2006: The year of broadband, PSP and PS3
Were we on the money?
2006 in review Just over a year ago, Faultline made some of what we described as outlandish predictions. Partly this was tongue in cheek because we hear so many predictions from research outfits that appear ludicrous, and partly these were trends we were genuinely expecting. Some of them weren't particularly outlandish, so we admit they were safe bets.
Anyway, let's look back and see if any of them came up trumps.
The first was that the rate of global broadband installations would accelerate in real numbers, and they have, but we have yet to see any real effects from municipal wireless efforts, wireless broadband or powerline, although interestingly this week Paris has cleared the way for powerline broadband installations in the coming year.
We said broadband would accelerate to at least 280 million before growth in real numbers would begin to tail off. Well, we're approaching that number and could reach it at the end of this year, but installations are set to continue rising.
Our latest projections suggest that ADSL broadband lines will grow by around 46 million, and cable subs by 10 million, perhaps one million in total less than last year, but then again this year wireless and powerline will make a difference, and mobile broadband is beginning to become a reality.
Our second prediction was that mobile TV takeup would be monstrously huge wherever it is launched. We should have qualified that one a bit. What we meant was that where it was launched at Quarter sized VGA or better, with decent frame rates, it would be huge. To be fair in order to make that prediction right we would have had to qualify it far more.
Mobile TV takeup in Germany and the UK has not been strong. The only German system working has too few channels and uses T-DMB, while the UK uses DAB IP in its BT run Movio system and the picture is so poor as to be unwatchable.
Korea has two competing systems, and this has caused a lot of development issues, and the only two countries with huge growth have been Italy, which is on track to have 500,000 customers after six months, and Japan, which has an inferior technology which has been around for a while now.
Finland and Vietnam are about to come onstream, and during 2007 the US, France, and Germany will launch DVB-H systems and China may launch something. So we should repeat this highly qualified prediction for next year.
We also said that usage rates in the countries that get mobile broadcast TV will rise slowly, but achieve something like 20 minutes a day, up from 20 minutes a month now. They are already at this level and rising.
Predicting that big flat TV sales would double in volume, with LCD increasingly taking the mantle from plasma, was a "no brainer" and this has more than happened in 2006.
However, there has been no arrival of the ephemeral SED or similar advanced technologies at the top end and it now looks like LCD TVs are getting ready to drive up past the 50 inch level and dominate even more of the market. We also said prices would erode by around 35 per cent and perhaps faster during 2007, which is more or less on track.
Here's one we missed. We said that both News Corp and EchoStar will come up with a triple play during 2006. Well News Corp did, in the UK where it bought Easynet, but it didn't in the US, where it is set to sell off its interest in DirecTV to John Malone's Liberty Media.
EchoStar has yet to make the move either. The mystery has been why?
DirecTV was tipped to offer a merged broadband return path with EchoStar using the Clearwire WiMAX network, but neither have publicly announced such a deal. DirecTV probably held back while it negotiated with Liberty Media, and EchoStar perhaps believes that it will be acquired by one of the major US telcos, and didn't want to go down a route that it would have to unravel.
Perhaps this year then these two will build out a return path and a triple play.
We also said that this time Microsoft IPTV would launch on time, that it its new scheduled delivery, since the set top chip makers had been set back around nine months, would be met, and more or less it has.
We also said that initially it would sell very few and have no immediate effect on telco financial numbers and that's certainly true. In fact, that will continue to be true throughout 2007. We also predicted that at least one Tier 1 US telco CEO would leave office, well we didn't mean the CEOs of Nextel, Bellsouth and AT&T through acquisition, we meant through clear corporate failure.
That trend has probably been delayed by all the mergers and Wall Street giving the dramatically reduced number of players a chance to gel, but US Telcos still have challenges that will trip them up, but most likely under the next US presidential administration now.
We also predicted that Sony's stock market value would not rise above $40bn all year, while Apple's would remain above this number all year, peaking in March when Steve Job's share options vested.
We almost hit this prediction, but Sony's market value actually rose as high as $52bn at one point, but that was misguided and very temporary and it spent most of the year around $40bn and is currently $43.5bn.
Right now Apple is currently valued at just under $75bn, a record, and went as low as $44bn during July. One major peak was actually in February in plenty of time for Steve Jobs' share options to vest, but anticipation of the iPhone has recently rocketed the share value back up again. When we first started covering Apple during 2003 its share valuation was under $10bn.
We got the whole game console thing quite wrong saying that the PS3 would outsell the Xbox 360 in a ratio of two to one, in territories where it ships, constrained only by parts availability. Well, it was certainly parts constrained when it launched. PS3s, despite an unreasonably high price, have sold out wherever they have been delivered, and this week Sony said that it would meet its ambition to ship two million devices by the end of the calendar year and six million by the end of its own financial year in March.
But that won't see Sony's shipment rate double the Xbox, and this will now not happen until parts are fluid, and that means the difficult to make Blu-ray drives, so sometime around the second half of 2007.
But with the PSP, Sony has outstripped Microsoft and its Xbox considerably, while both of them have been surprised at the lively showing of the Nintendo Wii, which has taken games markets by storm, making up more than 50 per cent of sales in the past month or two.
We said that dual mode Wi-Fi cellular handsets would be out in 2006, but would sell in low numbers during the first year as operators struggled with the marketing message.
That's more or less on the money, and the message is more easily sent to the enterprise community than to consumers, and it will take all of 2007 for this market to warm up, but warm up it will.
We predicted that video file downloads and web portal video would see lots of launches during 2006, but no definite winner would emerge until well into 2007. We may have to extend this.
With the exception of Apple's iTunes which is doing well, and with Sony about to enter the market and with many internet video efforts coming from broadcasters, the market shape is unlikely to be clear at any point in 2007 and volumes will not rise substantially until 2008.
Saying that HD DVD would not survive through 2006 was perhaps something of a flyer, but despite Blu-ray delays, this looks like coming true before it is economically viable to make a player that can offer both HD DVD and Blu-ray, which would mean a merger of the formats.
However, we also said that UMD sales for the PSP would become significant in this market, having no idea that $30 would be the average price they would go to market at, which plainly was never going to work. The UMD is now mostly a game delivery device and most films were pulled on the format during 2006. Why didn't they just cut the prices?
To say that Sony PSP sales would sell over half the numbers of the iPod was bold, but it has turned out to be bang on with around 20 million devices now sold since last March when they were launched.
During 2007 the PSP will come into its own, we said, and there are big signs that it is doing just that, although it will need the Sony launch of an online film service for the PSP and the promised interaction with the PS3 to make the success spectacular.
We said that US Broadcast TV advertising would plummet by as much as five per cent, while cable advertising would surge. Well, we can count that as half right. We fancy that DVR installation rates means that although advertising rates per thousand rose mildly, the total number of advertising viewing hours fell by something like 11 per cent creating a net revenue reduction in the US TV ad market for the second year running.
However, the US advertising industry hasn't owned up to that, and it won't admit it going forwards either. By selling internet advertising at the same time, and in combined packages with TV ads, the broadcasters appear to have saved themselves from financial embarrassment, while cable, which continues to garner more and more of the total viewing hours in the US, had its ad revenues flat in terms of dollars per thousand viewers, and it lost a considerable number of viewing hours, so it fell further than broadcast.
However, we predicted the biggest growth area would be web based video advertising, which has risen by over 100 per cent compared to 40 per cent for overall internet advertising. It will rise by this much again in 2007.
We also predicted that Nielsen Media would have mobile TV viewing figures out by the end of 2006, but since these things tend to happen first in the US and Modeo never managed to get a cellular partner for its DVB-H service, there will be no mobile TV service launched in the US until MediaFLO launches in the first quarter of 2007. Modeo will launch just in New York in January, so we can repeat this forecast for next year.
We also said that at least one broadband supplier would attempt to block or slow VoIP or video traffic to the home, triggering a legal war. But the fuss about net neutrality in the US throughout 2006 meant that most telcos promised not to do this, in order to avoid a law being passed making it illegal.
Outside the US and the European Union, blocking video traffic by incumbents is now commonplace. Early in 2007 we will launch a Mobile TV report in conjunction with MRG in the US, and plan one of our next research papers to cover internet delivered video, so we'll save our concrete projections for these areas for 2007.
Copyright © 2006, Faultline
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