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CES somehow grew even bigger, yielding key trends you’ll need to watch in ‘15
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Over-the-top videohas been such a staple at CES for so many years it almost qualifies as a legacy media, which makes all the noise around online video at last week’s gadget fest particularly notable.

Some of the show’s biggest bang came from Dish CEO Joe Clayton, who marched onstage pounding a big bass drum as part of the direct-to-home provider’s press launch of its new Sling TV over-the-top service. Sony CEO Kazuo Hirai began his company’s product announcements by claiming PlayStation Vue service would reinvent television. And Samsung rolled out a new streaming virtual reality service that includes an original show from one of the producers of The Walking Dead.

Elsewhere, manufacturers including Sony and Sharp announced new TV sets using Google’s Android TV platform, Netflix promoted new 4K streaming initiatives and several TV makers were showing off sets with the Roku operating system that allows users to easily access hundreds of streaming apps. And CES itself debuted the “C Space” sub-conference track, giving NBCUniversal, YouTube, Amazon, Yahoo, Twitter and other digital branding players a dedicated (and disarmingly posh) showcase apart from the maddening Las Vegas Convention Center crowds.

It isn’t clear how many of these efforts will become viable businesses in 2015. But in an era of relatively flat consumer electronics (CE) spending, alliances between content and technology players were part of the growing trend of more consumer-focused innovation.

“For a long time, people came to CES to see what is possible,” said Shawn Dubravac, chief economist at the Consumer Electronics Association (CEA). “Now I think they come to see what kind of innovation will be meaningful to consumers. The question isn’t whether we can digitize something, but whether we should.”

Here are four key tech trends from this year’s CES that TV executives should keep an eye on.

#1 Mobile Still Rules

With programmers and operators racing to make more content available on multiple platforms, sales trends of video-enabled consumer electronics devices have become the lifeblood of app and digital content strategies.

Here, much of the CES news fell into familiar patterns. Global CE sales remain virtually flat, up 1% in 2014 to $1.02 trillion. Mobile devices continue to dominate, with smartphones and tablets estimated to account for nearly half of all worldwide CE sales (46%) in 2015, up from 22% in 2011.

Growing penetration of mobile devices has prompted Magna Global to raise its mobile video ad forecast from only $600 million in 2014 to $1.2 billion in 2015 and $7 billion by 2018. Overall, Magna Global is predicting that online video advertising will jump from $3.8 billion in 2014 to $5.4 billion this year and $15.2 billion in 2018.

As the mobile market approaches saturation—millennials age 18-34 now are more likely to have a smartphone (88%) than a pay-TV subscription (83%) according to a survey by Frank N. Magid Associates—there was also increased discussion of smart TVs and other connected devices at this year’s show.

#2 Back to the TV

After several years of low profits and sluggish sales, TV sets are making a comeback, with global set sales expected to hit 251 million in 2015, up from 242 million in 2012. “We are at the beginning of another upgrade cycle in the U.S.,” said Steve Koenig, director of industry analysis at the CEA, who notes that aging HD sets and newer 4K sets are boosting demand.

In the U.S., about 1.3 million ultra-HD (UHD) sets were sold in 2014, with the CEA predicting that some 4 million 4K sets should ship in 2015 and another 10 million in 2016.

“I think 2016 will be the real inflection point [for 4K],” Koenig said.

Notable new developments are also occurring in image quality. LG, Sharp, Panasonic, Samsung, Sony and other major manufacturers all announced new sets with greatly improved high dynamic range, which provides much better blacks and wider color gamut for more realistic color on their 4K sets.

To help drive adoption of higher-quality pictures, Netflix announced partnerships with both LG and Sony to stream 4K content with higher dynamic range to UHD TVs. “It’s not just about more pixels,” said Netflix chief streaming and partnership officer Greg Peters, who stressed the notable improvements of high-dynamic range.

Of course, these enhancements will also increase the bandwidth requirements for streaming UHD content. They will also put more pressure on producers to begin shooting with 4K cameras, which tend to offer higher dynamic range and better color, even if they are still delivering shows in HD.

Netflix’s Peters also stressed that improvements in TVs were “not just about picture quality.” Peters highlighted Netflix’s work with CE players on connected TVs to improve the user experience. The CEA estimates that sales of smart TVs or TVs with a built-in Internet connection in the U.S. should hit 19.9 million in 2015, up from 16.9 million in 2014.

As more TVs get connected to the Internet, Magna Global estimates the number of homes that get their video primarily from an over-the-top provider will rise from 7.3 million in 2014 to around 15.9 million in 2018, which will in turn boost revenue for OTT video providers.

Subscription video-on-demand is enjoying a similar upsurge. Consultancy/research firm PwC predicts that the SVOD business will grow from $3.9 billion in 2014 to $10.1 billion in 2018. The Digital Entertainment Group, a consortium of dozens of entertainment content distributors ranging from smaller indies to major studios, announced during CES that SVOD revenue for its members jumped 26% in 2014.

Another ray of hope, the DEG added, is electronic sell-through (EST), a.k.a., digital downloads, which posted a 30% year-over-year revenue gain. While digital platforms such as iTunes are significant EST vendors, multichannel video programming distributors are increasingly turning their attentions there. Matthew Strauss, senior VP and GM of video services at Comcast Cable, accepted a DEG award saluting Comcast as Digital Retailer of the Year at a CES reception. The company’s top corporate execs, he said, “were all incredibly committed to the idea that we needed to launch our EST service. It has exceeded all of our expectations.”

#3 Over-the-Top Hype

Over-the-top video has been one of the hottest topics this year, with every major CE manufacturer announcing some sort of expansion of the streaming services and apps available on their TV sets.

While Sony touted (but released no further details about) its Internet video service PlayStation Vue, Dish launched both a 4K streaming set-top box and unveiled Sling TV.

The long-awaited Internet video offering will be priced at $20/month for about a dozen cable channels, including ESPN, and content from Maker Studios. But it does not include broadcasters. And some programmers privately grumbled about the modest price point.

“We have never been satisfied with the status quo,” said Dish’s Clayton, who stressed that the new service is designed for the 18-to-34 set. “This is a market segment that pay-TV is missing. We see a great opportunity with this group and do not believe that providing them Sling TV will cannibalize our core business.”

How well that idea will pan out or how quickly others will follow is open to question, though DirecTV has already launched a streaming service for Hispanic viewers.

Tim Hanlon, founder and CEO of investment advisory firm Vertere Group, cautions that broadcasters aren’t immune from the impact of OTT. “You see Tribune coming out of bankruptcy, making gargantuan projections for jumps for carriage fees,” Hanlon said. “But I don’t know if that is the right model. Where will that revenue come from [if consumers are resisting higher-priced packages], and what will replace it if you have cord-cutting?”

Success could also have unpleasant consequences for OTT players and their subscribers. Several executives noted that prices for programming for Netflix could rise if usage shifts dramatically to OTT content and traditional channels start losing revenue from the pay-TV business. “Today you have Netflix for $9.99 a month, but they might have to look at a different price model and perhaps bring in their own bundling or advertising,” Jeff Clark, head of video platforms and monetization at Google, said during a CES session on Internet video.

#4 The Next Little Thing

Once again, there were no clear answers to the question of what will emerge as the next big tech revolution. But several possibilities are worth watching.

Samsung announced the virtual reality service Milk VR that will launch this year with new original content each day from the NBA and others. Notably, David Alpert, an executive producer of The Walking Dead, confirmed that his production company is working on a mystery/thriller episodic show for the streaming service.

Another small but highly hyped and rapidly growing market is drones. Federal regulators have agreed to let some major studios use drones to make movies, and the CEA estimates that by 2018, sales of consumer drones could hit $1 billion in revenue.

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Smart watches also seem to be taking off; the CEA estimates as many as 10.8 million will ship worldwide in 2015. Homes are also getting smarter, with appliances and security systems connecting with each other and the Internet, a trend Syfy has seized on in a venture with Philips centered on the company’s Hue lighting system. Following a partnership on last summer’s Sharknado 2, the companies were at CES to promote a Hue scheme for the upcoming debut of the series 12 Monkeys. Lights in the viewer’s home flash and turn colors based on the soundtrack and onscreen action.

The leading candidate for the next big thing at this year’s CES was the Internet of Things, or IoT. All the major CE manufacturers spent considerable time outlining their strategies, and Samsung Electronics CEO Boo-Keun Yoon devoted his entire keynote to the subject. “IoT is not science fiction any more, it is science fact,” he proclaimed. “The age of IoT has already started.”

With the cost of putting sensors and Internet connections into everyday devices plummeting, there is little doubt that the idea of linking them all together into networks that can harvest data for a variety of purposes will open up a host of opportunities.

Cable operators and telcos that now provide broadband connections into the home are already beefing up their offerings for smart homes. And in the coming years, IoT could have a major impact on improving the current, much-criticized measurement systems.

For example, smart watches and connected TVs with built-in content recognition technology could track what is being watched in and out of the home, though such systems would create privacy and security issues.

“Companies that start out digital-only have a huge resource in data that they can use to better reach consumers,” said Lisa Hsia, executive VP of digital at NBCUniversal’s Bravo and Oxygen Media. “But TV doesn’t have that. We’re still burdened by archaic measurement systems that do not measure content across platforms.”

#5 The OS Wars

A huge complaint for many years has been the frag- mentation of the CE market, which forces tech devel- opers to go through the costly process of creating dif- ferent versions of apps for different operating systems, screen sizes and devices.

A number of industry organizations are working to help standardize and streamline the process of de- livering streaming video, including the newly formed Streaming Video Alliance, which is backed by Comcast, Telstra, Charter, Liberty Global, Fox Networks,Wowza and a number of other companies.

CES also saw the creation of the UHD Alliance, formed with the backing of Samsung, Sony, Sharp, DirecTV, LG, Disney, Twentieth Century Fox, Warner Bros. and others to push for new standards for higher- quality UHD content.

In the marketplace, however, progress towards stan- dards was mixed. During CES, for example, LG was once again touting its WebOS operating system for TVs; Panasonic announced the first TV with a Mozilla Firefox system; Samsung said it would move all its TVs to its Tizen system; Roku showed considerable prog- ress by getting at least four manufacturers to build TVs around its platform; and Google once again pushing back into the TV space with the launch of Android TV, which is being adopted by Sony, Sharp and others.

Still, this represents some progress. Each of these platforms helps simplify the development process, which is encouraging programmers to create more apps for smart TVs. “There is hope that we may be shifting to a place where there will be a handful of operat- ing systems,” said Doug Craig, VP of programming at Roku.

Dade Hayes contributed to this report.

Over-the-top videohas been such a staple at CES for so many years it almost qualifies as a legacy media, which makes all the noise around online video at last week’s gadget fest particularly notable.

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