Connected Home

The prevailing sentiment about the Connected Home is simply that there are more and more connected devices, and therefore, the home is a connected environment. Of course, this is a major leap of faith that presumes wide adoption of technologies and broad proliferation of industry standards.

Great. So we have connected devices:

  • TV sets,
  • computers,
  • mobile telephones,
  • tablets,
  • media players,
  • Internet radios,
  • BluRay players,
  • alternative set-top boxes,
  • legacy set-top boxes,
  • gaming consoles,

and so on and so forth. Now what?

Again, the prevailing logic would be to lump everything together into a sort of primordial soup and wait for the next Big Bang.

Many people would say that the Big Bang is happening with multiscreen. And yet, there are — by Connected Home market standards — only a handful of tablets on the market. We’re talking about single digit percentages, anecdotally around 5% in the U.S. in May 2011 (source: Nielsen).

Meanwhile the Connected Home is all about penetration rates, slicing and dicing — ways of reaching large numbers of people and advertising to them. Aside from the obvious example of the consumer electronics industry, the market numbers matter most to media companies, advertisers and communications service providers.

CPE = Why The Connected Home Matters To Service Providers

In our case, at BIG Picture, our business is understanding what the Connected Home means for service providers. So that iPad application is “neat” but not necessarily transformative for an industry that thinks in much larger numbers and over a much larger time frame.

The dirty little secret about the Connected Home is that Pay TV service providers invest a significant amount of capital (equivalent to approximately 25% of their annual revenues) in customer premises equipment (CPE). And this adds up. Quickly.

And this is where standards matter — such as the case with MoCA, HbbTV, RVU, and so on. The simple act of delivering services to multiple screens (including TV sets) from a single set-top box would be the first step in reducing Pay TV capex. The next step would be to use Connected TV sets and other Connected Home devices to eliminate the need for a set-top box altogether.

So. If a service provider could deliver a video service without financing CPE (a set-top box of some form), then the business model for Pay TV shifts rather dramatically.

Easier Said Than Done? Hence Platforms

We know. If Netflix can deliver a video service without a set-top box, then why do Pay TV services have to care? This is the premise behind our related research on Platforms.