Published in December 2004

Transitions to Digital AV
By Neal Weinstock

Winners and Losers.

      The AV business regularly goes through rounds of new technology infusions. Every time, we all have to re-strategize just where our bread will be buttered. We all know we’re in the middle of another of those rounds. This time, we’re seeing not only the usual infiltration of new products from consumer electronics and AV production, but also all of those products, and our traditional ones, merging with enterprise IT, getting networked and being created with software embedded on microprocessors.
     This may not be news to any readers. In the new Weinstock Media Analysis report, “Transitions to Digital Media/Winners and Losers,” we found that 71% of our representative sample of system integrators agree: We’re in a period of complex change that sorely taxes their ability to stay in business. This is serious stuff.

VALUE OF NEW DEVICE-BASED SERVICES BUSINESSES, US ONLY: 2003-2009
Industry 2003 2004 2009
Consumer 571.2 920.0 14,689.0
Digital Signage (Advertising Only) 821.2 911.3 5,640.6
Education & Religion 54.6 68.9 293.6
Medical 3.1 91.8 251.3
Workplace Tools 0.0 0.0 191.0
Other 67.4 78.9 3,662.0
Total 1,587.5 2,070.9 24,727.5
Source: Weinstock Media Analysis © 2004; all rights reserved.

IS THIS TRANSITION DIFFERENT? SELECTED ISSUES
FROM A REPRESENTATIVE SURVEY OF 150 AV SYSTEMS INTEGRATORS, NOVEMBER 2004
ISSUE PERCENTAGE
New Technology Makes Profitability Tougher 71.4%
Expect to Grow Profit on New Technology 28.0%
Expect to Provide Networked Services by 2009 21.4%
Most important New Technology for Profitability Is:  
Displays
31.4%
Software
20.0%
Networked Devices
16.0%
Other
32.6%
Source: Weinstock Media Analysis © 2004; all rights reserved.

A More Critical Era?
     But is our period of change now a more critical era, one tougher to navigate across, than, for example, the transition from open reel tape recorders and overhead projectors to wherever we’ve been the last decade or so? At first glance, surely yes. There is a far more complicated set of possibilities now than ever. At second glance, maybe not. Earlier transitions in our business clearly created opportunities. You go from not being able to provide good sound reinforcement in a large hall to being able to provide it, and you can make some good money designing and building a sound system!
     But at second glance, once it gets really, really easy to build that sound system, making a buck at it gets tough. Avoiding commoditization is always the big challenge for our industry. At least now we seem to be developing many complex new products and services at once, and that implies many differently successful new business models.
     That’s a conclusion we reached in the report. It’s a wide-ranging study that evolved from the commonalities we were seeing in the different media technology fields we’d been bench-marking over the last few years: digital signage, markets for AV in education, government, medical and other industries, and production/post-production for entertainment.
     In fact, add together all the new services-built-around-new-devices business that are at the heart of the transitions we’re going through, and WMA estimates that we should generate about $24.7 billion in annual revenues by 2009.
     Insights gleaned from our private consulting with leading manufacturers have entered in here, too. Comparing and contrasting these similar and yet different fields has allowed us to get some fresh perspective on common and differing issues.

Questions
     The questions we tried to answer include:
     • Where are the new product opportunities? Oddly enough, there are a number of commonalities across all the industries we looked at. Boil down the definitions of where people expect to find opportunities and they synthesize into “networked devices that enable new services.” In AV systems design, that means networked digital signage, touchscreens and sound systems delivering advertising, interactive purchasing, interactive education and collaborative work.
     Almost all such services involve material distributed by a central server and called up by users with some kind of automated aids (vision systems, audio recognition, radio-frequency ID, etc.). Key to most of these products is media database software that can figure out what material to play where and when, or who has used what material where and when, or who has permission to use what material, and how to charge for it all. In an installed AV context, call this TiVO for public places or collaborative work environments.
     • What are the most overrated new products? Advertising that clutters up spaces people want to be ad-free. (Audio is, in fact, seen as far more obtrusive than video ads.) Automated systems that chip away at privacy. But we found regional differences here more pronounced than inter-industry differences.
     For example, New Yorkers, perhaps the most already-bombarded with digital signage, often reject in-taxi ads and dedicated TV channels in bars and waiting rooms that are welcome in the rest of the country. Conversely, Northeasterners in general welcome louder audio in public places than the rest of the country (but not in church). West Coast respondents are more upset about loss of privacy.
     • Who will realize the most benefit from the new generation of products? By far, that’s the user. But device-makers that are able to wrap a comprehensive service into a simple-to-install and simple-to-use product will also reap the rewards of loyal users over a long period of time—and probably become known more as service providers paid by subscriptions and software licenses than as device-suppliers. Giant new media companies will evolve from device-makers. Device-makers also bear huge risks, though: A device that fails is probably a company that fails.
     Database creators, automated sensing software creators and workflow improvement software creators are all likely to be low-risk winners, and one or two of these may even turn into a new Microsoft. AV program producers benefit, too; there will be lots more new, specialized markets for advertising and information.
     Meanwhile, systems integrators and installers are also low-risk winners: Somebody has to customize all these systems for particular environments and install them. Some of these companies are also likely to turn into device-makers and software service providers, because their strong knowledge of particular markets can be leveraged into specialized services.
     • Who are the losers? Old media companies that rely too much on established distribution media: plain old TV and radio and paper signage.
     Here’s our basic understanding, after all. Now comes the end game for media fragmentation. Multiple data paths to audiences and users in all sorts of workplaces and public places will challenge each sort of transmission provider, technology and service provider and advertiser, to maintain control of its audience or customers. It is already widely accepted that the new file distribution means challenge content owners. They actually offer far more challenge to pipeline owners. We are entering an era in which the medium is defined by the end device and its positioning in people’s lives.
     For people whose job it is to position those devices, this is really a time of great opportunity. So stop worrying and embrace media complexity! It’s making for more solid new opportunities now than ever.

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