Several consumer electronics companies, including RadioShack, Sonos and Microsoft, ran TV ads during the Super Bowl, reminding viewers that CE is about both content and hardware. An analyst said the ads help show that hardware is still important to the CE industry and can help RadioShack update its image. RadioShack's ad featured 1980s celebrities and was meant to position the company as reinvented and focused on today's technology needs.
2. 2—CONSUMER ELECTRONICS DAILY TUESDAY, FEBRUARY 4, 2014
"Clearly they want people to think about" the chain as being "reborn" — that it’s "not the place it
used to be, and I think that was a message that came across in the ad," said Baker. RadioShack is
"upgrading their stores and trying to make them more focused on what’s relevant today, and I think the ad
kind of talked to that," he said.
RadioShack wouldn't say how much it spent on the spot, but the average Super Bowl spot was esti-
mated to cost about $4 million, according to several published reports.
The retail chain’s ad will run for three weeks following the Super Bowl and "will be complemented
by" the new, longer-term Do It Together brand positioning campaign that launched Monday, a spokesman
said. The ad will run on several cable networks, including FX, Discovery, Fox Sports, Univision and
Telemundo, he said. It and a 60-second version of the same ad, as well as digital shorts where store
"associates" teach '80s icons to use today’s technology, can also be viewed at RadioShack.com/DIT or on
RadioShack’s YouTube channel, he said. RadioShack is also hosting a 24-hour sweepstakes on Twitter
that launched in conjunction with the Super Bowl spot, he said. The ad, extended online footage and
Twitter giveaway promotion are the first works to launch from RadioShack's new advertising and media
agency, Austin-based GSD&M, the retailer said in its news release. The marketing plan includes TV,
print, digital, social and in-store "executions, all created with a how-to perspective in mind and placed to
reach and engage a very tech-forward audience," said RadioShack.
The chain, wanted with the spot "to directly address outdated perceptions of RadioShack, using
both humor and nostalgia," said CEO Joe Magnacca. He pointed to the remodeling of its U.S. stores that
are part of its turnaround efforts. RadioShack planned to have more than 100 combined concept and
"brand statement" stores by the end of 2013 as part of its turnaround efforts, Magnacca said on an earnings
call in the fall (CED Oct 23 p5). This year, RadioShack will take another 2,000 stores and "get them up to
kind of a base level of renovation," and by the end of 2014, all but 600 stores will probably have been up-
dated in a "meaningful way," he said at the time.
Sonos didn’t run a new spot during the Super Bowl, instead selecting a 60-second ad touting its
products that first aired in October, spokesman Eric Nielsen told us. But it was the first time it aired an ad
during the Super Bowl, he said. He wouldn't say how much the spot cost.
Microsoft’s 60-second Super Bowl ad spotlighted a wide variety of its products, including the Ki-
nect sensor. It was designed to communicate to viewers that the company is "evolving rapidly, and our
core values of changing lives and empowering people through technology remain at the heart of every-
thing we do," a spokeswoman said. Microsoft also wouldn't say how much it spent on the spot.
GoPro’s spot was designed to communicate that its action sports cameras "make it possible to cap-
ture all of life's incredible moments," the company said at its website. The ad documented Austrian sky-
diver Felix Baumgartner's "courage to jump from the edge of space — with GoPro cameras recording
every record-breaking moment," it said. — Jeff Berman
* * * * *
Super Bowl XLVIII was watched by an average audience of 111.5 million people, making it the
most-watched TV show in history, said the Fox network, which broadcast the game. The previous record of
111.3 million was for NBC's broadcast of Super Bowl XLVI in 2012. Three of the last four Super Bowls
have set viewership records, Fox said in a news release Monday. Super Bowl XLVIII had a 46.4/69 Nielsen
rating, matching the household rating and share for last year's Super Bowl, said the broadcast network. The
ratings for this year's game “climbed through the first half and peaked at a 47.9/71” at around 7:30 to 8 p.m.
3. TUESDAY, FEBRUARY 4, 2014 CONSUMER ELECTRONICS DAILY—3
ET, “as Seattle established a commanding 22-0 halftime lead,” said Fox. “Viewership remained impres-
sively high through the fourth quarter despite the fact that Seattle had the game well in hand.” The game
earned a 44/63 rating from 9:30 p.m. until it ended, “meaning that even in the closing minutes the rating was
only 5 percent lower than it was for the entire game,” Fox said. Kansas City was the biggest market for the
game broadcast, followed by Seattle, Indianapolis, New Orleans and Tulsa, Okla., Fox said. It also showed
the game on Spanish-language Fox Deportes, where it averaged 561,000 viewers, making it “the most-
watched non-soccer sports event in Spanish cable history,” Fox said. The game was also the most viewed
live-stream in history, Fox said.
'Substantial European Expansion'
Netflix Still Committed to DVD-by-Mail Business to Offset Expansion Costs
Netflix lost 1.3 million DVD subscribers in 2013, compared with a loss of three million DVD sub-
scribers the prior year, bringing the total number of disc-by-mail subscribers to 6.93 million on Dec. 31,
the company said in a 10-Q SEC filing. DVD revenue fell 20 percent to $911 million, Netflix said.
As the number of DVD-by-mail subscriptions continues to spiral downward, Netflix expects the
domestic DVD business to continue to generate “significant contribution profit” that will help offset losses
from its expansion into international markets with its streaming-only service. The company believes the
number of DVD memberships will continue to drop and doesn’t anticipate an increase in spending on its
DVD operations and technology, it said. The DVD segment had a contribution margin of 48 percent for
the year ended Dec. 31, relatively flat compared with the prior year, it said.
The number of subscribers to Netflix’s domestic streaming service grew by 6.3 million, or 15 per-
cent, to 33.4 million, the company said. Domestic streaming revenue jumped 26 percent, or $566.5 mil-
lion, to $2.75 billion on membership additions, it said. Netflix has retained its $7.99 per month domestic
streaming membership plan, but it added an $11.99 plan late last year that allows members to stream con-
tent on up to four devices concurrently, it noted. The number of new member additions related to the
$11.99 plan wasn't material for the year, it said.
Cost of revenue in Netflix’s domestic streaming segment grew 19 percent to $1.84 billion in 2013
largely due to a $226.3 million jump in content licensing expenses with existing and new streaming con-
tent, including original programming, the company said. Content delivery costs grew by $31 million, and
payment processing fees and customer service call centers added $33 million in costs as a result of the
growing member base, Netflix said.
Netflix expects a “substantial European expansion in 2014,” it said, having added the Netherlands
in September to join the U.K., Ireland, Finland, Denmark, Sweden and Norway. Netflix also offers its
streaming service in Canada and Latin America. The company ended 2013 with 10.9 million international
subscriptions, a 79 percent increase over 2012, it said. International revenue grew 148 percent to $712
million, it said. The prices of international memberships range from $7 to $14 per month (in U.S. dollars).
Netflix ended 2013 with 2,022 full-time employees along with 305 part-time and temporary em-
ployees used primarily in DVD fulfillment operations that have “fluctuating demand.”
On risk factors, Netflix cited the possibility of introduction of net neutrality legislation that could
“decrease the demand for our service and increase our cost of doing business.” It said it is unclear how
4. 4—CONSUMER ELECTRONICS DAILY TUESDAY, FEBRUARY 4, 2014
the FCC will respond to U.S. Court of Appeals for the D.C. Circuit's reversal of FCC net neutrality rules
last month and how network operators will attempt to benefit from that decision.
If network operators “attempt to use this ruling to extract fees from us to deliver our traffic or otherwise
engage in discriminatory practices, our business could be adversely impacted,” Netflix said. Internationally,
government regulation concerning the Internet along with “potentially significant political and economic
power of local network operators” could result in “discriminatory or anti-competitive practices that could im-
pede our growth, cause us to incur additional expense or otherwise negatively affect our business,” it said.
Usage-based pricing and “meaningful bandwidth caps” — or other ways network operators could
try to monetize access to the their networks — could result in higher operating expenses that in turn could
hurt member acquisition and retention, Netflix said. If network operators were to create tiers of Internet
access — and “either charge us for or prohibit us from being available through these tiers” — that could
also hurt Netflix revenue, it said.
Netflix highlighted the competitive relationship it has with Internet service providers that offer pay
TV programming and so have “an incentive to use their network infrastructure in a manner adverse to our
continued growth and success.” It said Comcast “exempted certain of its own Internet video traffic (e.g.,
Streampix videos to the Xbox 360) from a bandwidth cap that applies to all unaffiliated Internet video
traffic (e.g., Netflix videos to the Xbox 360).” Netflix expressed the hope that consumer demand, regula-
tory oversight and competition “will help check these incentives” so that network operators aren’t able to
provide “preferential treatment to their data” and not to Netflix content. — Rebecca Day
Enforcement Too Limited
FTC Needs 'More Tools' to Fight Data Breaches, Senate Subcommittee Told
The need for the FTC to have stronger “tools” to go after cybercriminals was raised at a Senate
Banking Committee's Finance Subcommittee hearing Monday. Senators questioned whether the FTC had
the proper authority to pursue criminals and enforce better data security on the part of companies. There
was support for Europay, Mastercard and Visa (EMV) technology, which would increase credit and debit
card security, but EMV would not have stopped the Target breach, said Edmund Mierzwinski, U. S. Pub-
lic Interest Research Group consumer program director.
Since reported data breaches at Target, Neiman Marcus and Michaels, there has been an
“exponential rise” in data security concerns, said subcommittee Chairman Mark Warner, D-Va. The de-
bate on data security should not entail “another long-term fight” among bankers, retailers and the card in-
dustry, he said. Chip and PIN technology is more “effective” than the current “swipe system,” but it’s not
a “silver bullet,” said Warner. “Real potential exposure” for data breaches is for online banking and bank
accounts, which have “very few protections, at this point,” he said. Many cybercrimes originate from
Eastern Europe and use the Russian language for “operational security,” said William Noonan, U.S. Secret
Service deputy special agent in charge of the criminal investigative division.
Sen. Elizabeth Warren, D-Mass., asked whether the FTC is “powerless” to pursue companies with
“totally inadequate data standards.” The FTC’s work has brought attention to the issue of data security
and has brought some cybercriminals to justice, but “we do need more tools,” said Jessica Rich, FTC Bu-
reau of Consumer Protection director. The FTC supports federal standards for breach notifications and
data security, with civil penalties for the latter, she said. That the FTC’s “enforcement authority is so lim-
5. TUESDAY, FEBRUARY 4, 2014 CONSUMER ELECTRONICS DAILY—5
ited” is a “real problem,” said Warren. “It has been a while,” said Rich, when asked by Sen. Jon Tester,
D-Mont., about the last time the FTC’s “tools” to go after cyber criminals were “revamped.”
FTC data breach investigations “focus on reasonableness” and take into account the amount of data
a particular company stores and the “sensitivity” of the data, said Rich, in prepared remarks. There's not a
“one-size-fits-all data security program,” nor does the FTC “require perfect security,” she said. Just be-
cause a breach “occurred does not mean that a company has violated the law,” she said. Companies
should “limit” the amount of data they collect and “properly dispose” of unnecessary data, along with
strengthening data security measures, she said.
The “quality, quantity, and complexity of cyber crimes” continues to increase, said Noonan, in pre-
pared remarks. The “compartmentalization” of data attack operations has “greatly” increased their sophis-
tication, he said. A “poorly understood” fact about data breaches is that the victim companies are “rarely”
the first to discover the breach, he said. “Law enforcement, financial institutions, or other third parties”
typically “identify and notify the likely victim company of the data breach,” he said.
“No security breach seems to stop the $3 trillion that Americans spend safely and securely” annu-
ally with credit and debit cards, said James Reuter, executive vice president of FirstBank, representing the
American Bankers Association (ABA), in prepared remarks. Reuter said the ABA “strong supports” the
Data Security Act and called the creation of a national data breach standard “essential.” He said EMV
chip-card technology will enhance card security and the implementation of EMV is “well under way,”
with deadlines for implementation by banks and retailers set for late 2015. The banks, retailers, and gov-
ernment have all been "delayed" in implementation of chip and PIN technology, but it's the consumers
who are having their data stolen, said Warren.
Thirty-seven percent of breaches occurred in financial institutions in 2013, while 24 percent were
at retail companies, 20 percent in manufacturing, transport and utility companies, and 20 percent in
“information and professional service firms,” said Mallory Duncan, National Retail Federation general
counsel, citing a Verizon report. It’s “long past time for the U.S. to adopt PIN and chip card technology,”
said Duncan. Chip and PIN technology would not have stopped the Target breach, “since unencrypted
information was collected from the Target system’s internal RAM memory, after the cards had already
been used,” said Mierzwinski. — Joe McKnight
Ultra HD
Availability of 4K content for consumer consumption has been focused, incorrectly, on content
creation via 4K cameras and HEVC (High Efficiency Video Coding) chips, said DisplaySearch analyst Paul
Gray. HEVC chips are beginning to appear and 4K cameras have been around for several years, but the big-
ger issue is that no broadcasters have committed to transmit 4K content at 30 Hz progressive, Gray said.
The editing chain is “far from complete” and connecting the dots between studio cameras and producing live
programming remains “almost impossible for most broadcasters,” Gray said. A 4K camera is only part of
the solution because lenses typically cost “far more than the cameras,” he said. The larger image sensor for
4K requires new lenses because of a change in focal length, he noted. Netflix’s plan to deliver 4K content
will likely trigger competition from premium TV providers, but broadcasters are concerned that the higher
resolution of 3840 x 2160 content broadcast at 60 Hz is “barely perceivable by most consumers” unless
they’re viewing on a big screen, Gray said. As a result, “broadcasters are waiting,” said U.K.-based Gray,
who said most European broadcasters are likely to launch 4K services in 2016-2018.
6. 6—CONSUMER ELECTRONICS DAILY TUESDAY, FEBRUARY 4, 2014
Mergers & Acquisitions
Sony America closed on its $170 million Gracenote sale to Tribune Co., Sony and Tribune
said Monday in separate statements. Sony has said it will report the sale as a $60 million operating
income gain for the fiscal year ending March 31. Tribune said the acquisition “brings together Gra-
cenote with Tribune Media Services, forming one of the largest sources of entertainment metadata in
the world.” Adding Gracenote “also expands Tribune's reach into new growth areas, including
streaming music services, mobile devices and automotive infotainment, where Gracenote has a pow-
erful presence,” it said.
Retail
The "biggest issue" for Walmart’s Q4 results when they are announced will be that the retailer
gave up "a lot of gross margin" and profit during the holiday season to achieve growth in same-store
sales, Janney Capital Markets analyst David Strasser predicted on a Monday conference call with inves-
tors. Walmart "did the right thing," but "we worry that this could become a 2014 theme" as it continues
to invest in its domestic business at the risk of weaker gross margins, he said. Strasser will be interested
to see if Walmart predicts flat or declining operating margins for this year because that would be a
"major change" for the retailer historically, he said. Amazon and Walmart are having a "fairly aggres-
sive tit-for-tat" fight over pricing and that battle will probably be stepped up in 2014, he said. U.S. re-
tailers will all likely take a hit in their results from weather issues, he said. Retailers’ results will also
likely be "very bad" for the most recent period due to "a lot of angst" in the U.S. market, weakness in
7. TUESDAY, FEBRUARY 4, 2014 CONSUMER ELECTRONICS DAILY—7
the housing sector and continued unemployment among many consumers, with employment "heavily
skewed towards part-time" work, he said. Many analysts had cut their Q4 earnings projections to $1.61
from $1.65 before Walmart released a revised forecast Friday. Walmart's Q4 same-store sales will now
be "slightly negative" compared with the flat forecast it gave in November, Chief Financial Officer
Charles Holley said in a statement.
Companies
Sony threw cold water Monday on an NHK report over the weekend that Sony is in talks with
Lenovo to establish a joint venture for the PC business. “As Sony has announced previously, Sony con-
tinues to address various options for the PC business, but the press report on a possible PC business alli-
ance between Sony and Lenovo is inaccurate,” Sony said in a statement. Only last week, Lenovo an-
nounced plans to buy Motorola Mobility from Google for $2.9 billion (CED Jan 31 p3). In its October
forecast, Sony said it expects to ship 5.8 million PCs globally in the fiscal year ending March 31. That
would be down 24 percent from a year earlier.
Trends
Chinese smartphone brands were the big winners in 2013 as total smartphone shipments to
the China market approached 300 million units, said data from DisplaySearch. Chinese brands’ mar-
ket share jumped from 28 percent in 2011 to 69 percent in 2013, and DisplaySearch predicts that share
will increase to 73 percent this year, when 400 million units are forecast to ship. From 2011 to 2013,
Samsung and Apple were the only foreign brands to grow sales in the China smartphone market, with
most of the unit increase coming from Chinese mobile brands, DisplaySearch said. Apple has ex-
panded its presence with wireless carriers, and Samsung, LG and HTC will release new models this
year, including mid- and low-end devices, but “it will not be easy to slow the growth of Chinese
brands,” DisplaySearch said. It credits an emerging “strong ecosystem,” extending from application
processors to telecom carriers, for shaving product development time and reducing costs. Some do-
mestic brands don’t plan for any profit during product development — expecting subsidies from the
government and telecom operators or to generate profit from the stock market, it said. The ecosystem
has emerged as a barrier to foreign mobile brands, DisplaySearch said, and brands besides Apple and
Samsung have “little chance” to expand their market share other than through low-margin relation-
ships with telecom operators.
Videogames
Microsoft set up an Xbox One tent at the "Super Bowl Boulevard" event in New York last week
as part of the "Tailgaming" program it has been running throughout the NFL season, a Microsoft spokes-
man said. The Xbox One, with an NFL app, is the "official console" of the NFL and Microsoft wanted to
"give fans a unique opportunity to experience" the gaming and other forms of entertainment provided by
its new console as they enjoyed all the Super Bowl week activities, he said. Visitors to its tent were able
to play on the Xbox One and "get hands-on" time with the latest titles for the console, including the multi-
platform Madden NFL 25 from Electronic Arts and Microsoft’s Xbox One exclusives Kinect Sports Ri-
vals, Forza Motorsport 5 and Xbox Fitness, he said. Visitors could also try out Microsoft’s Surface tablets