PARA Seeking to Reinvent Itself for Changing Connected Marketplace

At the member meeting in August, the group discussed the need to address the changing marketplace including wireless services and apps, retailers’ role in future technology, and how to compete with volume retailers, develop sustainable business models and invest in the business when traditional advertising and marketing models don’t work, Pflanz said. Guest speaker Mark Donnigan, principal of training and consulting company D-Launch, addressed the issues in a presentation to the group on Monday.

Starting from the premise that 10 percent of connected TVs aren’t connected, Donnigan told retailers than they could re-establish themselves as technology authorities in the digital age where “customers need support, service and expertise more than ever.” Donnigan called current home entertainment a “jigsaw puzzle of walled gardens that don’t interrelate.” Clearing up the confusion for consumers is an opportunity for specialists, he said. Velocity channels haven’t figured out how to do that, he said, so “we can again become specialists.” He also cited recent NPD figures saying 75 percent of U.S. consumers over 13 didn’t connect or download content in the previous three months, only six percent connected to the Internet with a video game console and two percent with a Blu-ray player. Although people have been exposed to connected devices and services, he said, they're “confused” and “looking for help in connecting,” he said.

Donnigan called Apple’s recent shift to the Airplay streaming model a “profound shift” to a cloud-based solution similar to Vudu’s move to abandon the download market and adopt the streaming model. What’s lacking in the market, he said, is a way to make it easy to get streaming content onto different devices. The Android platform is the next big thing, he said. Sony’s Internet TV with Google TV is important because it’s “built on the Intel platform running Chromium and has full access to the Android App store,” he said. “We're going to quickly find ourselves with consumer electronics products that run operating systems,” he said. Whether a consumer “buys brand x or brand y, I can run my favorite app on this product from brand x, and I can run the same app and get the same service from the product built by manufacturer y,” he said. Brands won’t go away, he said, but in a more commoditized world it will be more challenging to recommend one product over another, he said.

Despite the bleak outlook for product differentiation, Donnigan maintained there’s opportunity for education. He said retailers can help consumers navigate the new waters. Gone are the days of dealers selling packaged media, he said, but they're being replaced by “connecting consumers to media.” That means becoming authorities on differences in video on demand models including day and date release, pay TV windows, and explaining Redbox models. If the consumer can’t understand the basics of video streaming, “he gets confused and opts out of the whole thing,” he said.

Retailers should become experts on video technologies and services including Hulu, Boxee, Roxio Now and upcoming ones like DECE, Donnigan said. Despite published reports of a recent Netflix deal that it would “have access to everything in 2011,” it will actually have access to fewer than 25 new releases in a year for streaming, he said. It will be eight years before HBO titles appear on Netflix streaming, he said. Specialty retailers who know the limitations of certain models will become a go-to source for information, he said.

Apple is moving from a download rent-and-own model to a streaming rental model, and that’s important, Donnigan said, because “the problem with digital is, if you stream a movie over the Internet and it falls inside the pay TV window, it has to be removed from the digital service.” When Vudu had its download model, he said, the company was slammed by bloggers who thought the company was losing movies and in financial trouble, creating a bad perception in the market. There weren’t authorities available to dispel the myth, he said. The streaming model eliminates those concerns and opens new opportunities “that are going to be huge,” including the ability for consumers to finish a movie they started on an iPad while on the bus on an Apple TV at home, he said.

Donnigan also cited the cross-industry consortium DECE, due to launch in 2011, that’s designed to create a streaming standard so compatible devices will be able to play digital content regardless of where it’s purchased. Apple and Disney are not part of the consortium, he noted, but Microsoft, IBM and Intel are, along with major CE companies. DECE will be good for specialists, he said, who can explain the new technology to consumers and sell systems around the technology.

Donnigan said retailers need to become an extension of an existing ecosystem by getting into the networking business with solid lines of wireless routers, MoCA and powerline solutions. “When a customer wants help with Apple TV, you can help him connect it.” He also suggested building wireless packages around connected devices. Consumers are showing a desire “to invest in their ecosystem,” he said. The iPad sells for $499, he said, “but they'll pay an additional $500 to have it mounted elegantly in the wall.” The aggregate cost still comes in lower than a proprietary touch panel, he noted. It’s not just about Apple, he said. “The Android world is going to explode,” and bring with it a proliferation of accessories and devices, he said.

Another strategy was to “cater to cord-cutters” who want to unbundle from the cable company. “People are paying for 200 channels when they only watch 10, and they want to choose the 10,” he said. Customers need help doing that with off-air antennas, connected Blu-ray players for content and other devices that replace the cable experience, he said. He also suggested building solutions around products like iPad or iPhone that have become part of consumers’ lifestyles. “You can view these devices as threatening or realize that people are willing to spend a lot of money on Apple extensions,” he said. Another lifestyle vignette, he said, could be a streaming package built around a PS3. He told retailers, “We're no longer in the CE business, we're in the connectivity business."

In the Q&A, retailers expressed concern over how to get consumers to pay for services and how to beat Best Buy in these emerging markets. Pflanz suggested “joining together to wave a big flag,” but another member pointed out the difficulty in taking on Best Buy when traditional specialty suppliers like B&W continue to extend distribution to Magnolia Home Theater stores. “That’s the world we live in,” he said. “We can rail against it, but it ain’t going to change."

Consultant Eric Bodley said the various specialist buying groups -- HTSA, HES, SEN -- have moved “into separate corners of sandbox” becoming “a lot of Davids fighting Goliath.” Changing the name of the organization “isn’t going to do anything,” he said. “We should be working together,” he said, suggesting collaboration through CEA. He cited the recent 3D Demo Days promotion as a good idea, but one that specialists didn’t embrace, with only 61 businesses registering for the event.

Specialty retailers are stuck in the mentality of the ‘70s and ‘80s when audio was king and accounted for 30 percent of the CE business, consultant Robert Heiblim told Consumer Electronics Daily. “Now it’s 2 percent,” said Heiblim, the one-time Denon executive. “Not that audio has gone away” but “the rest of the industry grew.” Specialists are resisting new technology, he said, but consumers look at that attitude and say, “If you can’t work with Droid, why should I buy from you?”

Heiblim said the industry “screwed up 3D” because it didn’t roll out as a specialty launch where independents could handle the demos to make sure customers experienced the technology in the best light. He said studies show that 40 percent of consumers who have seen 3D demonstrated in stores came away “unimpressed,” which he attributed to stores like Best Buy lining up TVs next to each other causing IR interference, to lost or broken glasses and bright lights on screens.

Specialty AV dealers should have used the 3D Demo Days as an opportunity to show what good 3D can be, Heiblim said. The technical problems of 3D can be overcome in a controlled demo room with the right amount of people positioned in good locations, he said. “You can’t control the experience on a show floor eight feet off-axis,” he said. Part of the problem with 3D failing to live up to expectations is an overall lack of patience in the industry, he said. The product should have started out with specialists who could demo 3D effectively and then moved to volume retailers to bring the price down, he said.

Overall, Heiblim said, specialty retailers have to change mindset. “You can’t get better until you start saying the truth,” he said. “What we learned in the ‘70s isn’t viable anymore,” he said. “What took Best Buy 20 years to build up is going to take years to solve."

CEA Industry Forum Notebook

A “weak, mediocre recovery” continues “to limp on,” according to Shawn DuBravac, director of research at CEA, who said the weak labor market has resulted in weak wage growth and a consumer confidence level of 50 points. That compares with consumer confidence of 80 points during previous recessions and 100 points other times, he said. Despite the sluggish economy, CEA said, the CE category will fare better than most retail categories this holiday season and forecasts consumers will spend $232 on average for CE gifts, up 5 percent from last year and the highest amount since the organization began tracking holiday spending.

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The CE industry overall will see a 3 percent increase in shipments to $175 billion, according to President Gary Shapiro, who said CEA forecasts a boost to $182 billion for 2011.

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3D TV sales will come in far lower than forecast, in a “weak TV market,” according to the latest figures from CEA. It said 3D TV shipments are 80,000 monthly, and fewer than 1 million units -- some still in inventory -- have shipped in 2010. Citing the “incredible push” for 3D at the beginning of the year, Steve Koenig, director of industry analysis, said “we're still struggling on the content side.” To say 3D will be challenged to hit the 2.1 million unit sales forecast for 2010 “is an understatement,” said Shawn DuBravac, director of research for CEA. Among consumers who plan to buy TVs this holiday season, HDTV and LCD are high on the list, CEA said, with 3D TV at the bottom. CEA predicts 3D TV sales of about 1.4 million units for the year, DuBravac said, 700,000 coming in Q4. “It’s exactly what we'd expect it to be, though,” he said. “Technology starts off slow and ramps up quickly,” he said. Video game consoles and MP3 players will top the list of holiday gifts this season, CEA said, with tablet PCs and e-readers rising to the top gifts on consumer lists.

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Bryan Burns, vice president of strategic business planning and development for ESPN, said on a panel that 3D “is not going well” at retail. He cited different end caps in different locations in stores and lack of cohesive demonstrations as holding 3D back. Even 3D Demo Days disappointed, Burns said, citing a visit to a local retailer near his home in Connecticut. There were no signs for 3D, he said, and the 3D TV in the store wasn’t on when he went to see the U.S. Open there. “The salesperson asked me what channel it was on,” Burns said. “There needs to be an overall campaign for 3D,” he told us. Stores need at least to point shoppers to 3D, he said, “as a necessary first step.” Burns appealed to the industry to help support its efforts in delivering 3D content, citing considerable costs that limit what the network can do. He said ESPN 3D is reaching 62.5 million homes, far more than HD had at this point in its history. But movie content won’t be available in reasonable quantities until 2011, according to Jim Mainard, head of production development for DreamWorks, who said the 3D Blu-ray focus of studios has been to create “an out of box experience” for consumers who buy 3D TVs. Titles will free up “sometime in 2011,” Mainard said. Expectations for 3D penetration have been “unrealistic,” said Burns of ESPN, because content isn’t widely available, noting the long ramp-up required for HD. He compared 3D to HD in its early days, noting that four months into HD, pundits were saying the technology wasn’t going to work. “It’s too early to ask if expectations have been fulfilled,” he said. “It’s going to take awhile.”