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Connected Homes November 2018 Viewpoints

Technology Analyst: Michael Gold

Streaming-Video Perceptions and Realities

Why is this topic significant?

In the United States, most households that subscribe to streaming-video services also subscribe to traditional pay-TV services.

Description

Briefly during 2018, Netflix's market capitalization exceeded that of Comcast, one of the largest US broadband services and one of world's largest film and TV studios. Netflix's revenue is only about one-seventh that of Comcast, which has far greater net earnings. Expectations of growth drive up Netflix's stock price. Investment bank Cowen & Co. surveyed 2,500 US adults in May and found that a plurality of respondents ages 18 to 34 (about 40%) reported that Netflix is the service they use most often "for watching video on TV." Advertisers, investors, and other parties traditionally see 18-to-34-year-olds as candidates to become lifelong customers for products, services, and content brands. Netflix's success is inspiring The Walt Disney Company to discontinue releasing new movies on Netflix in 2019 and to introduce its own Disney-branded service. Reportedly, Apple will also compete with Netflix in 2019, and Walmart is considering a similar move.

Yet streaming services are far from the dominant US video services. In total, relatively costly cable, satellite, and fiber subscriptions remain far more common than Netflix subscriptions. Most Netflix, Amazon Prime, and Hulu subscribers also have traditional multichannel pay TV, according to GfK MRI. And more than 12% of US adults reside in households having at least three services: traditional multichannel pay TV plus two or more streaming services.

More than 70% of US households subscribe to video services from a cable, satellite, or telco broadband provider. Industry analysts at Kagan expect these traditional multichannel pay-TV services to lose about one-sixth of their US subscribers by 2022, with most defectors substituting "virtual" multichannel services. Such offerings, unlike Netflix, stream sports and news programming similar to what traditional services provide. Virtual multichannel services seeing growth include DirecTV Now, fuboTV, Hulu Live TV, Philo, PlayStation Vue, Sling TV, and YouTube TV.

Implications

The population that lives in households with traditional multichannel pay TV plus at least one streaming service—well over a third of US adults—is far larger than the so-called cord-cutter population that has discontinued traditional multichannel pay TV. Although the largest category of streaming services is subscription video on demand (Amazon Prime, Netflix, and others), virtual multichannel services are starting to thrive (DirecTV Now, Sling TV, YouTube TV, and others). If growth rates for the first half of 2018 persist throughout the second half, the number of virtual multichannel subscriptions will nearly double for the calendar year to about 9 million US subscribers, and DirecTV Now will overtake the current leader, Sling TV.

Multichannel services, virtual or not, have a potential pathway to major financial growth—namely, individually targeted advertising. In contrast, subscription video-on-demand services such as Netflix have minimal advertising.

Impacts/Disruptions

The US population may have fallen in love with Netflix, but it refuses to divorce the sports, news, and other long-form programming that only multichannel services deliver. A large population is likely to maintain at least one subscription video-on-demand service plus at least one new virtual multichannel service. People will switch services more easily than they do today. Switching might be mostly among large providers, including Apple and Disney. Very many households will still need AT&T or Comcast for broadband connections. And streaming services will need the same companies for supply of content (Warner Bros. is part of AT&T, and Universal Pictures is part of Comcast).

Scale of Impact

  • Low
  • Medium
  • High
The scale of impact for this topic is: High

Time of Impact

  • Now
  • 5 Years
  • 10 Years
  • 15 Years
The time of impact for this topic is: Now to 5 Years

Opportunities in the following industry areas:

Film and TV producers, postproduction services, broadband services, packaged video, cinema, advertising, home electronics, semiconductors, network equipment, aerospace, municipalities, home builders

Relevant to the following Explorer Technology Areas:

Smart Displays and the Future of Virtual Assistants

By Christian Feest
Feest is a technology analyst with Strategic Business Insights.

Why is this topic significant?

Most virtual assistants in homes today primarily use an audio input and output interface. However, several companies launched smart displays in October 2018. Reception to these smart displays is likely to shape the virtual-assistant market going forward.

Description

In October 2018, tech giants Google, Amazon.com, and Facebook released new smart displays. Smart displays serve the same function that smart speakers serve—as an interface to a virtual assistant—but also include a touch-screen-display interface.

The Echo Show is Amazon's second-generation smart display and has a 10.1-inch screen with integrated camera. Google has opted for a smaller 7-inch screen for its Home Hub first-generation smart display and has chosen not to include a camera, citing privacy concerns. Facebook's Alexa-powered competitors, Portal and Portal+, have larger screens (10.1-inch and 15.6-inch, respectively) and smart cameras that automatically follow the subject during video calls.

Implications

Virtual assistants are an evolving technology and so the standard interfaces, expected features, and common uses are still evolving. Just as many technological iterations were necessary before a large touch screen with minimal buttons became the standard design for cell phones, similar iterations are likely with virtual assistants and their interfaces. If these early smart displays prove to be popular, future devices for interacting with virtual assistants will be more likely to include touch-screen displays as standard.

A touch-screen display provides more detail to the user than an ordinary smart speaker provides and may provide a quicker or more convenient way to interact with a virtual assistant. A smart display will also be able to perform tasks that a smart speaker is unable to perform by itself, such as video streaming, web browsing, and video calling. However, many consumers may believe that another screen is unnecessary. Smart speakers can already serve to control other—perhaps larger and better-quality—screens around the home for watching video. Furthermore, most users are likely already to have a touch-screen device capable of interacting with a virtual assistant: a smart phone, conveniently in a pocket or nearby. The immediate challenge for smart displays will be to convince consumers that they provide value that existing screens do not.

Impacts/Disruptions

Adopters of virtual assistants are likely to benefit from the option to interact with their virtual assistant via touch screen but unlikely to want superfluous screens in their homes. This preference may mean smart displays initially gain greater traction in rooms—such as the kitchen—that frequently don't already contain screens.

In the longer term, smart displays may become more popular in spaces with existing screens, such as the living room, by integrating with other electronic devices with screens such as televisions, laptops, and tablets. Alternatively, smart display manufacturers could adapt their smart displays to fulfill the roles currently served by televisions and tablets. Both scenarios represent a blurring of the boundaries between smart displays and other electronic devices with screens. Rather than having a separate screen for the virtual assistant, the smart display could integrate into existing devices with screens. This integration would provide the benefits of a visual interface to a virtual assistant without adding an unnecessary screen to the room.

Scale of Impact

  • Low
  • Medium
  • High
The scale of impact for this topic is: High

Time of Impact

  • Now
  • 5 Years
  • 10 Years
  • 15 Years
The time of impact for this topic is: Now to 5 Years

Opportunities in the following industry areas:

Internet of Things, consumer electronics, computing, virtual assistants

Relevant to the following Explorer Technology Areas: