Connected Living Rooms 2010.05.20

Connected Living Rooms: Analysis of User Preferences and Market Trends

Melody AkhtariVincent HuangMatt SalazarMay 19, 2010

Faculty Advisor: Pablo Spiller

UC Berkeley, Haas School of Business

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Table of Contents Executive Summary 3 Context, Definitions, and Objectives 4 Industry and User Trends 5

Industry Highlights

6 User Demographics & Trends

9 Analysis 13

Research Methodology

14 Competitive Landscape

15 SWOT Analysis

17 Primary Research 21

Industry Professionals

22 Connected Living Room User Interviews

23 Quantitative User Survey Analysis

24 Findings & Implications 29

Hypothesis Inventory

30 Hypothesis & Implications

31 Market and Users: Implications

44 Suggested Further Research/Steps

47 Inquiries, Contact Info 48

Appendix 49 A: Sample Survey

50 B: Regression Analysis

52 C: User Interview Guide

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Executive Summary

Objectives: Map both demand and supply side of the connected living room

landscape Identify the user preferences of lead users and predict trends in the

mass market landscape

Primary & Secondary Research:

Mapping demand and supply-side: Qualitative interviews of industry leaders throughout the value

chain: content producers, chip manufacturers, software, and hardware providers

Identifying lead user preferences: Qualitative interviews of connected living room users Quantitative surveys of US lead users


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Context, Definitions, and Objectives

Context: Users are beginning to use devices and services to consume content from the Internet. There has been an explosion of companies vying for adoption of their device/service.

Definitions:ACS Living Room: Content connected via Antenna, Cable, Satellite. Content is viewed in the living room.

Connected Living Room: Content sourced from the Internet. Content is viewed in the living room. Content: Videos

Production Value: User generated content (UGC), Independent, Mainstream (e.g. movies, TV shows) Length: Short-Form (<10 min), Episodic (10-60 min), Feature-length (60+ min)

Content Acquisition: Recording, downloading, and streaming of contentContent Platform: Content providers or content aggregatorsDevices: Companies whose core competencies are to create and sell physical products

Devices include: Connected Blu-Ray players, connected TVs, game consoles, OTTBServices: Companies whose core competencies are to provide content from the Internet

Services include: Content aggregators, content broadcasters, content platforms, content applications

Our specific objectives include: Identify drivers and challenges for organizations within the content ecosystemDetermine US lead user preferences for types of content consumedProvide predictions and recommendations for organizations in the content ecosystem


Industry and User Trends

Industry HighlightsUser DemographicsUser Trends

5 UC Berkeley, Haas School of Business

Industry Highlights: A Complicated Value Chain

New Content and delivery channels have created multiple paths for consumption.

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UGC

Fred, Shay Carl

Indie Producer

hitRECord, Prom Queen, The Guild

Broadcast Network

ABC, CBS, Fox, NBC

Cable Network

Discovery, TBS, ESPN

Antenna

Roof, Rabbit Ears

Cable

Comcast, CableVision, TimeWarner

Satellite

DirecTV, DISH

Component Device

DVD, Blu-Ray Player

STB

Scientific America, Motorola

OTTB

(Over The Top Box)

AppleTV, Roku, TiVO

Content Aggregat

orClickr.com, Boxee

Content Platform

Hulu, Justin.TV, Netflix, Vudu

Internet Broadcaste

rKoldcast TV

PC

Desktop, Laptop

Consoles

PS3, Wii, Xbox 360

Internet Provider

AT&T, Comcast, Verizon, CableVision, TimeWarner

TV Manufactur

erSamsung, LG, Vizio, SONY

Product Co.

20th Century Fox, ABC, Disney, Endemol


Traditional to TraditionalTradition to NewNew to Trad/New

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Connected Living Rooms: On the Brink of Growth

Time

Reven

ue

Growth:Gain Market

Share

Mature:Incremental Innovation

Decline:Harvest Profits

Emerging:Innovate and Disrupt

2004 Content Connects to PCsWindows Media Center 2005

2008 Ease of InstallationNetflix on Xbox

2009 Jump in Device ProcessingYahoo! Connected TVsBlu-Ray Plays drops below $100

2010 Growth in Devices/ServicesWalmart.com buys VuduBoxee gains 1M users

2007 New Content PlatformsHulu.com foundedNetflix launches Watch Instantly

2006 PCs Connect to TVsXBMC 2.0


Stage:Strategy:

Source: Henry Chesbrough. Open Innovation Business

Models

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Customer Demand and Implementation: Key Challenges and Obstacles

There are many challenges and obstacles in creating the perfect connected experience.


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Online Video Has Arrived For All

Online Video has become mainstream; 62% of online adults have used the Internet to watch or download video, nearly double since 2006.

On a typical day, 36% of adult Internet users watched videos online, up from 30% in 2008.

Source: RBC Capital Markets (September 2009)


80% 68

%50%

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User Trends: Increasing Demand for Internet Delivered Content on the Television

Over a third of Netflix subscribers consume “Watch Instantly” content on something other than a computer monitor

The increasing demand for Internet connectivity on the television is bolstered by consumers under 44.

US Internet Users Who Would Like to Connect their TV to the Internet

Generation 2006 2007 2008 2009

Millennials (14-26) 64% 71% 70% 74%

Generation X (27-43) 52% 66% 61% 71%

Boomers (44-62) 40% 49% 51% 59%

Matures/Silent (63-75) 29% 39% 40% 46%

Total 47% 58% 58% 65%

Source: eMarketer (December 2009)


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User Trends: Internet Delivered Content is Both a Compliment and Substitute to Current Video Consumption

Compliment: Upward trend in total video consumption

Substitute: Upward trend of cord cutters (1.6M over 3 years) but still small to total market size (101M subscribers)


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User Trends: Significant Questions Remain to Video Content Business Models and Economics

Advertising: Support amongst users but revenue has not materialized

Payment: Only moderate support for online content purchases

44.2% of Baby Boomers say they’re most likely to give up paying a subscription fee for TV service over any other subscription-based service (RBC, September 2009)

Source: eMarketer (February 2010) Source: eMarketer (April 2009)


Haas School of Business

Analysis

Research MethodologyCompetitive LandscapeSWOT Analysis

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Research Methodology


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Scoping: Identifying Key Players

Competitive landscape analysis of all companies offering a “10-Foot” living room experience

Narrowed list by focusing on: Recognizable and identifiable firms Firms recognized as industry leaders by

users and industry experts Significant install base


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Competitive Landscape: It’s Crowded at the Top

Hardware Content Acquisition

Local Content Playback App Platform

Proprietary OTTB Download via iTunes Yes Closed

OTTB via Partners Stream from Netflix and other Partner Content Providers

Yes Open

Proprietary Game Console

Download via Playstation Network

Yes Closed

Proprietary OTTB Stream from Netflix, Amazon VOD, and

other Partner Content Providers

No Controlled

Propietary OTTB Record from A/C/S, Stream from Netflix

Only Recorded Content

Controlled

Embedded w/ Partners

Stream from Vudu or other Partner

Content Providers

Dependant on Hardware

Controlled

Proprietary Game Console

Zune Marketplace Yes Closed

Bring Your Own Record from A/C/S, Stream from Netflix,

CBS, and other Partner Content

Providers

Yes Closed


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Analysis of Key Players: AppleTV

Strengths Weaknesses

• iTunes Integration• Relationship with major content

partners (ex. Disney)• High resolution picture quality

• Set-top box solution• Lack of subscription services

Opportunities Threats

• Consumer brand equity• Opportunity to capture customers

with subscription service• Leverage relationship

• Embedded devices• New subscription services• Increased competition from

download and pay per stream (Vudu, Amazon VOD)


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Analysis of Key Players: Boxee


• Leader in aggregating Internet-delivered

video service• Content organization• Open app platform

• Free licensing model for CE manufacturers

• Lacks revenue model• Hardware solution still pending• Dependant on device partners

for mass adoption• App experience still inconsistent


• Ability to own users via Payment platform

•Software embedded into connected CE devices

• Official Hulu-integration•Metrics to serve content owners and

advertisers•iPad and mobile integration could

drive software adoption

• Prevalence of cloud based solutions could undermine the utility of local

hardware because of updates• Potential to be shut out of highly

valued Internet delivered content (ex. Hulu)

•Competition


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Analysis of Key Players: Roku


• Low-priced OTTB hardware• Simplicity in usability and

installation• Clear value proposition message:

Netflix streaming on your TV• Increasing content partners

• OTTB solution limits mass market adoption

• Semi-open app platform has limited adoption

•Clear value proposition message: Netflix streaming on your TV


• Additional partnerships with content providers

• Continuing to be the low-cost alternative to Connected Blu-Ray players/ Connected Televisions in

growing segment

• Non-exclusive content could commoditize the solution


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Analysis of Key Players: WMC


Distributed with WindowsCritically acclaimed UI experience

Proven DVR solution

Requires HTPC/Connected laptop/Extender to be used in the

living roomLimited streaming capabilitiesSetup requires more advanced

technical expertise


Huge install base to convert to active users

Integrated solutionsConsumer preference shifts from

recording to streaming


Primary Research

Industry Professionals Interview ListConnected Living Room User InterviewsQuantitative User Survey Analysis


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Industry Professional: Interview List

RokuBrian JacquetDirector,

Corporate Communications

D-LinkDan WongDirector,

Product Management

Trident Microsystem

sJackson HuangSr. Director

Marketing

NetflixRichard EzekielDirector,

Partnerships

VuduEdward LicthyEVP, Strategy

and Content

BoxeeAndrew KippenVP, Marketing

EndemolJerry KowalSVP Digital

Media

Koldcast TVDaniel SamuelsCEO, Koldcast

TV

App Content Developer

Rob SpectreBoxee A

Dev

ices

Serv

ices

Con

ten

tP

rovi

der

s


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Users Interview Methodology

Individuals obtained from additional closing question requesting a phone conversation to better explore users’ habits

Questions formed around hypotheses: thoughts on downloading and streaming, high definition, obtaining content, consumption patterns

20-30 minute phone conversations with eleven US-based individuals

Interviewees included 44-year old female multi-solution user, a 25-year old male college student using Boxee, and a computer engineer using TivoHD with his wife and two young children, among many others.

Conversations centered on in-depth insights based on users’ home set-up, preferences and behavior, consumption patterns, and personal media libraries.


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Survey Methodology

Length: 10 Questions Time: Survey Ran from 4/22/10 to 5/6/10 Forums Surveyed:

AVSForum.com CNET.com TheGreenButton.com Mac-Rumors.com TivoCommunity.com Boxee Forums

Results: 140 Valid Responses


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Survey Topline

Who are they? 67% consider themselves early adopters 55% describe themselves as technology experts

What is their setup? 85% have multiple computers in their household 77% have connected a computer/laptop to their television 70% have created or modified software/hardware to fit their

technological needs


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Demographics Chart


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Time Spent Watching Chart

UC Berkeley Haas School of Business

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Number of Devices Used

48% of respondents use more than two solutions to consume digital content


Findings & Implications

Hypothesis InventoryHypothesis Testing & ImplicationsMarket Trends & Implications


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Hypothesis Inventory

User Behavior1. Users do not watch short-form content on their TVs2. Control over experience and setup is critical to power users3. Users predominantly like new and current content.

Where Does Content Reside?4. People do not care whether content is streamed or downloaded.5. Users would rather build a digital library for their content

Influencers Towards Connected Living Rooms6. HD Quality (720p or better) will drive users to connected living rooms7. The desire to watch content on the living room screen is positively

correlated with length8. Users use one single device in the connected living room

Content Discovery9. Users want social recommendations for content discovery10. Users want a content recommendation engine


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Hypothesis 1: The (Un)importance of Short-Form

Hypothesis: Users do not watch short-form content on their TVs

Results: True• Less than 10% of users would like watch short-form content on their TVs.• The majority of users desire mainstream content.• “I'd rather watch the full movie. I don't really stream clips, but if it's

something I really, really, really want to watch, then I'll watch a clip. I'll watch post-game interview/highlight clips. Value-added things that are in addition to the whole show.”

• “Clips are worthless, I want to watch full episodes of things. It's like ‘Hey, here's a great scene from an episode I can't watch!’”

Implications:• Most users do not find the offer of short-form video compelling. In few

occasions where short-form is value-add, short-form video is not a strong selling point for connected devices. users feel that if they’re going to watch something on their television, it might as well be more significant than a short video.

• Linkages to short-form content libraries, like YouTube, do not provide significant utility to the user.


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Hypothesis 1: The (Un)importance of Short-Form


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Hypothesis 2: Flexibility and Control of Experience

Hypothesis: Control over experience and setup is critical to power users

Results: True• “I have a large-screen TV in the living room, PCs in the office, and both wireless &

wired networking at home for my own media library. Entertainment is consolidated in a hand-made console, with an HTPC and AV receiver with surround sound.”

• “Any TV viewing is either from download or Netflix stream or in-mail DVD. That's the only way we watch anything. We have a TV with a WDTV Live box in the main living room downstairs with mostly cartoons for our younger two kids. We have a living room upstairs, where my husband and I watch Lost and network shows on the Xbox 360. We only watch the .avis up there because it won't play other formats like .mkv so we watch a lot of SD. Then in my ‘Me’ room I watch old movies from archive.org using a PC with WMC on it. It’s important to be able to access content off the network all over the house.”

Implications:• Power users will invest more resources (time and money) to perfect their set-up.

Most users believe that there is not a one-stop solution in the market; consequently, they will invest time and money to customize their experience through multiple platform efforts.

• Given the fragmented preferences, a one-stop solution remains elusive and serves as a large barrier to mass-market adoption.


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Hypothesis 3: Desire for Fresh Content

Hypothesis: Users predominantly like new and current content

Results: Uncertain• The type of content drives consumption of new versus cataloged content.• Users followed new episodic content and appreciate cataloged movie content.• “I prefer new TV shows, and movies I prefer to watch what I haven't seen. If

it's an old movie I haven't seen that's fine. My wife wanted to watch Soylent Green the other day; since we haven't seen it, I don't mind watching it.”

• It's a mixture. I've found that I'm watching shows that have been off the air for a long time that users have previously suggested to me. I'm watching Red Dwarf right now because it's on Netflix and someone suggested it to me. It's easy to find. It's a mixture, I watch half new shows and half old shows.

Implications:• To consumers, movies are seen as timeless, while TV shows have a steeper

half-life.• User profiles are complex as they carry over taste preferences from traditional

media to online content. However, availability of content complicates what they can consume. Further research is recommended.


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Hypothesis 4: Streaming Vs. Downloading

Hypothesis: Users do not care whether content is streamed or downloaded.

Results: True• While users exhibit preferences, the proportion of people preferring streams is not

statistically different from the proportion preferring downloads (p=.254)• Streaming or downloading is a means to an end, and not an end unto itself. The

preference for streaming/downloading is driven by other attributes such as content quality and content availability.

• For Millenials, there is a significant preference for downloading over recording (p=.047) but not for streaming over recording (p=.187)

• For Boomers, the preferences are reversed, where there is a significant preference for recording over downloading (p=.028)

• “I just want to watch my show, it doesn't matter where it comes from.”

Implications:• Given the indifference to streaming or downloading, organizations distributing content

should message on performance. UC Berkeley, Haas School of

Business

If Given a Choice, Would You Rather…

Generation Stream Download Record No PreferenceMillennials (15- 27) 29% 39% 21% 11%Generation X (28 – 44) 32% 27% 35% 5%Baby Boomers (45 – 64) 32% 21% 39% 7%

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Hypothesis 5: Building Digital Libraries

Hypothesis: Users would rather build a digital library for their content

Results: It depends on the content• Users prefer to digital libraries for content that are either favorited or

consumed multiple times.• “We don't add any more drives to our media library. We keep all our

kids' content because they want to watch it over and over, but for our current shows/movies, we download-watch-delete.”

• "Yes there's a difference between streaming and downloading. Downloaded stuff is stuff I look forward to seeing and I can't find anywhere (like making a run to blockbuster, it's special). Streaming, to me, is more like flipping through channels; it's less choices but it's instant gratification. Streaming is for content that I have a bit of interest in, but I don't look forward to that content as much as I do to content that I have downloaded onto my computer, which I've gone out of my way to get.

Implications:• We thought power users would want to own their shows and movies, but

many people mostly want to watch their content, and then move on. They’ll only want to keep or own those shows/movies they highly value, their favorites.


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Hypothesis 6: HD as a Driver

Hypothesis: HD Quality (720p or better) will drive people to connected living rooms

Results: False• HD content (p=.358) does not significantly raise the likelihood someone will

stream content to their television.• "Yes, HD is very important to me. I would say I wouldn’t sacrifice quality for

variety, but I do it now since Netflix's on demand isn't as high quality as I would like, so yes we sacrifice for the ease of instant playback. But I prefer quality, which is why we rent Blu-ray discs as well."

• "I like HD, but only care a 'medium' amount for it. For TV shows, what I have right now is enough (480p and stereo surround on Hulu and PlayOn). But when I buy a movie, it should only be on Blu-Ray unless it's super rare or super cheap. If I'm buying something for my collection, it needs to be the best.”

Implications:• While consumers show a strong preference towards higher quality content,

content selection takes precedence. More succinctly, consumers are going to watch what they want to watch even if its not available in HD picture quality.


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Hypothesis 6: HD as a Driver (Cont.)


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Hypothesis 7: Correlation of Place and Length

Hypothesis: The desire to watch content on the living room screen is positively correlated with length

Results: False• On a whole, no significant correlation, no significant difference in

likelihood or watching short form content over medium or long form content on the television.

• Caveat: Boomers have a significantly stronger desire to watch Internet-delivered episodic content on their televisions (p=0.023) when compared to other generations.

Implications:• Length and quality are not key drivers to whether users consume

content via connected living rooms. • Overall consumption is the single largest driver to whether users

consume via connected living room experiences.


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Hypothesis 8: Single Solution Connected ExperiencesHypothesis: Users have one single device in the connected living

room.

Results: False• 48% of respondents use more than 2 connected living room

solutions to consume digital content (this is in addition to a computer/laptop), 14% of respondents use more than 3 connected living room solutions

Implications:• No one-stop integrated solution to consume digital content current

exists. To increase market share, companies will need to support multiple use-cases or convince users to change their behavior onto a consolidated platform.


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Hypothesis 9: Social Discovery

Hypothesis: Users want social recommendations for content discovery

Results: False• Relative to other features, social discovery is significantly less

important than most other features (p=.00) such as availability of mainstream content, HD picture quality content, and discovery from a recommendation engine.

Implications:• Despite being in the Web 2.0 era where social discovery is

becoming ubiquitous, connected living room platforms should not be distracted with these type of features that rank orders of magnitude lower than most desired feature.


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Hypothesis 10: Recommendation Engines

Hypothesis: Users want a content recommendation engine.

Results: True• Preferences for a recommendation engine is larger than

recommendations from friends (p=.00) but is significantly less important than mainstream content or HD picture quality (p=.00)

Implications:• Algorithms and machine learning are crucial skills platform owners

will need going forward. Recommendation engines should be used as tools to help users navigate expansive content libraries.

• It is intriguing that in the current era of social and peer discovery, recommendation engines have a significantly higher preference ranking over other forms of discovery. Further research in this area is advised.


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Hypothesis 10: Recommendation Engine


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Market and User Trends: Findings & ImplicationsThe concept of a digital locker in the cloud is still very foreign.

Social validation will be a key driver in helping users accept a digital locker.

Implication: Companies will need to create user profiles to display content in “virtual shelves” when purchased from the cloud. These shelves are public and enable the user to broadcast their taste preferences and purchases to peers.

Video streaming will supersede downloading only when HD (720p or higher) content is available for streaming.

Implication: Content platform companies should significantly invest in optimization their distribution systems to deliver HD quality content without any initial buffering.

There is little room for new content platforms. Implication: The content platform is crowded. New entrants have

extremely high barriers of entry. Unless new entrants can deliver exclusive content or unparalleled user experience, new entrants should enter through acquisition. Existing companies should focus on a market share strategy.UC Berkeley, Haas School of

Business

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Market and User Trends: Findings & ImplicationsPhysical device product lifecycles, while shortened, will

continue to be much longer than software service lifecycles. Implication: Companies within the connected living room space will

need to be extremely agile to keep up with its competitors. Moving to the cloud will enable companies to quickly iterate and innovate.

Analytics will serve as the catalyst to incentivizing digital content distribution.

Implication: Create infrastructure to collect, synthesize, and act upon data. Companies that can best serve analytics to content owners will be best positioned to find new models to monetize the content.

While many players will build and provide an “apps” platform, in the long run, these platforms will be undifferentiated.

Implication: Exclusive content and UI will be key differentiators for companies. Applications platforms will be will be a baseline requirement for connected living room devices.


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Market and User Trends: Findings & ImplicationsIn the short term, connected Blu-Ray players are best

positioned to have the best connected living room experiences.

Implication: Blu-Ray devices contain both the necessary processing power and price point for consumers. Device manufacturers should seek strategic partnership with content platforms to deliver an integrated device/service.

The connected living room will drive increased consumption of independent content

Implication: While mainstream content will remain mainstream, connected living rooms encourage the long-tailed consumption of content. Given the initial explosion of options, UI will be a critical component of organization and discovery.


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Suggested Further Research/ Future Steps

We chose to focus on intrinsic user behavior and preferences Potential next steps and opportunities for future research:

Consumer tastes on “Ownership” and how these preferences will translate with cloud based streaming services.

Further understanding of discovery preferences from recommendation engine and social network.

Map user preferences along specific product features. This study focused on intrinsic user behaviors and did not seek to correlate user behaviors with specific product features.

Examination of developing business models and economic trends for video content.

Create quantitative analysis of findings from the Market & User Trends: Findings and Implications section. Trends were were derived qualitative interviews with industry professionals.

Analyze consumer preferences for new versus cataloged content. Examination of developing business models and economic trends for video

content. Monetization and understanding consumers willingness to pay was not within the scope. However, interviews indicate that many players throughout the value chain are deeply interested in this area.


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For Inquiries, Contact Us

Melody Aktari, BS 2011 [email protected] @iMelody

Vincent Huang, MBA 2011 [email protected] @huangv

Matt Salazar, MBA 2011 [email protected] @mattsalazar


mailto:[email protected]




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Appendix

A: Sample Survey

B: Regression Analysis

C: Sample User Interview Guide


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Appendix A: Sample Survey


51

Appendix A: Sample Survey


52 Haas School of Business

Appendix B: Regression Analysis

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Appendix B: Regression Analysis


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Appendix C: User Interview Guide


Technology

Connected Living Rooms 2010.05.20