The War for the Digital Home

Skirmishes between between PC makers and consumer-electronics outfits are already raging. Consumers will be the ultimate winners

by Cliff Edwards

When Sony (SNE) executives take the stage at various public events, it's de rigueur to trot out a Hollywood celeb or two to remind the audience just how glamorous the company and its products are. At this year's Consumer Electronics Show in Las Vegas, Sony Chairman Howard Stringer was no exception, cracking jokes on Jan. 5 with pal Tom Hanks and director Ron Howard, among others, about Sony's 2006 lineup of consumer-electronics gear.

Suddenly, however, titans of the PC industry are adopting the same tack to make clear that they too can be hipsters worthy of consumers' attention. A few hours after Stringer's keynote presentation, Intel (INTC) Chief Executive Paul Otellini welcomed not only Hanks to the stage, but actors Danny DeVito and Morgan Freeman to talk up the chipmaker's new Viiv entertainment PC and media server.

The night before, Microsoft (MSFT) Chairman Bill Gates was joined on stage by none other than pop star Justin Timberlake, who talked up MTV Network's Urge music-subscription service, which will be built directly into the next iteration of the Windows Media Player. "Urge offers a new way for artists like myself to specifically reach music fans with a ton of options," Timberlake said.

THE NEXT FRONT.

PC makers' message is simple. Their devices, with built-in Web connections, powerful computing capabilities, and software that discourages illegal copying, are better suited than traditional consumer-electronics gear from the likes of Sony, Samsung, Sharp, and Matsushita's (MC) Panasonic. It's computers, not TVs, that will best serve consumers' growing digital desires, delivering everything from music to first-run movies, and shuffling that content to any corner of the home, they maintain.

The long-running battle among computing and consumer-electronics heavyweights is likely to get even hotter this year. And if you're a sports fan, this contest may be more entertaining than the Olympic Games, the Super Bowl, and World Cup combined.

While Apple (AAPL) may have sewn up the music market with its hit iPod and iTunes Music Store combo, the race to dominate video is just getting under way. Each side is jockeying for position, announcing innovative partnerships with hardware makers, content suppliers, and distributors. "It's the Wild West right now," Mark Kirstein, vice president of multimedia content and services for researcher iSuppli.

PROTECTING THEIR TURF.

The prize? The $130 billion U.S. consumer-electronics market, encompassing all those TVs, MP3 players, stereos, and other gear on offer at the local Best Buy (BBY) or Circuit City (CC) -- to say nothing of emerging opportunities in China, India, and elsewhere.

And if those stakes aren't high enough, there's also a slice of the many dollars spent each month by Americans increasingly turning to the Web not only for communications, but also entertainment. The Web is quickly emerging as a key distribution point for the gamut of programming, from Welcome Back Kotter reruns to pre-TV broadcasts of 24. U.S. Internet-connected households spend an average $214 a month on such items as phone service, movies, cable and satellite, and digital downloads, according to researcher Parks Associates. Of that, only $6.50 is spent on online music, games, and video.

Each side faces the challenge of striking a balance between expanding into new territory without ceding share to rivals on their existing products or services.

NEW MARRIAGES.

Not surprisingly, Intel (INTL) and Microsoft (MSFT) are leading the charge on the PC side.