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REFLECTIONS FROM CES 2015 INTRODUCTION REFLECTIONS FROM THE FLOOR AT CES 2015: CONNECTING PHONES, CARS, HOMES, CLOTHING, THINGS…EVERYTHING! Once again, the Consumer Electronics Association spoke in superlatives; that the 2015 Consumer We have seen Electronics Show was the “largest and most amazing CES in show history, breaking all records!” some of these 2014 had seemed impossible to beat, with over 150,000 attendees, 35,000 international categories visitors, 3,200 exhibitors, and 2 million square feet of exhibit space. But this year, it was 170,000 attendees (+13%), 45,000 international visitors (+29%), 3,600 exhibitors (+13%), and 2.2 million mature over the square feet (+10%). If only our investment portfolios could increase at such rates year-on-year! past years and reflect business Oliver Wyman’s Communications, Media, & Technology (CM&T) practice again sent a thinking rather contingent to CES to draw impressions of what we saw on the floor and heard in related than just bells discussions at and around the show. As usual, our intention is not to “out-blog the tech and whistles. bloggers;” they’ll still give you a much more comprehensive and, dare I say, expert perspective on the most powerful frequency to control drones, winner of the sharpest contrast in 4k TV battle, or which 3D printer makes the coolest Disney figurines. As with 2013 and 2014, we want to focus on the business implications of what we saw – our reflections on what it means for you. This year had many of the same categories as recent years; bigger/thinner/sharper TVs, automotive electronics, personalized healthcare solutions, unmanned vehicles, connected devices, 3D printers, gaming, and more. But we have seen some of these recurring categories mature over the past years and reflect some real business thinking rather than just bells and whistles. Furthermore, the record number of startups indicates the continued shift in innovation from the electronics behemoths to the proverbial kids in their garages. We did enjoy once again donning 3D glasses to watch whales and asteroids hurtling towards us from the massive Sharp wall of TVs at the entrance to the Central Hall, and lining up to experience the private 8k demonstration promised to be fun until we gave up and decided to wait until next year when it would be more widespread. However, the true value for us is the ability to quickly take the temperature of the innovations, advances, and investments that could have a significant impact on comms operators and media distributors, content producers and aggregators, device manufacturers, and the many other sectors that use technology in the delivery of their products and services. Although, these days, are there any that don’t? We have chosen six themes that struck us as interesting and relevant, not for their “coolness factor,” but rather for the business implications we feel they could have, and we’ve summarized some of the strategic questions that one might pose. We’ve also gone back to see how things have changed: were we totally off-base in what we thought in 2013 and 2014? The first piece does a port-mortem on our previous musings – the jury is out! If you don’t agree with our thoughts or the implications we draw – excellent! Let’s get together and debate; any of us would be delighted to expand upon any of these topics. Happy reading on behalf of all our colleagues. Martin Kon & Rafa Asensio Communications, Media & Technology Practice Oliver Wyman 2 CONTENTS DOES WHAT HAPPENS IN VEGAS STAY IN VEGAS? Looking back on what we thought in past reflections 4 INTERNET OF EVERYTHING, TRADESHOW OF EVERYONE Not just tech firms; non-traditional players reveal upcoming changes in our lives 6 TURN LEFT IN 300FT…OH, AND YOUR HOUSE IS ON FIRE Can the car do things that the phone can’t? 8 WHAT DOES 35,000 SQUARE FEET GET YOU AT CES? 1½ flashy Samsung booths, or 372 hungry startups – did we see the next Nest? 11 IF THIS, THEN WHAT? The complexity of connectiong the home 13 THE GREAT UNBUNDLING – $20 FOR 12 BASIC CHANNELS Is Sling TV the next big thing or the most expensive basic TV bundle yet? 15 EVERYONE, EVERY-WEAR Wearables on the brink of mass adoption; will we soon all be James Bond? 19 3 DOES WHAT HAPPENS IN VEGAS STAY IN VEGAS? LOOKING BACK ON OUR PAST REFLECTIONS This is the third CES at which Oliver Wyman’s We also mentioned the next generation of The trend Communications, Media, & Technology over-the-top devices which would challenge to connect practice has reflected on the latest traditional TV delivery. They have indeed, everyone and developments and their implications. and there is no doubt that video distributors everything We thought it would be interesting to are looking for ways to face or embrace this increased competition. Most realize everywhere revisit some of our earlier observations one cannot ignore cord cutting forever, is effectively and thoughts, and confront them with even if it is not happening as fast as some changing today’s reality. industry pundits claimed. Traditional customers’ CES 2013 was an opportunity to look for players are now dabbling – companies like expectations emerging trends and not just the profusion HBO, CBS, Disney, and Dish have launched and therefore of gadgets that catch the attention of the OTT services which for the first time are or driving the media. At CES 2014, we felt the focus was will be untethered from traditional linear efforts of the put on the integration of technologies into subscriptions. However, new entrants like industry. consumers’ lives. Both themes were still Aereo, which we thought could revolutionize very present at the 2015 show, where the the industry – recreating the cable TV model trend to connect everyone and everything without the infrastructure costs – were not everywhere is effectively changing able to survive the litigious backlash from the customers’ expectations and therefore industry. TV manufacturers who were eager driving the efforts of the industry. to enter the service provision and throw off their mantle of “dumb displays” for others’ On the video side, we questioned if 4K/ set top boxes seem to be focusing on screen Ultra HD would indeed revolutionize TV and quality, and delegating the “Smart” aspects allow manufacturers to boost their profits, of their TV sets to non-proprietary standards as the advance was not as transformational like Android or Roku. It seems like the as the initial HD TVs, which also brought traditional players have heeded the wakeup a huge advance in form factor that call from innovators and are beginning to prompted everyone to replace their old CRT challenge the status quo themselves or, as sets – super thin flat-screens. We felt 4K we like to say, “cannibalize yourself before would be more incremental, and consumers someone else does.” would replace their 2K sets in a typical rather At home, the Internet of Everything than an accelerated upgrade cycle. The continues to be a major pole of attraction. good news is 4K is here to stay, with UHD Everything seems to make more sense becoming a real standard. Content is already when connected, from bulbs to dog available, sooner than expected, even for collars. However some devices still look streaming platforms through Netflix and a bit gimmicky, and this market does not Amazon. The bad news is this new standard appear to have reached maturity yet. We has indeed happened at the cost of industry commented in years past on the need for profits, as CE manufacturers have made standards for any mass-market adoption to aggressive price decreases to spur adoption happen, and the platform war for control and move inventory. of the connected home looks more like a 4 guerrilla war than a head on battle of the Reflecting on our articles on laptops and titans like the famous Betamax vs. VHS or tablets, the hybrid form has been a success BluRay vs. HD-DVD wars. Large players are and is bringing a great value proposition entering the race, from home improvement for mass consumers looking for a good retailers, showing surprising presence in compromise. In 2013, we also wrote about Vegas, to Internet giants like Google, who touch technology that we expected to be since our last edition purchased Nest. everywhere. Two years later, its presence is expanding, but it is still not a core feature in a 3D printing is still vibrant, with a lot of small lot of laptops, as the use-cases remain quite companies, potentially with a few lucky ones, distinct. The logic of maintaining separate which, like Nest, could become targets for devices still holds; laptops for productivity, HP or Canon. However, in 2015, we are still tablets for entertainment. wondering when there will be a consumer market for this technology, especially as it Still on the personal device front, on a very takes hours to print even the smallest of toys. similar question, we also wondered about Who other than some professionals will need the future of phablets. A couple of years to 3D print their own custom prototypes? later, phablets are here to stay. Apple has There is still a huge benefit to mass- finally entered the race, and has exceeded production for most consumer categories. expectations with the success of its iPhone 6+. Android manufacturers no longer have On the go, the connected car concept this powerful way to differentiate, and continues to expand and the presence of car Samsung’s leadership is threatened. manufacturers is bigger each year at CES. Automotive manufacturers are sealing deals Beyond phones and computers, we will with media and technology partners like clearly start to carry more electronic devices.