By Jimmy Schaeffler

Key trends in the development of consumer electronics (CE) products are taking shape that will have a significant effect on subscription satellite-based services. Officials from direct broadcast satellite (DBS) and satellite radio services would be wise to learn from the rollouts of other consumer electronics services to avoid repeating problems of the past.

The Carmel Group has identified 10 key CE trends:

1. Novel Concepts and Niche Markets;
2. Consumer Preferences for Immediacy, Choice and Control;
3. Hardware Mobility;
4. Simplicity;
5. Quick Revenue Streams;
6. Low Margins;
7. High Content Costs;
8. Fierce Competition;
9. Customer Customization;
10. Real Time

Novel Concepts and Niche Markets

Novel concepts and niche markets are important because new technologies are helping hardware and software designers to quickly, affordably and, sometimes profitably, implement ideas that could have only be dreamed of a decade ago.

Perhaps one of the earliest and best examples of national deployments to niche markets is the rollout of satellite-delivered TV service to hundreds of millions of potential subscribers beginning in 1994 when DirecTV launched service. With a continental footprint, a geostationary satellite could deliver the same signal to everyone in the United States and beyond. That wide geographic reach justifies big expenditures to deliver content that could not have gained a sufficiently large audience among the largest regional cable systems. DBS operators can cobble together enough single-channel, niche viewers across the nation to do so cost-effectively, in contrast to cable operators in small, mid-sized or even the largest cable systems. The DirecTV NFL Sunday Ticket, the satellite radio adult pay-per-listen (PPL) channels, and possibly the nascent Major League Baseball broadband out-of-market content packages are three key examples of a natural advantage in point-to-multi-point services held by satellite services.

Immediacy, Choice and Control

Hand in hand with niche markets and novel concepts is the idea of offering consumers immediate service, choice and control. Just about every key consumer electronics deployment features hardware or software that gives the consumer more choice and control than ever before. For example, the video game industry began with a couple of providers and a handful of game choices. Now, thousands of video games are offered by a number of key providers. DBS providers each began by delivering 100 video channels. Now, each offers close to 300 channels. Indeed, the number of channels provided by DBS is expected to keep growing.

CDs offer another example of increased consumer choice and control. Consumers now can individually “burn” their own CDs. Personal digital assistants (PDAs), home computers and digital set-top boxes (STBs) are other examples of consumer choice and control. Those products also offer immediate access to coveted content. Further examples include digital video recorders (DVRs) and video-on-demand (VOD), which allow consumers to see large sums of content when they want. That content also can be retrieved in whatever room of the home a consumer wants for a price that makes sense for the consumer and – ideally – for the operator, as well. VOD and DVR deployments are still in their infancy and pose a challenge in assessing their revenue growth thus far. Nonetheless, The Carmel Group is comfortable projecting DVR growth in the United States will reach almost 30 million units by 2008, as noted in the accompanying chart. Since there are over 500 million VCRs deployed globally today, the 30-million mark is achievable.

Indeed, consumer electronics hardware and software is headed in the direction of “anything, anywhere.” Additionally, just about every form of set-top box is becoming a significant processing computer these days. Those devices range from DVRs, VODs and DVDs to modems and broadband terminals.

Another key trend is hardware mobility. Hardware is becoming lighter and smaller, and the content is being developed to fit mobile devices. Most users today would in no way be surprised to hear that mobile phones eventually might replace the standard landline telephone.

Challenges Ahead

Nonetheless, an equal number of challenges and pivotal obstacles remain for product planners and strategists. These hurdles are related to consumers, the government, the courts, and simply business itself. Key among the concerns are the complexity of modern technologies, coupled with consumers receiving inadequate information, inadequate consumer demand, and the stifling of product and service marketability.

Concerns about government actions are legitimate. Government officials are concerned about digital rights management (DRM) and the implementation of standards. One example is the Federal Communications Commission’s (FCC) request that an interoperable satellite radio box be developed by the two U.S. service providers, Sirius Satellite Radio [Nasdaq: SIRI] and XM Satellite Radio [Nasdaq: XMSR].

A key “business” challenge involves managing price points. Traditionally, the CE market considers getting the price of a product below $299 first, and then below $199, as key benchmarks before a business will reach a so-called “critical mass.” The development and deployment of the VCR in the U.S. is a prime example of this lesson.

Conclusion

Observers might question the importance of looking at trends when developing a new CE business model. They may want to remember that in military training, instructors fashion learning around historical lessons and patterns. The reason is that humans have a tendency to repeat history by making mistakes already committed by others.

With that thought in mind, trends seen in one part of the CE market are applicable to others. In addition, challenges encountered in one area often are experienced in another. By studying these tendencies and implementing business models that account for these trends and challenges, business development executives and strategists could do a better job of what they are paid to do: Grow business!

Jimmy Schaeffler researches, analyzes and writes this monthly feature for SATELLITE NEWS. He is a consumer electronics analyst at The Carmel Group, a satellite consulting firm and a publisher of industry databooks and the monthly newsletters Satellite Radio Investor and DBS Investor. The Carmel Group is based in Carmel-by-the-Sea, Calif., (http://www.carmelgroup.com) and specializes in telecommunications, computers and the media. Schaeffler can by e-mail, [email protected], or by telephone, 831/643 2222.