Quick Thoughts: By the Time I Get to Vegas …

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  • Disney’s deal with Comcast will not forestall “Over the Top” and could hasten it
  • Nokia Microsoft deal? Maybe, but can Nokia survive without smartphones?
  • What to see at CES?  Ultrabooks, automotive electronics, connected home everything

 

Greetings from Continental flight 1907, service to Las Vegas, seat 30D, on my way to the Consumer Electronics show.  The pre-show buzz has been as much about who will not be there.  No Apple, no Google, no Amazon, no Facebook.  Microsoft WILL be here, but, for the last time.  As we have written, consumer electronics is becoming much more about the integration of software interfaces and web-based services across multiple devices.  The gadget is an access point to all of that goodness, but it is no longer an isolated product.  Nor can makers of these gadgets plan their product introductions around CES – life cycles are too quick for that.  CES is not the event for breaking news in the way that it used to be, rather it is an event for taking the industry’s temperature.

Given that, there has been a bit of news in the week leading up to the show.  Disney and Comcast have signed a deal that sets terms for running Disney’s programming on Comcast for the next decade, and confers rights for Comcast to deliver Disney content over the internet to its subscribers, even if they are not at home.  Some have heralded this deal as evidence that channel-bundled cable model will remain the dominant mode of distribution for video content and that on-demand internet-delivered distribution will not seriously threaten that status quo for many, many years.  I’m not so sure about that.

 

The deal is not at all surprising.  On the heels of locking up NFL broadcast rights through 2022, Disney, Fox and CBS were bound to seek deals to lock in a rising stream of cable fees to pay for those rights (Exhibit 1).  As content deals between networks and operators expire, the dance will continue – networks ask for more money, operators quibble then cave in, and the fees are passed down to subscribers.   This dance has been money for decades, as inelastic consumers have shouldered monthly cable bills rising at an average rate of 6.5% over the past 25 years (Exhibit 2).  The open question, now that streaming video is emerging as an alternative to cable, is whether or not the gravy train can continue.

I suspect not.  First, the growth of viewership for on-line video remains prodigious, with a corresponding boom in internet video advertising spend.  Second, sports rights are a huge piece of programming costs – CBS’s NFL rights fees are equal to a full 25% of their current revenues.  America has more sports fans than not, but non-sports fans may well vote with their feet when asked to subsidize their football loving neighbors.   Third, Disney retains the right to distribute its content via other channels, and even though it has remained cautious in embracing on-line streaming, it has the flexibility to get more aggressive in the future.  Finally, while “TV Everywhere”, by which cable operators give paying subscribers access to the same content over the web, is a real benefit for consumers, it is not an exclusive relationship.  As consumers gain choice over services to access programming on-line, the cable industry may suffer for its indifferent customer service and record of pricing increases rivaled only by health care and higher education.

The next big story stemmed from provocative comments from influential Russian mobile device industry blogger Eldar Murtazin.  Mr. Murtazin wrote that Nokia and Microsoft have been in long-standing negotiations for the sale of Nokia’s smartphone business, and that his sources expected a deal to be finalized in 2012.  On Microsoft’s side, the basis for such a deal would be to gain more control over the hardware architecture for its Windows Phone platform, thus enabling closer integration a la Apple’s iPhone, and accelerating time to market.  For Nokia, aside from cash, the deal would free it to pursue a low end strategy based on its new UNIX variant platform, Meltemi.  For such a deal to make sense for Nokia, it must be SUPREMELY confident in its ability to execute on this new platform, certainly a head scratcher given the company’s dismal record competing with its Symbian and MeeGo based smartphones.  Allowing that the opportunity to slide a low-cost platform for sub-$100 smartphones in underneath Android and iOS might still be there, the window will not be open for long.  Selling the Windows smartphone business would leave Nokia as exposed to its own execution as its erstwhile rival Research in Motion.  I’m not sure either is a very good bet.

Finally, there is CES itself.  Over the years, it has always been a venue for breaking news.  Last year saw the first legitimate Android tablets.  In 2010, the TV industry took the spotlight with the first 3D and internet connected models.  In prior years, CES saw the debuts of Blue-Ray, DVRs, and DVDs, along with the introduction of countless new consumer PCs, mobile handsets, and large screen TVs.  This year, it seems, not so much.  As we noted, several of the biggest names in consumer technology will not have booths.  The most innovative devices are introduced on their own schedule and with their own events.  Arguably, the biggest innovation is now going on in software interfaces and in cloud-based services, arenas that are a step removed from the heavy hardware focus of CES.

That said, there will be fascinating things to see.  I’m looking forward to presentations from the several automakers that will be here, as the basic automobile infotainment experience remains antiquated, with satellite radio and GPS still trying to pass as recent innovations.  This could also be the year when home networking moves beyond WiFi access and printer sharing.  Tying TVs, tablets, smartphones and appliances in a useful way has been elusive in past shows, but the exploding iPad market seems to be inspiring new innovation.  Finally, I’m very interested in the new Ultrabooks, and in particular, the brave souls willing to show their Windows 8 products three quarters before they will be able to hit the market.  In that context, it will be interesting to see if there is any evidence of ARM-based Windows 8 products in the pipeline.   I see Ultrabooks as more akin to tablets than to traditional PCs, and as such the ultimate test of Intel’s ability to establish a beachhead in the mobile platform market.  I’m skeptical.

Tonight is Steve Ballmer’s last CES keynote.  While nothing earthshattering is expected, you never know.  I’ll have my take tomorrow, along with comments on Qualcomm CEO Paul Jacob’s morning presentation, and anything else that strikes me as interesting along the way.

For our full research notes, please visit our published research site.

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