Holiday 2011, OTT video hardware continues to climb in popularity, but the mix will vary

The following are IMS Research’s Q4 2011 US holiday expectations for game consoles, Blu-ray Disc players, standalone over the top devices, and connected TVs.
By Paul Erickson, Senior Analyst, CE Group, IMS Research November 16, 2011

IMS research: excellence in market intelligneceAs Black Friday nears, the overall market for high definition over-the-top (OTT) video hardware is expected to grow to its highest levels yet this holiday season. The US is the top country by volume for all OTT-capable retail devices, according to the data in the IMS Research report, “Over-the-Top Video: Hardware and Connectivity,” and its Online Television Shipment Database. Market activity in the US thus has a substantial effect on total worldwide OTT device shipments, and upcoming holiday sales in the US are expected to be no exception. The following are IMS Research’s Q4 2011 US holiday expectations for game consoles, Blu-ray Disc players, standalone OTT devices, and connected TVs.

Though both Microsoft and Sony have generally had good results in 2011, the Playstation 3 and Xbox 360 have loitered for some time at the sub-$300 price point for equivalent models. IMS Research does not expect price cuts by either party for the holiday season, particularly given Sony’s financial situation and divisional losses attributed to the previous Playstation 3 price cut. Though Microsoft’s Xbox-related profitability is solidly capable of supporting a price cut, the company is expected to continue maximizing that profitability and wait until the 2012 E3 show to announce price cuts. Both companies are instead expected to stimulate demand for their respective consoles via heavy promotions of product bundles (Kinect, Move, games, peripherals) and retailer-specific discounts (such as gift cards at certain retailers). Sony is also expected to continue promoting bundles combining the Playstation 3 and select Sony TVs this season. Keeping in tune with its 2011 focus on rebranding the Xbox 360 as an OTT-video-capable entertainment platform, Microsoft is also expected to seek differentiation by strongly promoting the video capabilities of the Xbox 360 along with the video playback control capabilities of Kinect. Microsoft is thus expected to slightly improve the status quo this holiday, beating Sony in North America and incrementally improving its 2nd-place position in other markets such as Western Europe.

OTT-capable Blu-ray Disc players are continuing to edge downward in entry price, with wireless capability quickly becoming commoditized. For Black Friday and limited holiday promotions, name brand Blu-ray players with wireless networking are expected to dip below $100, with WiFi-enabled products from second tier brands such as Magnavox dipping below $70 and possibly below $60. As a format, Blu-ray Disc adoption has continued on a steady, though gradual basis worldwide, but player sales in the US are substantially aided by the appeal of OTT video capability. Many consumers will be buying Blu-ray Disc players this holiday as bang-for-the-buck multipurpose devices: a Netflix streamer that also plays Blu-ray Discs. OTT functionality is expected to be a much stronger driver of the BD player purchase decision this holiday compared to 3D, which continues to face challenges in gaining consumer traction. Models with downloadable, not fixed, applications are expected to be favored more heavily in the sub-$100 price range.

Standalone OTT devices such as Roku, WD TV Live, and Apple TV will see pressure this holiday, as other devices are incorporating OTT functionality as a checkbox feature. While this category’s main niche in the past was principally created via affordable sub-$100 pricing, this positioning has increasingly been threatened by the rising popularity of OTT-enabled entry level Blu-ray Disc players – which are now firmly below $100. Thus far Roku has aggressively responded, by recently announcing a $49 model, but other competitors such as Western Digital and Apple remain committed to the $99 price point. IMS Research believes that the overall product category will see less-than-expected appeal this holiday as basic OTT functionality is included in a variety of Blu-ray Disc players at the same price or cheaper, and also included by default in a much broader array of television sets compared to 2010.

Though some manufacturers are expected to aggressively bundle 3D Blu-ray players and/or 3D glasses with 3D-capable TVs this holiday, connected TVs are expected to sell in substantially higher numbers this holiday thanks largely to the premium for OTT functionality continuing to drop, resulting in the functionality appearing as a checkbox feature in progressively less expensive models. Though consumer reaction to 3D continues to be lackluster, Netflix’s growing brand recognition in the US arguably makes OTT functionality a more substantial hook for consumers to purchase more expensive TVs than the inclusion of 3D capabilities. IMS Research expects that connected TVs will be the top OTT-capable device by volume this holiday, largely due to the functionality being included approximately half of all sets above 40 inches. For those specifically honing in on OTT functionality as the driver of their purchase decision, more advanced OTT-specific capabilities such as personalized recommendations and advanced multi-source search from manufacturers such as Samsung are expected to catch consumer attention.

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