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Service Takes Over in the Networked World

New products no longer stand alone—they are linked to a variety of networks, and the game is becoming one of service

9 min read
Service Takes Over in the Networked World

This is part of IEEE Spectrum's special report: Always On: Living in a Networked World.

photo of music player

Photo: RCA
Downloadable digital audio, which drove the sales of music players such as this RCA Lyra 2, may become a subscription business.

The home entertainment business has always been a three-legged stool: products (television sets, stereos, and VCRs), content (TV programming, music, and movies), and delivery (broadcast, records, disks, and tapes). Historically, the big consumer electronics manufacturers like Matsushita, Philips, Sony, and Thomson focused on technologies and standards, the motion picture and recording industries took care of content, and the radio and TV networks and cable and satellite system operators provided the delivery mechanisms. Service, such as on-screen program guides, was a small part of the delivery business, but seemed almost an afterthought.

But the world has changed, and the industry's attention is now turning to the opportunities for a host of new services delivered through networked devices.

Because of digital networks, "we will see the boundary between the manufacturing and service industries being eliminated," Kunio Nakamura, the new president of Matsushita Electric Industrial Co., Osaka, told IEEE Spectrum.

No longer will devices sit in the living room, with, at best, one-way contact to the outside world. In fact, consumers may soon think first about what service to subscribe to, rather than what product to buy, as is already the case with cell phones.

Among the first such service-oriented devices to emerge were the hard-disk recorders (HDRs), also called personal video recorders (PVRs). These TV peripherals, containing high-capacity hard drives (60 GB holding approximately 60 hours of video in the current generation), hook up to a phone line and require a subscription to a service to operate. Currently two services are competing: TiVo Inc., Alviso, Calif., and Replay Networks Inc., Mountain View, Calif. The devices first entered the market in early 1999, when some 100 000 were purchased. The total number of HDRs in use is projected by Forrester Research Inc., Cambridge, Mass., to hit 50 million by 2005.

Initially, the HDR services provided were only intelligent program guides to allow viewers to select shows easily for timeshifting or to let the system do the selection automatically, making judgments based on the viewer's past choices. But in the works are such services as video-on-demand, using devices that merge HDRs with Internet TV set-top boxes (like WebTV), and personalized news broadcasts. Eventually, too, HDRs may evolve into home entertainment servers, connected to TV screens and computers throughout a house.

Web-based access to home HDRs is also coming. Replay Networks was to expand its service late last year to include a Web portal, myreplaytv, to allow users to control their Replay boxes remotely using the Web. A TiVo spokesperson said that such a system is in TiVo's future as well, once mechanisms to ensure privacy are solidly in place.

Downloadable digital audio

Not much more than a year ago, downloadable digital audio looked like a product, not a service. So-called MP3 players (compact digital audio units that use the compression technology specified in Layer 3 of the MPEG-2 standard, set up by the Moving Picture Experts Group) were originally intended as a way for people to make their home music libraries portable--put a compact disk in your computer, compress the files, and download it into your MP3 player. But it was only a small step from that concept to e-mailing MP3 files to friends through the Internet (a move that is probably illegal, according to copyright law). Not much later, people jumped in to offer music distribution services, like Napster, Gnutella, and similar Web sites that allow convenient music-sharing among strangers.

Napster, which allowed widespread distribution of copyrighted material without remuneration to copyright holders, raised a host of legal and ethical issues that have yet to be fully settled. The legal case, in which the Recording Industry Association of America, Washington, D.C., and several record companies filed a lawsuit against Napster for copyright infringement, is currently in the courts, with Napster being allowed to continue operation until it is settled.

While the lawsuit may kill Napster in its current form, forcing it to move to a paid subscription service to survive, digital music delivery services will in all likelihood proliferate, once security and payment methods are worked out.

"Napster may go away, but the technology has opened up something that will not go away--distribution of sound files through the Internet or other digital highways will keep going," said Almon Clegg, president of CCi, Atlanta. "The question is whether the music community and the legal community can get their act together or whether the entrepreneurs will pass them by."

"There is no denying that, whoever wins the Napster case, some form of peer-to-peer sharing is going to become a feature of the Internet," said Paul Goldstein, a law professor at Stanford University in California. "The only question is what business model will emerge that will enable copyright owners to capture value from this new market." [See interview with Goldstein]

Right now, the industry is making secure music files available through the Internet for a per-download fee. In the future, such files could potentially be shared, with the security software allowing a few free plays, but then locking the file until a fee is paid.

Other business models are being tested. Universal Music Group, Universal City, Calif., is testing a music service that provides unlimited access to Universal's music for a monthly subscription fee, and other labels are expected to offer something similar. Bertelsmann AG, Gutersloh, Germany, one of the parties in the Napster case, has offered to drop its lawsuit once Napster develops a membership-based on-line music-sharing service that pays royalties to record copyright holders.

"Napster may go away, but the technology has opened up something that will not go away"

The downloadable audio technology associated with music delivery services continues to evolve. Some digital audio players contain secure memory cards, which prevent subsequent copies from being made. Many of these use a host of audio encoding schemes now being promoted, including the audio compression format AAC, for advanced audio coding. AAC is also defined in the MPEG-2 moving-picture standard and is more efficient than MP3. (Dolby Laboratories Inc., San Francisco, which is managing the licensing of AAC, is trying to restrict its use to secure systems.)

A technology called MP4 (no relation to the MPEG-4 video compression standard) has been proposed to the Recording Industry Association of America by Global Music Outlet, Santa Monica, Calif. This variant of MP3 allows copyright information and links to official music sites to be embedded in the music files.

Meanwhile, the Secure Digital Music Initiative (SDMI), a cross-industry organization that brings consumer electronics and computer companies together with the recording industry has, for two years, been trying to settle on a specification for digital music security. The group presented four security methodologies in September, and challenged hackers to have a go. All four methods were reportedly broken within a month, but, at this writing, details had not yet been released.

The debate may spread to the video realm. Movies compressed in DiVX, which is based on MPEG-4, began to be available on the Web last year. DiVX started out as a piece of underground software, but legitimate companies, including Microsoft Corp., Redmond, Wash., are working to develop the technology further. (This DiVX has no relation to a defunct DVD format with the same name. [For an update see sidebar DVD formats].

Even videogames, which used to be a razor blade business (sell the box cheaply, and make a fortune off the cartridges), are turning into a networked service business. Sega's Dreamcast, introduced in September 1999, Sony's Playstation 2, introduced in October 2000, and the systems from Nintendo and Microsoft that will be reaching the market this year--all include built-in modems or ports to allow easy network connections. Each of these systems enables on-line gaming through private, subscription-based networks and Web browsing.

Smile, you're on the Net

Photography, it could be assumed, would be one category that would continue to stand alone. After all, cameras create their own content, so the delivery mechanism could be less important. But even cameras are living in a networked world.

A variety of services have emerged for digital camera users. One class is the Web-based photo-hosting sites that allow people to post their photos, typically for free, where they can be viewed by family and friends. Examples are,,, and Another is the Web-based photo "developing" site (which makes and distributes high-quality prints of users' digital photos), like, Snapfish, and the recently announced photo service at (In some cases, it can be hard to distinguish between the two, as some hosting sites offer hard-copy services and some developing sites offer ways of sharing photos electronically.)

The most recent service to emerge is the digital photo kiosk, a system that accepts memory cards from digital cameras and lets users edit and print pictures on the spot. Kiosks from Digital Portal Inc., a joint venture between SanDisk Corp., Sunnyvale, Calif., and PMI PLC, Bookham, UK, were expected to be available in North America late last year.

Meanwhile, digital camera technology is evolving quickly, with resolutions of 3.3 megapixels taking over as the consumer norm and one 4.3-megapixel camera available (from Fuji Photo Film Co., Tokyo). Also, a 16.8-megapixel camera based on CMOS image sensors (most other high-quality digital cameras use charge-coupled device, or CCD, sensors) was demonstrated last fall by Foveon Inc., Santa Clara, Calif. This may be the opening shot in a battle between CMOS and CCD sensors for the heart of the consumer camera market. (CMOS sensors have been, until now, restricted to the low-quality, "toy" camera end of the market with the bulk of the mainstream business owned by CCDs.)

photo of Sony digital camera

Photo: Brian C. Fenton
Last October in Japan, Sony Corp. demonstrated a digital camera that was about the size of a pack of gum. At 21.5 by 62.5 by 13 mm, the camera uses a half-size memory stick, Sony's proprietary flash memory device. At first, the market for the device will be intelligence agencies, according to Sony, but this camera, or one like it, will eventually reach the hands of consumers.

A new twist is the merging of digital cameras into other services--becoming part of networked cell phones, for example. Most digital cameras today use the baseline Joint Photographic Experts Group (JPEG) compression standard, which dates back to 1988. JPEG2000, Part 1, which uses more sophisticated compression algorithms, was to become a standard of the International Organization for Standardization on January 2001.

Trains are quieter because instead of talking on cell phones, people are using their thumbs to send e-mail

The new JPEG standard will be better suited to transmission of images over the Internet and wireless networks, because it will provide adaptable resolutions, said Daniel Lee, director of R&D for Hewlett-Packard's Internet Imaging group in Cupertino, Calif., and head of the JPEG2000 committee. This means, he explained, that a variety of resolutions can be extracted from a single file. It also means that photo quality can be adapted to storage space.

Today's digital cameras store a set number of images at a set resolution, depending on the size of the disk or memory card. JPEG2000 cameras could instead change resolution on the fly, depending on how many pictures are taken. The first picture taken would use all the available memory for a high-resolution image; when a second picture is taken, the memory allocation--and resolution--for the first picture would be cut in half, and so on.

But most digital cameras today do not have the processing power to handle JPEG2000 encoding. "It would probably take processors about two times the power of those used in current cameras," Lee told Spectrum. Still, he expects to see JPEG2000 cameras on the market this year. Also moving to a digital format is radio [see "Digital Radio"].

The i-MODE factor

Further along than the United States in adopting the Internet-based service paradigm is Japan, where, it seems, just about all new consumer electronics products coming on the market have some way of linking to Tokyo-based NTT DoCoMo Inc.'s i-MODE cell phone service.

i-MODE is a cell phone network that, along with regular phone connections, gives the user constant connection to Internet e-mail and a selected (but large--over 10 000) roster of specially formatted Web sites. It has changed the way cell phones are used in Japan. Said Matsushita's Nakamura: "Riding the train has become more quiet. It used to be that many people would be talking on cell phones; now they are using their thumbs to send e-mail."

graph showing phone internet usage

The Dawn of the Non-PC Internet: The Internet, once accessible only through computers, now is accessed by phones, PDAs, games, and television. Such diversified access is growing rapidly, especially in Japan [shown above], where the i-MODE Internet cell phone service is the driver.

Services tailored to i-MODE have been expanding rapidly, and are set to boom when 3G cellular, a broadband cell phone network, arrives in Japan in the spring. In the works, for example, is phone-based digital music distribution (phones will contain removable storage media like memory cards or sticks that could be moved to a music player).

One such service, Airmedia, a joint venture between NTT Corp. and Panasonic Consumer Electronics and recently joined by Sony Corp., was tested last summer, but an official launch date has not been announced. A second, competing, service for digital music distribution was launched in November in Japan by a consortium that includes KDDI, a cell phone system operator, and a group of consumer electronics companies, including Sanyo, Hitachi, and Fujitsu.

In the United States, Sprint PCS, Kansas City, Mo., is getting ready to provide music distribution to subscribers who use cell phones with built-in MP3 players made by Samsung Electronics Co., Seoul, Korea. In this system, though, the downloading of the music files will require the use of a computer. In Europe last fall, streaming audio became available to European WAP (wireless access protocol) cell phone users, through an agreement between Omnitel Pronto Italia SpA, Corsico, Italy, and Vitaminic USA Inc., San Francisco. A similar system is being tested in New York City.

Other cell phone-based services on the horizon include videophones, video distribution, locator systems, and cell phone control of home automation systems.

To Probe Further

The latest consumer electronics products are exhibited annually at the International Consumer Electronics Show, sponsored by the Consumer Electronics Association, Washington, D.C. This year's show will be held 6-9 January in Las Vegas, Nev. See for more information.

For up-to-date information on the JPEG2000 standard, visit

To check out the services being rolled out for imode phones, go to

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