CES 2012 Reflections: New Displays Hint at a Future, Hunger for a Business Model

It wasn’t too long ago that the hot acronym at the Consumer Electronics Show, held each January in Las Vegas, was HDTV. But this year, HDTV gave away to two new ones: OLED and CLED, with LG Electronics and Samsung introducing sets for the former and Sony for the latter. Yes, the technologies are related to HDTV, but they truly represent the next-generation home and professional viewing experience.

The demo of a new 55-in. OLED display by LG Electronics was one of the hits of the show. Now the question is whether it can become a hit after the show.

Both technologies, OLED (organic LED) and CLED (crystal LED), offer significant advantages over current LCD and plasma technologies: more-accurate colors, much improved dark levels, resolutions that move beyond 1080p. Of course, those improvements come at prices that are unknown but will no doubt cause potential buyers to blink twice (or maybe four or five times).

Briefly, here are some of the potential applications of the technology in the home:

• 2D viewing of images with four times the resolution of HD
• Full-resolution HD 3D viewing with passive glasses
• Glasses-free 3D viewing with much improved resolution and viewing angles
• The capability for “dual HD view,” which requires active 3D glasses but allows two viewers to watch two programs on the same TV at the same time (ear buds in the glasses transmit the correct audio signal).

Needless to say, when the doors closed on 2012 CES, the buzz among industry production professionals centered squarely on the new display technologies. But, as impressive as the capabilities are, there is a fundamental problem: with broadcasters unable to broadcast beyond 720p and 1080i and cable and satellite distributors unable to deliver even 1080p/60 signals, there is currently no way to deliver content that utilizes the capabilities of the TV sets. In many ways, they are out of touch with current market demands, pressures, and technology roadmaps.

Is the introduction of these technologies meant to lead to a viable consumer product within four or five years? And, with most American households having bought a new HD set within the past three years, what exactly will be the incentive to buy a new set with enhanced resolution, especially when most consumers today seem to be telling the marketplace that “good-enough” picture quality is just fine?

The introduction of next-generation sets points to next-generation problems facing the entire TV industry. The current business model, with Nielsen ratings, is working fine (especially for live sports). But there are plenty of signs that things may change drastically when it comes to watching TV in the next two or three years.

In the Beginning…
The combination of Smart TVs and Internet-enabled devices that can connect to a TV set will fundamentally change more than just how consumers get their content. It will completely change the value proposition of that content, the value of the pipes that deliver TV-specific signals, and the competition for viewer eyeballs.

Let’s start with the first issue: the value of content. As consumers begin to access free video services like YouTube and Vimeo on their TV sets and subscribe to streaming services like Netflix or Hulu, the value of content to consumers will fall. And we are already seeing content owners take action to maximize the value of their content. HBO, for example, last week became the latest content creator to tell Netflix “no go” on making HBO content available via rental or streaming. Expect others to follow.

But the ability for consumers to instantly access thousands upon thousands of hours of content without tuning into a TV network means that consumers will never be at a loss for an entertainment option. And, while plenty of viewers will gravitate toward hit programs, others will simply make do with whatever is available (or will have an opportunity to watch classic movies or TV programs not available via traditional TV viewing). The upshot is, as more and more content is instantly available to fill a viewer’s free time, the competition, especially for scripted programming, will become more intense when it comes to finding an audience.

Will Quality Be King?
So, if consumers are inundated with content through a combination of connected devices, downloadable films and TV shows, and hundreds of cable channels, the next question is what exactly is the value proposition of a cable or satellite subscription package?

There was a time when cable operators could increase the value of their services by offering more channels of more content. But will more channels be a selling point for a generation of viewers raised on YouTube, Netflix streaming, and other services that provide plenty of content for a tenth of the price? The answer, emphatically, is no.

The cable/satellite value proposition could potentially flip on its head, away from offering more and more channels to offering higher-quality services, services like 3D or 4K. And the proof of that can be found by simply observing the behavior of today’s HD viewers. Once viewers discover the HD tier, they tend to spend the vast majority of their time within it. The large number of non-HD channels are wasted bandwidth: rarely visited (especially with most networks now in HD) and nearly always redundant.

But, today, that HD tier is finding competition from streaming services making the move to HD (Apple is still rumored to be making the leap to 1080p). A flip of the input button, and the viewer is once again finding a wealth of HD content and bypassing traditional TV services.

So how will cable and satellite operators be able to keep subscribers? The most obvious way would be to couple the broadband/TV services in such a way that the decision to cut the cord on the TV service results in a large financial penalty on subscribing to the data side. Make it more expensive to not have the TV service than to have it, and consumers will keep it.

But another way would be to embrace the OLED revolution (and even the current 1080p/3D revolution) and create next-generation TV services that expand the available bandwidth to content creators and ensure that the viewer has the highest-quality experience possible.

That service would be a winner on two fronts. First, in about three more years, there will be approximately 30 million-40 million 3D and 1080p-capable sets in the market, based on current sales rates and the fact that most sets will have built-in 3D capabilities. The question at that point will be, how can networks and distribution providers get consumers to activate that 3D and 1080p functionality? Having access to a signal that offers twice the bandwidth of current HD signals would go a long way toward making that happen.

Current 3D viewers have to make a choice: watch it in 2D with full resolution or 3D with half resolution. That is a decision that has to end sooner rather than later if 3D is ever to stand a chance.

Opening up the delivery channels will also be a requirement if the new OLED and CLED sets are to become a market force. With the pipes in place to deliver the content, there is the potential to follow a similar model to that used in the early days of HD: offering pay tiers with a few channels and then slowly expanding the number of channels as content creation in 4K and 3D becomes more mainstream.

As with HD, much of the early content will consist of movies converted from 1080p to 4K. But it will also provide more incentive for TV networks and sports leagues to embrace more-immersive technology.

The good news for sports networks and leagues is that the current HD workflows will continue to attract audiences. And making the not-so-simple transition to 1080p services could be enough of a step to keep fans happy.

But, given the important role that sports plays in getting consumers to purchase new TV sets, the sponsorship of 3D and “beyond-HD” broadcasts of sports events should be something all TV-set manufacturers should continue to embrace.

A New Model
At the end of the day, there needs to be a business case for making the move to next-generation content creation and delivery. Unlike with the HD transition, there is no government mandate that required a move to DTV signals, spurring on the desire to use those digital signals for HD services. So this entire movement will need to be consumer-driven.

CES 2012 laid out the potential for the future of TV services. The question for the manufacturers of the sets is, will they do what it takes to persuade customers in an age of “good enough” to take the next step? The answer will be in their need to survive in an age when the next generation of TV viewers feel more affinity for YouTube and Netflix than the TV services that have defined our culture for decades.