Fifteen years ago, Microsoft, Sony, Dell and HP were some of the leading companies jostling for supremacy in the digital living room — where computers, TVs and content came together to deliver home entertainment. Microsoft’s new Xbox 360 console not only played video games, but also DVDs and CDs; it streamed music from MP3 players and connected to the company’s Windows Media Center on PCs. Sony’s TVs, sound systems and computers formed an integrated entertainment hub, while Dell and HP had “media-ready” computers that also acted as content servers in the home.
Today, these four players have been overshadowed by Amazon, Google, Apple and Facebook. Fueled by a leap in broadband adoption in households and the advent of smartphones, tablets and other devices, the digital living room is no longer a TV-centric area in the home. Amazon’s Alexa digital assistant and connected devices are changing the way people search for and consume content; Google is doing the same thing with Google TV, Google Home and YouTube, as is Apple with its HomePod, Apple TV and Siri. Meanwhile, Facebook has become a source of content for people as they interact within the social media site’s platform.
But while the digital living room may look vastly different now, it still isn’t the unified and open ecosystem consumers want. “We’re certainly much further along, but there still isn’t true integration of all the different devices and services,” said Kevin Werbach, Wharton professor of legal studies and business ethics. True integration, he said, is a digital environment where consumers can link “every device and every piece of content on every service and be able to experience them together.”
This quasi-utopia remains out of reach because of competing business interests, Werbach said. Companies race to become the main provider of video and music in the home but also seek to dominate in digital services more broadly to corral consumers into their ecosystem. “The economics make it difficult,” he explained. “For the foreseeable future, it’s going to be this co-opetition (cooperative competition) landscape where it’s never quite in anyone’s interest to give consumers what they want, which is one subscription and one set of devices that give them everything.”
“For the foreseeable future, it’s going to be this … landscape where it’s never quite in anyone’s interest to give consumers what they want, which is one subscription and one set of devices that give them everything.”–Kevin Werbach
Streaming Video Frenzy
Back in the mid-2000s, Werbach recalled, the challenge in the digital living room was “hardware systems not talking to each other.” These days, the issue is less about technical ability but rather content fragmentation. For example, he said that while he has access to plenty of good content through his cable provider’s ecosystem, it doesn’t offer everything he wants to watch. “Now that we have all these streaming services, we increasingly have the problem of content not being available across different platforms — and that’s getting worse,” Werbach noted.
As more streaming services popped up, content became further siloed. “For a while, if you paid for Netflix, you got most of the stuff you wanted to get. Now there’s Netflix, there’s Amazon, [there’s the upcoming] new Disney service and AT&T/Time Warner [service] and so forth,” Werbach said. “These companies are strategically withholding content from each other to get people to pay for their subscription service.” (Disney and Comcast’s NBC are pulling their most popular content from Netflix to put into their own new video services.) But this move will backfire: “No one wants to pay for six different video services.”
That means among the dozens of streaming services, many won’t make it. “At some point, some of the streaming services that are available today will exit the space,” said Wharton marketing professor Josh Eliashberg. He cited several reasons that could lead to their departure, which include the need for big investments in new content development, constraints in capitalizing on other entertainment consumption outlets such as movie theaters, and consumer dissatisfaction with subscriptions to multiple service providers. “These trends are likely to lead to an increase in M&A activities and decrease in the number of major players,” he said.
While it’s tough to forecast how many streaming services the market can sustain, Eliashberg believes the major studios — such as Disney, Comcast and AT&T/Time Warner — will stay. These are the studios that have been generating entertainment content for a long time and for which streaming video services represent just “a fraction of their business,” he added. In particular, he sees Disney dominating along with Netflix. “Disney owns and will capitalize, through Disney+, on its franchises and potential for remakes.” As for Netflix, “they don’t only collect useful data on consumers’ preferences and content with global appeal, they also analyze the data effectively and use them to drive creativity.”
What Eliashberg sees continuing are the popularity of streaming services, the use of smartphones for entertainment and the decline of pay-TV providers (cable, satellite and telecom TV companies). He also noted that “the increased number of options and payments available for consumers is likely to lead media content providers to aggregate their services.” For example, Comcast customers can access Netflix, YouTube and Pandora without leaving the cable system. He also expects there to be more consumption of augmented and virtual reality content in the home, voice-assistant platforms playing a major role and “active consumers” sharing reactions to content in real time online.
“Everybody in the household kind of streams content at a rate and quality that’s unthinkable even half a generation ago.”–Peter Fader
(User-generated) Content Is King
The flip side of content fragmentation is that the digital living room is now more decentralized and fluid. “So much of the digital living room was centered around the television and how we could use technology to interact with the [TV] program,” said Wharton marketing professor Peter Fader. “What we’re seeing now is you go into the living room, there’s plenty of digital, but there’s no [crowding around the] TV. Everyone’s sitting around watching what might pass as TV, just consuming content on their laptops. Very often, you’ll have four different people watching four different programs with their headphones on.” He calls this phenomenon “fragmentation desocialization.”
Increased broadband speeds were a major factor in fueling this trend. “Everybody in the household kind of streams content at a rate and quality that’s unthinkable even half a generation ago,” Fader said. “We really can just pump so much content at the same time that there’s no reason why we have to sit around and argue about which channel all of us are going to watch.” He said this ability to watch what one wants brings “greater overall satisfaction,” punctuated by periods of “intermittent sharing” of content worthy of attention before going back to solo viewing.
When 5G arrives, which promises wired broadband speeds for mobile, it could “create just all kinds of untethered flexibility [leading] to content forms and distribution mechanisms that we just can’t even imagine right now,” Fader added. But he acknowledged that the promise of true 5G remains “years and years and years away.” (More spectrum needs to be cleared for 5G and extensive infrastructure has to be built for this next-generation wireless protocol to work robustly.)
Werbach has a different view. “5G for consumer applications in the home just means more bandwidth, but we already have, generally speaking for most people, enough bandwidth” for current use cases. If virtual and augmented reality applications take off, then 5G will be a major enabler. “But in the near term, 5G is not a game changer for consumer entertainment applications in the home,” he said. “It’s about mobile and ultimately, it’s going to be about the Internet of Things.”
Looking ahead, Fader sees user-generated content and activities as a big game changer for the digital living room. “This to me is the biggest unspoken trend,” he said. People are increasingly using video game systems not to play games, but for their avatars to interact in a reality TV show-type of way. For example, Fader said, around 20 to 30 people are using the video game Grand Theft Auto as a “stage. They’re not necessarily playing the game, but they’re using it as a place to meet … and almost have their own reality show.” But it’s more real since the dialogue is unscripted and no production company is behind it.
“Interpersonal communication may end up increasingly occurring over smaller networks of close friends rather than being broadcast to one’s wider network.”–Shiri Melumad
Millions of people watch these players — and choose to do so from any viewpoint, Fader said. As they watch, people are donating money. There are also sidebar chats going on among the viewers. “This is an example of how these technologies and use cases are blending together in ways that we either wouldn’t have anticipated, or where media giants don’t exactly have control over it,” he said. “The main thing is people are just getting control, doing what they want to do and being less beholden to what the content-producing behemoths are telling them to do.”
Winner Take All?
Will any one company ever win the digital living room wars? “One view is that this will be a ‘winner-take-all’ contest in which one firm will dominate the home infrastructure, controlling almost everything from entertainment, communication and shopping,” said Shiri Melumad, Wharton marketing professor. For now, she said, Amazon and Google are vying to be the main provider. But she also said growing concerns over data privacy could result in a more democratic scenario where the market is shared by several companies — some of which might not even currently exist.
“Google and Amazon seem to be doing a decent job in this,” added Wharton marketing professor Pinar Yildirim. “Amazon is figuring out the whole ecosystem of connected devices, from bulbs to plugs to other things. When it comes to the connectivity of small devices, and their sale, they have an edge.” However, when it comes to “what controls them, or how to control them at home or via mobile phones, that is more Google or Apple.”
Facebook also is a contender. It is developing a cozier virtual place for people to gather, including a real-time group video chat. The social network is “putting greater emphasis on private messaging,” Melumad said. “Interpersonal communication may end up increasingly occurring over smaller networks of close friends rather than being broadcast to one’s wider network.” She said CEO Mark Zuckerberg described it as people communicating more in the “living room than the town square.”
Fader, for one, is excited about the current “wild west” of content services. “I think it’s terrific because we’re really letting business models arise and either flourish or die, based on [whether] customers want it and are they willing to pay for it, instead of cramming stuff down our throats, and [laying down] onerous terms for the content creators and the talent behind them. So it’s really great to see just so much diversity of content production and distribution — that’s the real golden age that we’re in.”