10 Years Into CE Daily: iRevolution, Smartphone Explosion, Cloudy Future

The iPod’s impact on the audio business can’t be overstated. For an industry accustomed to physical media and component-sized equipment, the idea that a portable device and intangible music would take over the industry was impossible to grasp -- until it happened. A former Circuit City employee, Brad Gray, now a marketing director at insurance company Mondial Assistance, reflected recently on the impact of the iPod, recalling he was “a middle-performing portable audio buyer for Circuit City when the iPod came out,” Gray told us. It took Gray more than a year to convince Circuit City executives “to even give Apple a call to talk about iPod,” he said, and it took another year after that before a distribution agreement on iPod could finally be hammered out. “In a three-year span, the iPod delivered about $2 billion in revenue to Circuit City,” Gray said. IPod accessories drove another $100 million in profit at the chain in the early years, he said.

But even the iPod couldn’t save Circuit City. When Circuit City disclosed liquidation plans in January of 2009, “It was a startling demise for a chain that once had the upper hand on Best Buy,” we reported (CED Jan 21/09 p1). Apple wasn’t listed as one of the largest creditors listed when Circuit City first filed for bankruptcy protection in November 2008 (CED Nov 12/08 p1), a list that included HP, Sony, Samsung, Zenith, Toshiba, Alliance Entertainment and Garmin, Olympus, Nikon, Paramount Home Video and Panasonic, among others.

The iOS family was just part of the technology revolution of the past decade. In 2001, a stream was a place you fished, and the cloud was what passed over the sun. In 10 years, digital cameras have leapfrogged in megapixel count and resulting image size and have taken advantage of processing power and software to become all-in-one cameras/editing studios. TV transitioned successfully from analog to digital, and the seminal VCR has all but disappeared. Sony, the one-time leader in TV in the U.S., has given way to Korean rival Samsung, and physical media sales have dropped precipitously as audio and video downloads have surged. PCs are moving from DVD-R drives to higher density Blu-ray successors -- or no optical drives at all -- as solid-state drives are moving in and content is shifting to the cloud.

We tracked some of the hot topics Consumer Electronics Daily covered in its inaugural issue of Oct. 16, 2001, so we could revisit where they stand today.

An early Olympus digital camera, the C-3020, debuted in October 2001 and was a standard-setter for its time. At just over 10 ounces, the $499 camera boasted a 3.2-megapixel sensor with 3x optical zoom, six-mode flash and slow-synchro red-eye reduction. The equivalent camera in Olympus’s lineup today is the XZ-1, according to Sally Clemens, product manager, Olympus Imaging America. The $450 price is similar, “but the level of technology that one can purchase for the same price is far superior,” Clemens said, citing the 1.8 lens, 10-megapixel sensor, a 4x zoom lens, HD video capture and an OLED display, which offers better viewing in sunlight, “is much sharper, and displays colors with greater saturation and contrast.” The 3020’s bendable SmartMedia card was dropped in favor of SD along the way. The flash functionality is similar to predecessor models but is now more “more accurate” and allows for wireless control, Clemens said.

Weight is an ounce less but the body is half the thickness of its older cousin due to new optical designs for powerful zoom lenses using fewer glass elements, which allows for the more compact bodies consumers demand. The megapixel race has slowed, while processing power has shot up in the past 12 months. “We anticipate this will continue, allowing focus speeds and frame rates of even compact cameras to equal those of much more advanced equipment,” Clemens said. Improvements in image sensor sensitivity and optical designs will enable users to shoot with better results in more challenging environments such as low light -- or for high-speed photography for both stills and HD video, she said.

Notable in our Consumer Electronics People section, Robert Pittman, then co-COO of AOL Time Warner, was announced as the keynoter of the upcoming 2002 CES. AOL and Time Warner had merged in January 2000 with the hope that AOL’s buy of Time Warner for $182 billion would create what CNN Money called “a digital media powerhouse with the potential to reach every American in one form or another.” In July 2002, our sister publication, Communications Daily, reported Pittman would leave his post amid a management shuffle. AOL and Time Warner divorced in 2009 following what stock analyst Larry Kramer called “a spectacularly failed merger.” This month, Pittman was named CEO of Clear Channel Media Holdings, overseeing the company’s global media properties, including broadcast, digital and mobile, syndication, media representation and outdoor.

The hot cellphone news of October 2001 was the $400 Handspring Treo, due out in early 2002 touting a monochrome screen, with a $600 color model to follow mid-2002. The Treo GSM phone, carried by Cingular (bought by AT&T in 2004) and VoiceStream (which became T-Mobile in 2002) packed a 4-inch LCD with 160 x 160 resolution and Motorola’s 33-MHz Dragonball processor, 16 megabytes of RAM and VGA camera.

Fast-forward to 2011, and Apple’s standard-setting iPhone 4S ($399) has just hit store shelves with an eight-megapixel camera that can take 1080p HD video, packs 64-gigabyte onboard storage, can stream music from an iCloud music locker or Internet radio sites, offers video chat capability and can stream video to a TV without wires. It has a color 960-by-640-pixel-resolution color in-plane switching display, GPS and Bluetooth, and its dual-core A5 processor promises to accelerate graphics by seven times over last year’s iPhone.

Not to be outdone, new phones from Motorola and Samsung had splashy debuts this week, running Android software from Google. The Motorola Razr, running Android 2.3.5 Gingerbread operating system, boasts a 4.3-inch Super AMOLED display, 1.2-GHz dual-core processor, eight-megapixel camera with 1080p video capture and 16GB onboard memory. Samsung’s Galaxy Nexus, running Google’s much-anticipated “Ice Cream Sandwich” Android 4.0 operating system, touts a Super AMOLED HD display, 1280 x 720 five-megapixel camera with zero shutter lag and 1080p video capture. Both phones offer dual cameras for video chats, Bluetooth for wireless headsets and are compatible with the nascent LTE high-speed data network.

Videogame consoles, led by first-gen versions of Xbox and PlayStation, were forecast to be the 2001 holiday season’s “must-haves” for online shoppers, according to comparison shopping website BizRate.com, we reported on Oct. 16, 2001. For 2011, with successor game systems Xbox 360 (2005) and PS3 (2006) well into their product cycles, video game consoles and games hold less prominence in post-Thanksgiving purchase plans, according to NPD’s annual holiday retail outlook for 2011. Electronics -- including TVs, home theater systems, home audio products, satellite radio, GPS systems, computers and peripherals, digital cameras and MP3 players -- rank sixth on this year’s top 10 shopping list items, with music placing ninth and video game systems and software rounding out the list of 10.

Among all categories, according to NPD, “With no new items rocking the consumers’ world or anything to feed a shopping frenzy,” significant growth in electronics isn’t likely this season, NPD said. “Combine that with the many social and economic issues that have turned into distractions, and it will be very challenging to get much growth from a consumer base that is in limbo,” it said.

But videogame consoles and games still have a commanding position in consumer spending, NPD said this month. In addition to the $1.44 billion spent by U.S. consumers on new physical video and PC game software in Q2 2011, the total consumer spend on content via other methods -- including used games, game rentals, subscriptions, digital full-game downloads, social network games, downloadable content, and mobile games -- was estimated at $1.74 billion, NPD said. The total amount spent by consumers on hardware, content and accessories in Q2 was pegged at $4.5 billion, a bump of 1 percent versus Q2 2010, it said.

In October 2001, SanDisk launched a line of Ultra CompactFlash high-speed storage cards -- the chosen card format of high-performance camera companies including Nikon and Canon -- with a write-speed of 2.8 Mbps. Suggested retail price for a 128-megabyte card: a hundred bucks. SRPs in the line topped out at $500 for a 512-megabyte card.

Jump to 2011, and SanDisk released a 128-gigabyte Extreme Pro CompactFlash card for professional photographers, a 100-fold capacity boost over the past 10 years, Shuki Nir, senior vice president and general manager for retail at SanDisk, told us. But CompactFlash has largely given way to the even more compact SD card and its Lilliputian sibling, the microSDHC memory card for mobile devices. SanDisk’s 64-gigabyte Mobile Ultra microSDHC memory card doubles the storage capacity of smartphones and tablets, according to Nir. The technology will also help enable the thin form factors of Ultrabook notebook computers.

Full HD video is a major driving force behind high-capacity memory cards for mainstream consumers, Nir said. One minute of HD video devours about a gig of storage, depending on resolution. Today $500 gets you a 64-gigabyte Extreme Pro SD card with a write speed of up to 95 megabytes per second. High-capacity SD cards today enable consumers to take “hours” of 1920 x 1080 video at 30 frames per second -- and in 3D -- “without worrying about running out of space,” Nir said.

Moore’s Law has played “a significant role” in the growth of flash memory as a mainstream storage solution, and that extends beyond memory cards, Nir said. SanDisk’s first SSD, a 20-megabyte unit, sold for $50 per megabyte in 1991, he said. “Today we pack an entire 64-gigabyte SSD into a postage stamp-sized package weighing one gram and selling for less than $2 per GB,” he said. That 30,000 times cost reduction is a key reason why flash memory has become such a ubiquitous storage solution, he said. Nir credited SanDisk’s multi-level cell (MLC) technology as “the key breakthrough that enabled us to produce flash at a fraction of its previous cost and to create large-scale consumer markets.” More recently, the company created three-bit-per-cell (X3) technology for further cost efficiencies, he said, and it is developing new technologies such as Bit Cost Scalable (BiCS) and 3D memory.

As smartphones and tablets continue their growth curve, SanDisk will ride that wave, Nir said. The company supplies embedded flash drives, SSDs and removable microSD cards, and the mobile market accounted for more than half of the company’s $4.83 billion revenue in 2010.

Copyright protection and digital rights management were hot buttons 10 years ago, and we reported in our inaugural issue that Sen. “Fritz” Hollings (D-S.C.) was urging digital device manufacturers and copyright owners to craft security system standards that would become federal regulations. In February of that year, a federal appeals court ruled that Napster, then a free music-swapping service, must “police its service to keep out pirated music,” our sister publication, Communications Daily, reported. That court refused to overturn a lower court order barring Napster from facilitating transfer of copyrighted songs on the Internet, in effect shutting down the largest pirated music service.

"I'd be on panels with recording industry people when there were a small number of licensed music services trying to take on Napster and unauthorized services,” Michael Petricone, senior vice president of government affairs at CEA, told us recently. Debates between content providers and hardware makers followed a predictable course. CEA’s position was, “If you really want to promote the sale of authorized digital music, you want to make it the most convenient and interoperable process possible for consumers, and to do that you should sell it without DRM,” Petricone recalled. Content providers “would go crazy,” he said. DRM was “expensive to implement and maintain and not very effective,” he recalled.

Petricone cited Steve Jobs’ “Thoughts on Music,” an open letter to record labels in 2007 beseeching music companies to do away with DRM. “As he was in so many areas, he was a step ahead of the game, and he knew where the market was going before anybody else did,” Petricone said. “I don’t think there’s any DRM system that hasn’t been cracked. There will always be illegitimate alternatives, but the way you can compete successfully is to offer the consumer a better and more convenient experience,” he said. The music industry “has come around to that view in past 10 years, and sales of digital music have exploded,” he said.

On Jobs’s passing earlier this month, the RIAA said in a prepared statement, “With the introduction of the iTunes software and other platforms, Steve and Apple made it once again easy and accepted to pay for music.”

Apple’s iTunes store launched in April 2003 with 200,000 songs that sold for 99 cents each. The recurring question of the time -- whether consumers would pay for music after they had gotten it for free from music-swapping websites -- was quickly put to rest. By September of that year, more than 10 million songs had been downloaded on iTunes. By February 2010, more than 10 billion iTunes songs had been downloaded.

As of January of this year, digital channels account for 29 percent of global music industry revenue, up from 25 per cent in 2009, according to IFPI (International Federation of the Phonographic Industry). Sales of digital albums rose 29 percent in the U.K., 43 percent in France and 13 percent in the U.S., IFPI said. The RIAA began reporting download statistics in 2004, when single downloads -- iTunes included -- totaled 139.4 million, along with 4.6 million albums. Last year, RIAA reported 1.16 billion singles downloaded and 83 million albums. The CD, meanwhile, followed an opposite trajectory, with 767 million CDs shipping in 2004, falling to 225.8 million in 2010, RIAA said.

Today, the RIAA promotes that 13 million legal tracks are available online and more than 400 licensed music services are available worldwide, Liz Kennedy, director of communications for the RIAA, told us, citing “the partnerships between music labels and their business partners.” Ten years ago, by contrast, “the legitimate digital marketplace was just beginning to develop,” compared with today where there’s “an unprecedented variety of label-licensed choices for accessing their favorite music,” she said, noting download music services Amazon MP3 and iTunes, subscription services Spotify, Rdio, Rhapsody and Napster, as well as digital and Internet radio services from SiriusXM, MOG, Pandora, LastFM and Slacker. Video downloads and streaming followed the audio lead with legal sites including Vevo and YouTube, she said.

Still early in the transition to digital -- and years before the analog shut-off -- digital TV sales to dealers grew 69 percent in August 2001 to $244 million, including DTV-ready sets and those with integrated tuners, according to CEA figures cited in our inaugural issue. For the first eight months of 2001, dollar shipments were up an impressive 101 percent to $1.34 billion from the year earlier. Total TV shipments for 2001, however, were down 6.6 percent in value to $3.98 billion from $5.03 billion, on a 21 percent drop in analog TV sales.

In 2011, digital TV shipments to dealers totaled 16,757,122 units through Sept. 2, according to CEA. Dollar figures were not available, CEA said. According to CEA’s Digital America report from July 2011, the average wholesale price for a DTV dropped 10 percent to $580 last year and is expected to drop another four percent in 2011 to $557. TV shipments will top 33 million units in 2011, according to CEA.