Written for the Independent on Sunday, Jan 14, 2007 by Maggie Lee.

Leaving aside the debut of WowWee’s robotic Elvis, it was a sober and collaborative affair at CES (the world’s largest consumer electronics show) in Las Vegas last week.

In 2006, celebrities graced just about every keynote speech. But this year the universal message from industry leaders was “get connected” – not only in the digital and technical sense between devices, but also through commercial alliances with content companies (television, games and internet).

From the moment Microsoft’s Bill Gates delivered his annual kick- off keynote speech, partnerships with content providers and owners emerged as the main way of chasing the dollar. Thanks to innovative devices that can now connect with each other, the consumer electronics industry is projected to grow by 7 per cent next year. With estimated global revenues of a record $155bn ([pound]80bn) in 2007, it is perhaps no surprise that CES now makes it into the diaries of studio moguls, chief executives and global media tycoons.

Witness this year’s line-up of high-profile speakers: Leslie Moonves of CBS, Ed Zander of Motorola, Robert Iger of Walt Disney and Michael Dell, founder and chairman of Dell.

At times, delegates may have thought they were at a Hollywood convention. All the movers and shakers were there to announce company plans and product launches. But with so much on offer, how will the consumer make sense of this cornucopia of gizmos? With the help of new content coming at them through phones and screens in the home and even in the car, seemed to be the answer.

Microsoft led the pack, announcing a partnership with Ford to create networked systems for the car. CBS, the broadcaster, announced a raft of digital “new media” deals, including a partnership with YouTube. Less well publicised were the behind-the- scenes manoeuvres of Sir Richard Branson and Rupert Murdoch, who made visits to select trade booths.

Walking around the cavernous showrooms, spread over three hotels covering 1.8 million square feet, it was easy to succumb to sensory overload. More than 140,000 delegates from 130 countries attend this annual conference (in its 40th year) to view the products of 2,700 exhibitors. The proliferation of gaming devices and multimedia gadgets was overshadowed by flat high-definition screens – a signal that the battle for market dominance will be in the arenas of home entertainment and portable devices, with video leading the parade.

Soon consumers will be able to select from a huge array of glitzy products offering additional services and functions.

Among the new launches was V-Mate (pictured), a device from the memory-card maker SanDisk that plugs into the back of a television, DVD player or digital video recorder and records video direct to a memory card.

Sony, meanwhile, was showing off a TV with an internet connection, with “channels” provided by companies such as AOL. Several exhibitors, including Philips, were displaying cordless phones that enable consumers to make calls using both existing fixed- line networks and over the internet (VoIP).

For many delegates, though, the absent star of the show was the iPhone. Launched by Apple chief Steve Jobs at Macworld in San Francisco last week, the iPhone neatly demonstrates the power of a multifunctional device. Mr Jobs showed how iPhone users will be able to make calls while viewing content on the internet and exchanging email – simultaneously. He also announced an exclusive deal with Cingular Wireless to provide mobile services in the US.

Until now, internet services on mobile phones have occupied a relatively small market. But over time, as the capabilities of handsets and the bandwidth of wireless networks improve, industry analysts forecast that mobiles will outperform the market for computer-based internet services.

Consumers may find it hard to make sense of this multiplicity of products, but does anyone actually know how the electronics industry will develop in the next five years? And just how will consumers benefit? When Mr Gates joked in his speech that “… next year I’ll know more about infectious diseases than I know about this industry”, he may not just have been signalling his retirement.

Lucas Covers, the chief marketing officer of Philips Consumer Electronics, has a clear response when it comes to addressing the requirements of the European consumer. “It’s undoubtedly a crowded market. To succeed, you need to gain the confidence of consumers and demonstrate that you can create compatible devices,” he says. In line with the Consumer Electronics Association, he anticipates growth in flat screens, gaming and portable devices. “The TV screen market is huge and will continue to be so, as customers transfer from old-fashioned sets to flat screens,” he says.

“Eastern Europe is the fastest-growing market for us. Interestingly, Russia outstripped sales in Germany in real terms in autumn last year.”

Mr Covers also believes partnerships and alliances will bring value, so long as device manufacturers remain fast on their feet, focusing on product design and innovation. “In the last two years,” he explains, “we’ve changed our position at Philips. We are now completely open to working with many partners and with companies that have a good proposition in the market where we can add value – whether that’s Microsoft, Yahoo!, Canal Plus or BT. Our strategy is to try to create devices that are compatible with many systems.”

He is especially optimistic about growth opportunities in the area of VoIP. Testament to this is Philips’ alliance with Skype, the telecoms company now owned by eBay that allows users to make unlimited voice and video calls over the internet, free of charge.

“There’s a tremendous opportunity to grow in this market, which is why we developed cordless phones that can both make direct calls and be used over the Skype network,” Mr Covers explains.

“They’re easy to install as you don’t need a computer. In effect, we’re providing customers with a dual way of making phone calls – enabling them to move seamlessly from one network to another to take advantage of the best deals.”

It is easy to see the value of this alliance, given that in three years Skype has developed a registered user base of 136 million.

Deals of this nature typify what is happening between companies. But such partnerships are not without problems, particularly in the absence of universal standards. Take the expanding and lucrative market for high-definition DVD players, which has brought the interests of consumer electronics manufacturers, the computer sector and video games companies into sharp focus, with Hollywood caught in the crossfire.

A thorny issue for Philips and other developers of next- generation DVD players arises out of the existence of two formats. Some of the new machines will play the Blu-Ray disc endorsed by Philips and a number of major Hollywood studios, while others are on the HD-DVD format backed by Toshiba and Universal Studios. As the studios line up to slug it out with box-office releases on their preferred formats, LG Electronics has responded by launching a dual- format player, presenting consumers with yet another choice.

No one can forecast with certainty what the endgame will be. But there is concern that the format fight will dampen the initial demand for next-generation discs. It is reminiscent of the VHS versus Betamax battle in the Eighties. The current worry is that consumers will adopt a wait-and-see approach rather than risk investing in the “next Betamax”.

Nonetheless, many investors attending the show were optimistic, anticipating that connectivity will bring about additional opportunities. According to Katrin Burt of Intersouth Media, the American venture capitalist firm, there are four key areas to watch: gaming, VoIP, internet television and wireless technology.

Dennis Miller of Spark Capital, another venture capitalist, agrees and believes that “while there’s a quiet level of paranoia and to some degree a lack of clarity for the big players, as they don’t yet know how alliances will play out, there’s plenty of opportunity in the market for smaller players who can exploit niches as we see media and technology merge”.

Mr Miller also anticipates that businesses which can help content delivery and enhance advertising in traditional media are well- placed for growth.

As the wall of cash mounts in private equity funds, he does not discount changes in ownership that would bring an extra dynamic to the market. “We’ll see businesses like CBS continue to sell companies, and it’s not inconceivable that Viacom [CBS’s owner] could ultimately go private, ” he says.

So just how does all this innovation ultimately benefit the consumer? Does more choice mean a better deal?

Jonathan Peachey, founding partner of Digital Public, an independent UK research and consulting firm, is upbeat.

“Overall, the costs of goods have fallen dramatically thanks to economies of scale and outsourcing to the East,” he says. “It’s the consumer’s appetite for technology and the experiences it brings that’s driving innovation. If you look at how broadband has affected the market, it’s been totally price-driven and moved quickly from being a new technology for geeks to becoming a basic utility, akin to electricity and gas for many people.

“Around 40 per cent of UK households now have broadband. It’s much easier to roll out products cheaply and simply today. You see a lot technologies going this route.”

And finally, are the alliances between content owners and technology companies damaging to the consumer? Mr Peachey holds a relaxed view. “Ultimately it’s in the interests of content owners to have a number of routes to market,” he explains. “Even in the cases where’s there’s vertical integration, there are currently few exclusive arrangements. Perhaps the real barrier of entry in the market right now is customer confusion.”

Read the article here.

Copyright 2007 Independent Newspapers UK Limited