Connections: the Digital Living Conference, Santa Clara, CA—a panel looked at on-going efforts to implement the connected consumer. The moderator, Kurt Scherf, vp at Parks Associates, started by asking about panelists efforts at implementing lockers.

Kanaan Jemili, VP at Divx, stated that work is progressing on software, but they need to address many platforms to enable a full ecosystem. Paul Brody from IBM noted that lockers will require delivery of services as well as implementation software. Given these requirements, IBM is a player in the ecosystem.

Dan Scheinman, SVP and GM at Cisco Systems, suggested that there is a need for a lot of support hardware and also changes in media itself. Anthony Bay, CEO of MOD Systems, made a distinction between anything digital and content delivered directly to the consumer via a retail channel. Consumers want to access content away from home but don't want the sales channel to determine this for them.

In response to the question, “is video and music increasing new dollars or cannibalizing existing markets”, Scheinman observed that digital media is likely to be a new site and will therefore represents new ways to make money. The core of this new business is in the data itself and the ability to have new experiences with this data. In addition, this is a change in distribution, not a change in outputs. Theaters will still exist so digital media will allow for new sources of income.

Bay offered an example of airport kiosks as a new source of income for the media industry. It enables different locations for businesses, and by increasing the number of locations to read content, broadens the points of distribution and increases overall revenues. Retailers must also consider the variety of playback mechanisms available, not only in-house DVDs, but also laptops and other portable media players. The variety and capacity of portable storage is increasing dramatically offering another vehicle for digital media. If the industry creates new access points, these locations will increase revenues for the industries.

Jemili opined that some of these new dollars are coming at the expense of something else. For example, pay TV revenues are decreasing while the iPhone represents new dollars for AT&T and Apple. As content moves from the television to mobile platforms, consumers are showing a willingness to pay something for that experience and convenience. The SD card must be considered as one of the new media platforms.

Brody said the jury is out. Right now the industry is going through a formats and standards war just as the music industry had similar challenges in the transition from analog to digital. The transition resulted in flat to slight increases in mobile revenues if the hardware was included in the measurements. Digital content represents a big opportunity. Consumers want solutions that are willing to pay for them they are right. The new ecosystem will exist, but musicians and other talent will not see larger incomes.

Scheinman observed there is a benefit to being a musician, even if content is transferred to other media while no additional money is changing hands. As an example, broadcast television brings in little over a dollar an hour, whereas Web television brings in about $.18. The content is distant from the consumer who needs the data but wants to choose the platform and time.

The next question concerns the value of movies. Consumers have expressed a desire to see movies for $10-$12 but Hollywood is asking for $15-$20 and even more for a Blu- Ray - DVD bundle. Are their digital efficiencies of scale?

Bay noted that the cost of the DVD is actually the price of the option to watch that content on a television. If there is no physical medium involved, consumers believe there should be less money involved also. Brody added that Apple has created a complete experience, but consumers don't understand the underlying licensing issues.

Kanaan noted that the millennial age group, those between 14 and 33 years of age, are adding a generational aspect to this issue. These people do not have a problem if there's no physical medium for the content, and still will pay money for it. Scheinman offered the statement that the studio executives are too risk adverse. They need to understand that content will show revenue, only if it is a competent form of storytelling, not just a formula.

In response to the question, “what are the benefits for stakeholders?” Jemili suggested that the changes in devices that connect to the Internet are good and push money back into the entire supply chain. The industry must address multiple forms of content and needs new business models to get a cut of the new money.

Scheinman reported that websites covering British football experience large peaks just before a game. Apparently, fans and gamblers are looking for last-minute information. Consumer electronics manufacturers can contribute to monetization of new media by observing and enabling these types of behaviors and charging for this information.

Brody speculated that consumer electronics companies are facing commoditization by foreign manufacturers who are consolidating and simultaneously expanding to adjacent markets. They are changing from making boxes to facilitating content management. Companies like Phillips don't want to create content, so they are developing services delivery platforms.

Bay suggested a risk that consumer electronics companies face in trying to get a piece of the action. One problem with a connected television is the 87 icons on the screen. Without integrated services, too many vendors rushing in to get money will only create confusion. Each unit in the house must perform its basic function well. Adding more boxes external to the basic unit is not problem as long as each component executes the basics well. So far, only Apple has been successful in integrating hardware and software.

In response to the question, “what type of partnerships will arise between service providers and consumer electronics companies? Brody said that they must provide additional value. For example, before the iPhone most people used one or two functions on their cell phone. This jumped to between seven and nine functions on the iPhone. If you make changes to the television and add a video camera and Skype, is a useful combination on the other hand if you add one more video on demand there is no additional value. If the content and configuration are compelling, people will change the hardware.

Scheinman added that content is the key. Digital media facilitates creating bundles of mixed cheap and expensive content. Because hits are rare, the venture costs are very high, leading to success rate of less than 1 percent. The primary ingredient for success is the integration of services and content and the ability to deliver targeted services.

To wind up the evening, the question was posted "what's in the future?”

Bay predicted it will be just as confusing next year. The number of platforms and type of media will increase leading to proportional increases in consumption. The question is, "Is anyone going to make money on this?"

Scheinman proposed that long form content will have a crisis similar to that seen in music by the end of the year. Brody added that content is king and we'll be seeing more intersections between content owners and various channels. Jemili considered the start of new business models to address changes in technologies, and that retailers will become more engaged in content.

Finally, Scherf suggested a change will take place in the industry. Service providers will partner with consumer electronics manufacturers to address issues like cord cutting. The control for video on demand will move from the couch to a storefront.

TM