Forget about iPod versus Zune. As popular as portable music devices are, they no longer represent the cutting edge of the digital music market today.
The next phase of digital entertainment innovation will take place in the home, and a bevy of consumer electronic manufacturers, from unknown startups to blue-chip bellwethers, are introducing products designed to bring digital media stored on personal computers to home entertainment systems.
Leading the news in the coming weeks are Apple Computer and Microsoft, both expected to introduce competing systems. Although details are still scarce on Apple’s iTV streaming media device, company CEO Steve Jobs last fall said it would allow users to stream wirelessly any content — movies, music or video — downloaded from the iTunes store. The official launch of the device reportedly has been pushed back until after the January 8-12 MacWorld expo in San Francisco.
Meanwhile, analysts expect Microsoft to outline its home media server, code-named “Quattro,” at the Consumer Electronics Show January 8 in Las Vegas. The company’s Media Center PCs have struggled in past years to make a real consumer impact, but the media-extending capabilities of the Xbox 360 show the company still believes there is a market for sharing digital media across multiple devices.
Other brand name manufacturers like Hewlett-Packard, Philips Electronics and Sony also say they plan to unveil new products this year. They join existing, music-streaming products from Roku Labs, Sonos, Logitech and others.
All this activity is coming to a head this year despite the fact that such products have yet to generate much consumer demand. “It’s a market that has been slow to take off,” says NPD Group analyst Ross Rubin, who estimates only a few thousand media extension devices — also called media hubs or media adapters — are sold in a month.
Many factors have combined to slow the market to date. Few U.S. households have a home wireless network required to connect computers to other appliances. Those that do have found the process of connecting media hubs to the network confusing, and many consumers don’t have enough digital music on their computers to justify the effort.
Additionally, such devices have been expensive, difficult to use and can’t access music bought from iTunes. Perhaps most significant is that digital music is considered a young person’s format, a demographic not known for home ownership. But hopes are high. A Parks Associates survey of U.S. consumers finds that 40% are interested in streaming music stored on their computer through their home stereo, but only 4% actually do so. Analyst Harry Wang calls this a tremendous market opportunity.
“They want this application, but don’t know that digital media adapters are the solution,” he says. “There needs to be more education about what a digital media adapter can do.”
With heavy brand names like Apple, Microsoft and Philips entering the market, awareness is expected to increase. Apple alone can do more to raise the profile of networking digital music in the home than any single company has to date.
Other factors are converging to open the home multimedia floodgates. According to In-Stat, 20% of U.S. households will have a home network by the end of the year, and 75% of those will be wireless in some fashion. Component costs are falling, which will result in cheaper units, and the growing popularity of Internet video is increasing demand for streaming media to the living room.
As a result, Parks Associates expects the market for media extension devices to almost double during the course of the year to 7%. While some smaller providers may be acquired by larger companies entering the market — such as Logitech’s acquisition of Slim Devices, which marketed the Squeezebox music streaming device — most are expected to hold their own as the market expands.
“Those products are probably better insulated because they’re focused on the music application and are addressing an area that the traditional competitors have been slow to embrace,” NPD’s Rubin says. Only a few high-end home audio manufacturers like Onkyo and Bose have experimented with multiroom digital streaming solutions. Yet startup Sonos, which introduced its first product in 2005, is seen as the leader in the space today.
The music industry has a vested interest in this market’s growth. Early studies indicate that media streaming solutions promote more digital music use. A survey conducted by Sonos found that people with media hubs listen to digital music twice as much on average than those who don’t.
RealNetworks VP of music Rob William confirmed this, pointing out that subscribers with Sonos devices use the Rhapsody service three times as much as other Rhapsody subscribers. “The PC is great for discovery, but pretty crappy for listening,” he says. “Having a dedicated appliance approach for the home is the way to go.”
For an industry relying on digital to save it from a downward spiral of CD sales, home media streaming devices might just prove the last piece of the puzzle.
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