If Video Is The Answer, The PC Industry Looks For The Right Question

As evidenced by a slew of new products unveiled at the Consumer Electronics Show and Macworld Conference and Expo this week, the PC industry is increasingly betting the answer is that consumers will use their computers, home networks, and wide-screen TVs to move, store, and rebroadcast high-definition content around the house. Microsoft, Apple, Intel, Advanced Micro Devices, and others in recent days have introduced or signaled plans for products and online services meant to make it easier for consumers to watch high-def and standard broadcasts from any room in the house, as well as view video downloaded from the Internet on a standard TV.

If they're right, a convergence of better software, faster networks, and more ubiquitous graphics processors could create new ways to watch TV and movies for consumers, and richer sales opportunities for tech vendors. But immature standards, a lack of public awareness, and the absence of a killer app could hold back adoption of video processing technologies.

Tim Bajarin, president of technology consulting firm Creative Strategies, pegs home media distribution as one of the most important trends of the new year. "It's about moving content from the PC to the TV, but also moving high-definition content around the house," he says.

During his keynote speech to open the Consumer Electronics Show in Las Vegas Sunday, Microsoft chairman Bill Gates described upcoming products meant to dissolve boundaries between the PC desktop, high-def TV, and the company's Xbox 360 video game system. Higher priced versions of Microsoft's new Windows Vista operating system will include the company's Media Center software for receiving and storing TV programs, and PC users that run it will be able to play online games against Xbox users by the end of the year.

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Also due later this year is a version of Xbox capable of receiving and recording Internet Protocol TV programs. Cable TV operators in the United States, Europe, and elsewhere will distribute the consoles. "Our ambition is to give you connected experiences 24 hours a day," said Gates.

At Macworld in San Francisco Tuesday, Apple CEO Steve Jobs launched Apple TV, a $300 computing appliance available next month that can wirelessly transmit to a wide-screen standard or high-definition TV set through a home network movies and TV shows downloaded from the Web. It includes a 40-Gbyte hard drive that can store up to 50 hours of what Apple calls "near DVD quality" video. Jobs positioned the product as a link between the company's online media store, iPod, and the household television. "You can buy movies and TV shows on iTunes and put them on your iPod, or hook up your Apple TV to your wide-screen television and wirelessly send movies to your TV," he said.

Interest in using PCs to manage digital video content comes as consumers are snapping up high-definition television sets, and as Web sites like Apple's iTunes and Google's YouTube are letting millions of consumers watch video clips (mostly of rough quality in YouTube's case), TV shows, and movies on PCs and handhelds. About 35 million U.S. households now own HDTVs, according to market researcher the Envisioneering Group. That's up from about 26 million before a blockbuster holiday sales season. Prices of HD sets are falling, too, in some cases below $1,000.

Meanwhile, the expansion of PC hard drives and incorporation of more graphics processing power into computer chips are making it more feasible to use desktop PCs as hubs for video content. Hitachi introduced the industry's first terabyte-sized hard drive at CES, and Seagate Technology is due to follow soon. Hewlett-Packard introduced its MediaSmart TV, a high-def set that can be networked to a PC via wires or a wireless network, for video streaming. And Sony unveiled a future product called the Bravia Internet Video Link; the module uses an Ethernet cable to stream selected online video—mostly from Sony—to a TV set, without first connecting to a PC.

In addition, high-def video DVD drives that are just starting to appear in tabletop players could become standard equipment on PCs in a few years, says Mooly Eden, a corporate VP at Intel. That would make it more practical to store IPTV broadcasts on desktops and notebooks. "High-definition will be the name of the game in the next three years," he says.

The question for the computer and consumer electronics industries is where that content will be consumed. Intel wants to make sure it's on the PC, instead of on set-top boxes that don't use its chips. Intel also supplies the chips for Apple TV and the Macintosh. At CES, Intel introduced the Core 2 Quad chip, its first with four processors for consumer desktops. It's aimed at high-end PCs used for video games and photo and video editing. But Intel technology called Viiv for PCs that can play Internet-downloaded video on TVs hasn't proven popular.

Rival chip maker AMD this week introduced a digital cable tuner for Windows Vista PCs that can record high-def broadcasts and stream them to Xbox 360 consoles. It's certified by the cable TV industry, and will appear in Dell's Home Media Suite due in a few weeks that includes a Vista PC, the high-def cable tuner, and a 27-inch flat-panel monitor.

AMD also is working on a wave of chips code-named Fusion that combine general-purpose silicon with specialized graphics processing capabilities from ATI Technologies, which AMD bought in October. During remarks to reporters at CES, AMD chief technology officer Phil Hester said Fusion chips will start to appear in 2009. AMD also plans to keep selling discrete graphics processors for desktop users that want more horsepower, he said. Perhaps the greatest accelerant of the video processing trend, though, will be Windows Vista. Due for general release Jan. 29, Vista includes two big changes from Windows XP that could convince hardware makers, broadcasters, and consumers to pass content more readily between computers and televisions.

First, Vista includes DirectX 10, a new set of multimedia software and APIs for watching video on a PC and playing computer games. DirectX 10 apps can offload more work from a CPU to dedicated graphics chips, speeding performance of video playback and 3-D graphics. The technology will also let Microsoft open its Xbox Live online game network to Vista desktop users.

Next, Microsoft has bundled its Media Center software into the Windows Vista Home Premium and Ultimate editions, instead of offering it in a separate operating system just for special living room PCs from HP, Dell, Sony, and others, which have sold slowly. The shift lets ordinary desktops double as high-def TVs, and Microsoft this week disclosed a deal with Fox Sports to offer interactive HD programming just for Media Center. At the same time, Microsoft has signed deals with AT&T, BT Group (formerly British Telecom), T-Online in Germany, and other cable TV operators to sell an upcoming version of Xbox capable of acting as a digital video recorder for IPTV, according to Colene McBeth, a senior director in Microsoft's consumer strategy division. If all the pieces add up as envisioned, consumers could be playing games, watching television, and downloading video on end-to-end Windows networks.

The strategy was enough to prompt Jason Maynard, an analyst at Credit Suisse, to publish a research note this week that said he is even more optimistic that shares of Microsoft can climb to $35. The shares closed down 30 cents Wednesday, to $29.66. "Xbox 360 will play a major role in delivering Vista-based content [to] the living room," he said.

To be sure, there are plenty of factors that could hold back the 2007 version of PC/TV convergence, a computer industry dream for more than a decade. It's still too hard to connect PCs to consumer electronics, and standards are often incompatible, as Gates pointed out in his speech. Broadband networks are still relatively slow -- though 44% of American households have broadband, just 1% are connected at the fiber optic speeds needed to handle lots of high-def bits, according to Dell chairman Michael Dell in his CES keynote. He called on the telecom industry for change. And the PC and consumer electronics industries are still fighting a standards war over next-generation DVDs; it's unclear whether the Blu-ray or HD DVD format will emerge as the winner.

Standards for connecting TVs and to set-top boxes are also just emerging. The industry has converged around the High-Definition Multimedia Interface standard for doing this with wires, but the jury's still out on whether the new 802.11n or Ultra-Wideband specs will become the high-def wireless standard.

More troublesome is the lack of a killer application for PC-to-TV connections -- that is, a piece of programming that makes consumers want to buy into the thicket of hardware and networking gear they need to make the scenario work. It's all made video convergence hard to explain. "As we sit here today, the consumer doesn't really know much about that, and hasn't really cared," says analyst Bajarin.

If tech vendors want to forge a new market for their software, PCs, chips, and network equipment, it's incumbent on Gates, Jobs, and the rest of the IT industry to change that perception.