-avi

*Note: Avi Greengart is a Principal Analyst for Current Analysis

CES 2005: You want convergence?

SBC preannounced their big CES news: a set top box that combines satellite TV programming, digital video recording, video on demand, and Internet content.  There have been everything-but-the-kitchen-sink set top boxes before (anybody remember last CES? the year before that?), but I believe that this is significant for one reason: distribution.  Most of the converged set top box dreams of years past are all about consumer technology value propositions: distributing content around the house, moving photos and music off the PC, and providing Internet access from the TV.  That's nice, but other than increased tech support calls, there's little incentive for content owners to sell it. 

But this is different.  From what I can tell, the consumer value proposition for the SBC/Yahoo!/Dish/(did I leave someone out?) gizmo is simply saving money and consolidating billing relationships; any technical goodies are gravy. The convergence factor is just a means to an end: this is all about services bundling, which should reduce churn and protect these customers from being snatched away piecemeal by cable or satellite or Verizon.

-avi

SED: Time to memorize a new acronym?

A blog quoting a Japanese source suggests that Toshiba is abandoning LCD and plasma and instead putting its display R&D into yet another display technology: SED.  SED stands for Surface-Conduction Electron-emitter Display, which, if I understand it correctly - and I probably don't - is an array of millions of tiny tube TV sets.  Advantages include many of the same claims made for another technology working its way through the labs, OLED (Organic Light Emitting Diode - don't you just love these terms?):

• really really thin
• incredibly bright, sharp images
• more energy efficient than plasma
• a technology that [insert Korean or Japanese competitor here] doesn't already have locked up

I'm convinced that performance is almost irrelevant: whichever technology is cheapest and can be manufactured in volume will win.  Consumers have shown that they have absolutely no understanding of the technologies, and retailers have shown absoultely no capability of explaining the differences between them.  Resolution and picture quality doesn't even seem to matter much - consumers are snapping up EDTV panels at far higher rates than HD-capable displays. As such, consumers are basically buying these things based on depth and price. 

I'm sure that next week at CES we'll see gigantic LCD displays, enormous plasmas, and ever-larger OLED prototypes, and that we'll all be falling over ourselves discussing why LCD is better than plasma or vice versa.  But thus far, the bottom line has been: is it thin enough not to overwhelm a room, and, if so, how much does it cost?

-avi

Secrets Debunks Its Own Review: No Audible Differences Among Power Cables

Here's an experiment/article that's going to echo throughout the audiophile world and possibly hurt sales of high end accessories. 

The online magazine Secrets of Home Theater is renowned for taking a geeky enthusiast's view of home theater and audio; they're best known for publicizing the DVD chroma bug, an obscure problem in some DVD players that makes bright colors in certain scenes bleed slightly into the next color. (I like to think my reviews and articles for Secrets have been a bit more accessible). Lately, Jason Serinius has been writing glowing reviews of CD demagnetizers and aftermarket power cables for Secrets, and the email and forum backlash has been palpable.  It's one thing to get worked up about minor issues that are clearly visible if only you look for it in certain scenes (enthusiasts like to get worked up about that sort of thing).  It's another thing entirely to ascribe audible powers to products that arguably cannot possibly produce those effects in any scientifically measurable way (enthusiasts like to argue about that sort of thing).

In a tremendously courageous move, Jason decided to take on the critics directly: he got two groups of volunteers, and, together with the Bay Area Audiophile Society, created a well organized, reasonably scientific double blind test of the expensive power cord he'd reviewed so positively.  Before he gets to the test results,

• Lots of HTML is used in a preamble that references Galileo, Quantum physics, psychoacoustic principles, and perception/reality constructs.
• Lots of HTML is used to describe the (solid) credentials of those who created the test.
• Lots of HTML is used to describe the test environment, how the test was conducted, and how things could have been better.

Bottom line: nobody could tell the difference between generic power cords and Nordost's $2,500 Valhalla cables.  Nobody even scored above 50%...

-avi

RTI Focused on Dealer Training

RTI makes complicated programmable remote controls, and they've hit upon a winning strategy - focus on their customers.  Brilliant!  (It should be obvious, right?) Well, there is a twist - one that many CE companies selling to the CEDIA (custom install) channel haven't quite figured out: RTI's customers are not end users, but the custom installers who buy the remotes and program them for the end users. 

The whole purpose of a custom programmed remote control is the programming, and this is an area where RTI can stand out (more on this later).  Therefore, RTI announced online training earlier this year.  Last week they sent me a new press release (curiously absent from their site) that they now have an entire downloable video course for their dealers.  I have no idea how good/bad/effective their course is, but it's a great way to reach the small, geographically dispersed custom installation community.

RTI doesn't have much choice - the remote control market is surprisingly competitive.  At the low end, there are literally hundreds of offerings sold direct to consumers.  At the high end of the consumer market, Philips lucked into the lead with their Pronto line, which are almost infinitely configurable and have generated a devoted cult over at http://www.remotecentral.com despite the convoluted programming interface.  Logitech is trying to broaden the consumer market with Harmony remote controls (Logitech bought Intrigue Technologies earlier this year) by providing the flexibility of a custom remote without the programming; users fill out an online questionnaire, and the remote programs itself. So what is left for custom installers?

At the high end, Crestron and others provide expensive solutions suitable for high end home theaters, boardrooms, and whole house automation.  For more affordable solutions, custom installers can turn to the high end of the consumer market - where the vendors are focused on the end customer - or RTI - where the vendor is focused on the custom installer.  Brilliant!

-avi

NY Times Does the Impossible

The New York Times today reviewed upsampling DVD players.  What I found remarkable was the balance between making a somewhat difficult concept easy to understand for non-enthusiasts, while still being technically accurate.  As a bonus, it was a reasonably vigorous review, and even offered clear conclusions.  But this exception to the rule highlights just how bad a job the consumer electronics industry has done complicating the products and the jargon.  Even efforts to simplify things on a practical and technical level come in acronym form with compatibility notes back to other acronyms (think HDMI and DVI).

The industry as a whole needs to do a much better job of demystifying this stuff.  My brother, apparently, reads Home Theater View; his feedback on the column on Intel's LCOS fiasco/TI's direct-to-consumer DLP advertising?  What the heck is DLP, LCOS, and OLED?  Clearly, some of his confusion is my fault (and the expected readership of this site).  Still, my brother's a smart guy, but he can't possibly know from a discussion on microdisplays to buy one of these TVs if he doesn't know that TVs are the subject of the discussion...

-avi

TI Taking Over Where Intel Left Off?

I was wandering through IKEA yesterday and noticed that Philips appears to have an exclusive on all the A/V display props; an interesting product placement ploy.  Even more interesting were the sheer number of plasmas sitting on top of $79 build-it-yourself furniture.  Plasmas and LCDs may win on decor friendliness, but not on budget, where microdisplays offer a reasonable compromise between the size of the unit and the size of your wallet.

Usually, microdisplays means DLP or LCD, but I've always been a fan of LCOS, which can offer the resolution of a digital technology and the fatigue-free experience of a three chip technology, without adding overly-sharp, hard edges to the picture. Having worked at Intel in a past life, I was wondering just what got them to pull out of the LCOS game after making such a big splash (promising, among other things, to bring street prices of large screen TVs down below $1,000).  Insight Media, a CE research firm I never heard of until I just Googled it, backs up Intel's official, "there isn't enough money in it," claim with some interesting backstory.  But the New York Times reports that it's all about chip yield - Intel expected 90% rates and was getting well under 10% - the same problems everybody else trying to build LCOS chips has had.  Well, not everyone:  JVC has teamed up with a smaller company to make the silicon backplane, dubbed this LCOS variant "D-ILA" and are the only ones to have a mass market product, and a good one - I have been impressed with their 52" HD-52Z575.  Philips also has an LCOS RPTV on the market, but it's a one-chip+rotating prism affair, and doesn't offer the same level of performance. Sony's take on LCOS, "SXRD," is extremely impressive, but for the moment they're only using it in their high price, low volume Qualia line, which would mask any yield problems they could conceivably have. 

Which leaves Texas Instruments, the sole supplier of DLP chips, in a great position, at least until plasmas or LCDs get cheaper to manucture or OLED or some other new technology is commercialized. BusinessWeek (subscription required) this week has a profile of TI's marketing efforts, as TI is planning a DLP branding campaign where they will reach out directly to consumers for the first time in a long, long while.  Like any "branding the technology inside" ploy, comparisons are immediately made to Intel's "Intel Inside" program.  But here's where BW gets kudos: they correctly point out that the success of Intel's program was based not on Intel's own ad budget, but on the comarketing dollars they spread around (and the tight program control they imposed on those dollars).  TI is not doing this - nobody's handing Samsung millions of dollars to push DLP as a technology.  So while I look forward to TI's Super Bowl commercial and note that DLP does have a lot to recommend itself to consumers, I'm also fairly certain that the branding campaign will not have an Intel Inside-sized impact on the market.

-avi