TECHNOLOGY SPECIAL REPORT
Personal Video Players May Be Next Big Wave

The market for these products is just beginning to emerge, and analysts are split on its future. Some expect the devices to gain significant acceptance once vendors address issues, such as high prices and digital-rights management. Others think that user interest will be limited to videophiles, and the number of consumers who need a video fix is not as great as those who desire music.

The analysts agree that the market is evolving quickly for a couple of reasons, starting with the popularity of Apple's (Nasdaq: AAPL) iTunes. "Apple demonstrated that consumers will pay for digital content as long as it is inexpensive and easy to download," Vamsi Sistla, an industry analyst with ABI Research, said.

Spadework Already Completed

With online music sites gaining traction, suppliers' focus has shifted to video, an area where some groundwork already has been done. "Vendors have found that there is a segment of the population that wants to view videos as they wait in an airport, sit in an automobile, or relax in a hotel room," Josh Martin, an industry analyst with International Data Corp. (IDC), said.

To date, these consumers have relied on laptop computers and portable DVD players to watch video content. Laptops can be bulky to tote around, and DVD players require that users carry a handful of DVDs along with the device. PVPs are lightweight, weighing a pound or less, and contain hard disk drives that allow storage of up to 50 movies, hundreds of TV shows or thousands of songs.

Technical advances are also playing a role in the PVP interest. Progress in computer chip technology has meant that vendors are now able to fit complex video playback technology into handheld devices. Also, the quality of the images has been improving and the screen displays have been growing, so clearly defined, color pictures can now be shown on 3 inch to 7 inch screens.

A Winning Design?

While PVP screen quality and audio have improved, there are still issues with the form factor, user interface and battery life. A bevy of vendors, including Archos, Creative Labs, MobiNote Technology, RCA, Samsung Electronics and Sony (NYSE: SNE) are working to address those problems. Yet, there are questions about the proper video distribution mechanism.

Archos, MobiNote Technology and RCA copy video content from VCRs or televisions, while other suppliers depend on computers running operating systems like Microsoft's (Nasdaq: MSFT) Windows XP and its Portable Media Center, a set of hardware and software specifications licensed to consumer electronics companies, to move content.

Digital rights management presents another challenge to the vendors. Since video content can be stored on hard disk drives, users are able to transfer it from device to device. Like record companies, the film industry is concerned about piracy and is examining ways to let users freely move content while protecting the companies' financial interest.

High pricing is also a deterrent. Currently, PVPs are in the $400 to $800 range, which is too much for the mass market and limits interest to individuals who already rely greatly on Tivo recorders and DVD players.

"PVPs are new, the customer base is small and vendors need to recoup their investments," ABI Research's Sistla told TechNewsWorld. "All of those factors combine to result in high pricing now, but as the market gains acceptance, pricing will fall -- and rather dramatically," he said.

How Big Is Big?

Most observes think the market will gain acceptance, but the question is: How big will it be? "Although there won't be as many users as those downloading music, there will be a large number of individuals downloading video content," IDC's Martin told TechNewsWorld.

Users could watch episodes of their favorite TV shows or focus on areas of special interest. "I have copies of every music video ever recorded in a library and like watching them from time to time," Gartner analyst Paul O'Donohue said. "But what I've found is few people -- not even my own children -- share my passion for watching music videos."

O'Donohue also says he thinks viewing video content is a different experience than listening to music. "If someone watches a video recording on a train, there is not as much privacy as there is when listening to music," he explained. "Once users pop in earplugs, no one knows what they are listening to. On a train, other passengers can see what a person is viewing, and that will make many users feel uncomfortable." As a result, he envisions a relatively small number of consumers downloading video content.

Which side of this debate is correct will become clear as PVP products become widely available. Vendors spent the spring and early summer outlining their plans to deliver their wares and expect to ship them in volume near the end of the year.

If PVPs wind up under consumers' Christmas trees, they could be carrying them onto trains and buses as the new year begins.