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Connected Homes December 2013/January 2014 Viewpoints

Technology Analyst: Kyle M. Whitman

2013: The Year in Review

Many people will remember 2013 as a year filled with disturbing revelations about the extent to which their internet-connected lives have come under private and government scrutiny. Revelations about extensive surveillance activities from the US National Security Agency and its international partners included allegations that many products and services that are integral parts of home-network environments worldwide may be vectors for clandestine government surveillance efforts. People unaccustomed to the idea that governments might be scrutinizing their private online activities now had reason to reconsider the nature and extent of their interactions with networked services. Thus far, the 2013 revelations have appeared to have little real impact on the way people engage with their home networks, but cloud-service providers linked to the spying allegations have reportedly suffered monetary and other repercussions, and some involved providers (such as Google) have taken major steps to make their cloud architectures more secure in ways that can benefit home users directly. Many other developments in 2013 also had significant disruptive implications for home-network environments, although several years may pass before those implications manifest themselves fully. Although diverse in nature and potential impact, these disruptive developments had elements in common: All involved the role of televisions—and devices that can connect to them—in home-network environments. Sections below discuss these important home-network ecosystem disruptions and their potential implications.

New Game Consoles

Console gaming conclusively entered what video-game historians, analysts, and journalists commonly refer to as the "eighth generation" in November 2013, when both Microsoft and Sony released new versions of their home-game consoles. Microsoft's Xbox One is an upgrade to the company's seventh-generation console, the Xbox 360, which the company released in 2005. Sony's new console, the PlayStation 4, upgrades the company's 2006-era PlayStation 3. These respective consoles are not the first eighth-generation home-game consoles to reach the marketplace; Nintendo released its eighth-generation system, the Wii U, in 2012, updating the company's highly successful Wii. But the very poor market reception that the Wii U has thus far received from both gamers and game developers (the system has sold only 500 000 units since its 2012 release; by comparison, Sony's PlayStation 4 sold more than 4.2 million units in its first month of availability), in combination with the system's comparatively modest hardware improvements, limited the disruptive impact that new console generations typically have had. The PlayStation 4 and Xbox One, by comparison, each come equipped with feature and functions that have the potential to change home-network environments significantly.

Seventh-generation consoles' disruptive impacts extended well outside the realm of gaming. The most significant impacts came from seventh-generation consoles' inclusion of network-connectivity features. Network connectivity was not unknown to game consoles before the seventh generation; indeed, game-console owners have had access to connectivity features since the 1990s, when Sega first began offering game-download services for its fourth-generation consoles. Nevertheless, outside Japan, online console gaming remained a niche activity up until the seventh-generation consoles' release. A combination of factors—including Microsoft's early commitment to delivering a premium online-gaming experience that rivaled that of PCs, the high penetration of broadband internet connectivity in major console markets, a shift in gamers' content preferences, and the availability of inexpensive mass storage for downloadable game content—worked to make online-console gaming become highly popular.

Seventh-generation consoles' onboard-storage capability, upgradable firmware, and upgradable operating systems also allowed for an unprecedented expansion of capability over the generation. As online-gaming services matured and new online services emerged, console makers were able to update their systems' entire installed base via internet-delivered software downloads, adding new features and functions. For example, updates allowed seventh-generation game consoles to stream video content from internet services. Consoles were among the earliest devices to popularize the activity of watching streaming online videos on televisions. Millions of people still use seventh-generation consoles as their video-streaming devices of choice today, despite the now-widespread availability of alternative options for streaming. Alongside PC-based platforms like Steam, seventh-generation consoles helped popularize downloadable gaming services and served as platforms for pioneering new business models through which to offer downloadable gaming content. Seventh-generation consoles also helped popularize new types of user interfaces for TV-connected devices, including motion-based, speech-based, and gesture-based interfaces.

Whether eighth-generation consoles will have anything like the disruptive impact on home-network environments that seventh-generation consoles have had remains a question. In some respects, eighth-generation consoles are much more conservative than seventh-generation consoles were. Potentially disruptive new features that have appeared in eighth-generation consoles include the ability to support game play on devices other than televisions. Nintendo's Wii U ships with a controller that embeds a large touch-screen display, which can serve as a secondary display for enhancing game play on a television or can serve as the system's main display in place of a television. Sony's PlayStation 4 has built-in capability to stream any game content playing on the device to Sony's portable game console, the PlayStation Vita, which can act as a main display and input device for the system in a manner similar to that of the Wii U's game pad for that system. Microsoft's Xbox One has a similar feature that allows content streaming to tablets and other mobile devices. These types of capabilities did appear on Microsoft's and Sony's seventh-generation consoles, albeit in a much reduced form; the eighth-generation consoles include many optimizations to allow them to serve content to external devices.

The PlayStation 4 and Xbox One also have hardware-level features that facilitate integration with cloud-based services. Both companies have announced plans to deploy cloud-based services in the near future for enhancing systems' built-in capabilities, although plans currently are vague. Early in 2014, Sony announced that it would be offering a game-streaming service that could work with a broad range of internet-connected devices, including PCs, smartphones, tablets, and smart TVs, as well as the company's game consoles. This streaming service does not take advantage of the cloud-optimization features built into the PlayStation 4 but does represent a concrete step toward building out the kind of cloud-based architecture that will be necessary in order to deliver advanced services to the PlayStation 4 in the future. The Xbox One also ships with a highly refined version of Microsoft's Kinect, a device that serves as both a high-precision depth camera and a microphone array. The new version of the Kinect supports automated user-recognition features and enables sophisticated "always-on" voice control (see the November 2013 Viewpoints). Microsoft also included an HDMI pass-through functionality with the Xbox One—a feature that allows the console to serve as a meta-interface for other TV-connected devices, potentially including pay-TV set-top boxes (STBs). Future updates may allow the console to function as a meta-interface for an entire home-entertainment and home-automation ecosystem, but such eventual capabilities are far from assured.

Pay-TV Disruptions

Microsoft's Xbox One's meta-interface features are another instantiation of a decades-old strategy among consumer-electronics makers, the aim of which is to establish a single device as the gateway for every type of networked service a home user might imaginably need. (For a discussion of this strategy, see the July 2012 Viewpoints.) Although many parties have had partial success in implementing such a strategy, no device maker has ever been able to set itself up as a de facto monopoly power over all strategic points of value in mainstream home-network environments. Many reasons explain this inability, but the most important reason has been the control that pay-TV providers have tended to wield over households' TV- and network-connected experiences.

Overwhelmingly, pay-TV providers have maintained tight control over the means through which viewers can access their services, in the form of provider-approved (and, in many key regions, provider-owned) STBs that serve as gateways for tuning in to encrypted pay-TV broadcasts. The need for an STB tuner has an important consequence: In order to select programming and other services available from the pay-TV provider, a subscriber must interact with the STB's user interface (UI) directly. Thus, UI features available on smart TVs, game consoles, and other TV-connected devices that aim to consolidate all one's available digital content cannot truly function as their designers intend; one will still have to switch to a completely different UI in order to access content from the pay-TV provider (including live television). Some important exceptions to this rule continue today, just as have existed throughout pay-TV's entire history—but many converging trends have made such exceptions less and less relevant to the average pay-TV household in the past ten years.

In 2013, however, several major pay-TV providers took major steps toward reducing the primacy of STB UIs and allowing subscribers much more choice in how they experience their content. US pay-TV providers Comcast and Time Warner began allowing users to stream live TV content to their Xbox 360 game consoles directly, without needing an intermediate STB. Several European providers, including Canal+ and Vodafone, have previously offered live-TV streaming to Xbox 360 owners, and US-based Verizon has also offered live-TV streaming on a limited basis. Comcast's and Time Warner's enabling of live-TV streaming now makes the Xbox 360 (and its successor) credible UI platforms for live pay-TV content across most of the US market.

More significant, in late 2013, Comcast began offering its subscribers access to live-TV streaming on iOS and Android mobile devices via any Wi-Fi internet connection. Like many other pay-TV providers, Comcast previously offered live-TV streaming on mobile devices from within a subscriber's home Wi-Fi network. Eliminating that requirement is inherently disruptive to the US pay-TV business, because Comcast users can now receive Comcast pay-TV services via broadband connections that competing pay-TV providers offer. Such arrangements are becoming popular outside the US market; for example, British Sky Broadcasting has offered a limited live-TV access package for mobile-device users since 2012. Unlike Sky's offer, Comcast's offer currently requires the user to have a subscription to the company's pay-TV service, which includes an STB for the home.

Pay-TV providers also have been taking significant steps to improve their STBs' UI performance so as to deliver the kind of user experience that subscribers are accustomed to receiving from their smart TVs and other TV-connected devices. Pay-TV STB UIs have notoriously lagged behind those of comparable devices, causing significant frustration for end users and contributing strongly to user demand for solutions like the Xbox One's meta-interface. Several pay-TV providers rolled out new hardware during 2013 with UI features that represent massive improvements over previous pay-TV UIs, but one provider's rollout truly was disruptive: In July 2013, US provider Charter began offering new thin-client STBs that use cloud-based rendering for all its UI features. (For a discussion of cloud-based rendering, see the April 2009 Viewpoints.) Other pay-TV providers have been leveraging cloud technologies to improve user experience and increase bandwidth efficiency via rendering certain UI elements using cloud-based hardware; Netherlands-based Ziggo has the most extensive deployment of such technology and has reaped significant gains from it. Moving the cable STB UI entirely to the cloud, as Charter has done in its test markets, fully decouples the pay-TV user experience from specific end-user hardware. However, what impacts cloud-based UIs ultimately may have on pay-TV-service delivery and on home-network environments remains a question; thus far, impacts have been relatively minimal.

Pay-TV providers have increasingly come under threat from services that companies outside the pay-TV industry deliver over broadband networks, and such threats intensified in 2013. In February 2013, internet-video-streaming provider Netflix began offering House of Cards, the company's first of several exclusive self-produced television series. House of Cards was not the first television series to have its first-run broadcast stream over the internet rather than over a conventional television network, but the series nevertheless represented an unprecedented step toward establishing internet-based services as premium delivery channels for compelling first-run television content. The casting, production value, and production budget (some $4 million per episode) of House of Cards were on par with those of premier conventional television shows like Game of Thrones and NCIS. Netflix debuted several more high-profile original series in 2013, and Amazon also began producing its own high-budget television content for streaming over its Amazon Prime video service.

Disruptive Displays

Home-display markets also experienced disruptive developments in 2013. During the year, Chinese electronics manufacturers Hisense and Seiki both released 4K ultra-high-definition (4K UHD) televisions at price points that are dramatically lower than those of 4K UHD televisions available from other TV manufacturers such as Sony and LG. The 4K UHD format displays video at a resolution of 3840 by 2160 pixels—some four times the pixel resolution of conventional 1080p HD televisions and very near the resolution of the digital-cinema projectors that are now standard in movie theaters around the world. At the beginning of 2013, 4K UHD televisions were still very rare in the marketplace, and those sets that were available cost $10 000 or more. Seiki's April 2013 offering of its 50-inch 4K UHD model for $1500 surprised TV-market analysts, who had not expected 4K UHD televisions to fall in price so rapidly. The acceptable quality and performance of Seiki's television, and its low price point, helped make the model very popular among early adopters. These factors, in turn, motivated other TV manufacturers to begin rolling out 4K UHD models more rapidly, and at lower price points, than analysts had anticipated. By the end of 2013, 4K UHD models were available from premier manufacturers such as Sony and Toshiba for less than $3000.

The price/performance transition of 4K UHD televisions from high-end niche products into mainstream products, with little price premium over conventional HD televisions, occurred so rapidly in 2013 that content providers had no opportunity to adapt. The PlayStation 4 and Xbox One are both capable of displaying 4K UHD content, but both systems currently appear to lack the processing power to render high-end video games in those resolutions (future programming refinements and incorporation of cloud-rendering features may change that situation in the future). Pay-TV providers cannot easily switch to offering 4K UHD content. Internet-video providers can make such a switch rapidly, however, and before the end of 2013, Netflix and Amazon both announced that they would be offering all their 2014 original programming in 4K UHD resolution.

Look for These Developments in 2014

  • Expect significant disruption in the console-gaming market as Valve Software's Steam Machine PC-gaming platform undergoes key UI refinements. Steam is the most popular digital-distribution service for PC games, with some 65 million users worldwide. Valve Software, which owns and operates Steam, released a TV-based UI for the platform in 2013 that allows users who have connected their PCs to their televisions to interact with the service more easily when sitting far away from their televisions (on the living-room couch, for example). The company also released a free, low-resource PC operating system on which Steam can run and launched an effort to encourage third-party developers to build PC hardware optimized for running Steam games. Most important, Valve also demonstrated prototypes for a new kind of game controller that will, ideally, allow people to control PC games with the same level of precision and flexibility of control that are available currently with a keyboard-and-mouse combination. PC gamers widely consider the keyboard-and-mouse control configuration to be essential for competitive play in many types of PC games, and game programmers often design PC games around the keyboard-and-mouse interface. But despite its advantages, the keyboard-and-mouse interface has never worked well for playing PC games on the couch as one would play console games; conventional gamepads have been far better suited to such a task. Valve has, therefore, invested heavily in developing a crossover between the form factor of a gamepad and the precision and flexibility of a keyboard-and-mouse control scheme—a task that other companies have been trying and failing to accomplish since the mid-1990s. The company's current prototypes are promising, and if Valve succeeds in refining and releasing its new controller in 2014, the company will have in place everything it needs to become a significant competitor in the game-console market.
  • Look for a surge in low-cost home-automation products equipped with Wi-Fi and Bluetooth low-energy connectivity, in place of (or in addition to) connectivity protocols like Z-Wave that target home automation specifically. Wi-Fi-based home-automation equipment has been developing slowly in the past several years, but in late 2013, major manufacturers such as GE began releasing large numbers of low-priced, high-capability Wi-Fi home-automation products, including sensors, switches, and information displays. Growing manufacturer support for Wi-Fi has accompanied a growing trend among smartphone- and tablet-application developers to create interface software that can control multiple home-automation devices from multiple manufacturers. The year 2014 thus begins at a point at which some major obstacles to widespread adoption of home-automation technology have diminished in importance.
  • Do not be surprised if virtual-reality displays become the most sought-after home-electronics gift items during the 2014 holiday season. During 2013, Oculus VR, a start-up that is working on a virtual-reality headset product, the Oculus Rift, went from being a tiny company with a promising early prototype product to being a major disruptive force in home-video gaming. In April 2013, Oculus announced that John Carmack, a pioneering 3D-graphics programmer whose work has had significant influence on the development of 3D-gaming-graphics technology, was joining the company as CTO. Carmack's hiring, coupled with important technology refinements and increasing support of the game-developer community, helped Oculus VR secure some $91 million in venture funding during 2013. The Oculus Rift headset differs from previous VR-headset products in several critical respects, including being capable of presenting the wearer with a wide field of view that fully envelops the wearer's peripheral vision and being capable of responding to the wearer's head movements with an exceptionally high degree of fluidity and accuracy. Final product versions of Oculus Rift may appear in late 2014, and—depending on their price points and performance—the devices could become the preferred method through which people experience networked games—and even video entertainment—in the home.