2. 2—CONSUMER ELECTRONICS DAILY THURSDAY, DECEMBER 12, 2013
But Qualcomm’s ultimate goal is to just sell components for future smart watches to other manu-
facturers, said Jacobs. Qualcomm’s "business model is not selling watches," he said. There are "a lot of
companies that we’re interacting with" on that front and Qualcomm doesn’t want to compete with manu-
facturers that buy its components, he said. It’s going to be Qualcomm’s hardware partners that "take it
forward," he said.
"To me a smart watch is not a smartphone that is strapped to your wrist," said Jacobs, telling the
conference it was important to introduce a product that would show what such a device would be capable
of using Qualcomm components. The Toq features Qualcomm’s Mirasol reflective display technology
that Qualcomm said at its website "uses the natural light around it, unlike traditional LCD displays which
are backlit." The technology enables the smart watch display to "become more visible in bright sunlight
and to last for multiple days on a single wireless charge," it said.
Qualcomm also continues to see growth in the "huge" smartphone market, said Jacobs. While
many smartphones are now being sold in emerging markets and that’s bringing the average selling price of
smartphones down, he said low-end smartphones still have higher prices than the feature phones they are
replacing. The company also hopes to see growth from the tablet market, as well as from new markets
including the auto, energy and health sectors, he said. — Jeff Berman
'We're In a Logjam'
Rovi Nearing Decision on DivX, MainConcept Businesses
Rovi will become more “tightly focused” on interactive program guides and metadata services as it
decides the fate this month of its DivX and MainConcept businesses, Chief Financial Officer Peter Halt
said Wednesday at the BMO Capital Markets conference in New York.
Rovi, which acquired DivX and MainConcept when it bought Sonic Solutions, will weigh partner-
ships or a sale of the businesses that will be packaged in a potential deal, Halt said. DivX and MainConcept,
which combined have about 270 employees and account for about 20 percent of Rovi’s annual research and
development spending, are expected to be profitable this year on revenue of $70 million to $75 million, Halt
said. The DivX compression format is designed for file-based video playback, but has been revamped to
support H.264, MKV, DTS Audio, 1080p HD, subtitles and multiple audio tracks. DivX Plus Streaming
also has been licensed for over-the-top video services, including those offered by Dixons and Sainsbury's in
the U.K. MainConcept, which DivX bought when it was an independent company, develops video codecs.
While DivX had been focused on a standalone CE business designed for TVs and Blu-ray players,
Rovi has been moving it into the streaming category with service providers. Rovi landed DivX Plus Stream-
ing digital rights management agreements with movie studios a year ago and gained approvals for UltraVio-
let. Toshiba signed a pact to include DivX Plus Streaming in CE products. But DivX has largely remained a
European product and Rovi has been mired in patent infringement suits in the U.S. with Amazon and Netflix,
Rovi officials have said. It announced an agreement with Hulu earlier this year, but “that deal was really
pushed upon management there by its owners who were looking” to put the asset up for sale, Halt said.
“What DivX Plus Streaming needs, if it is to succeed, is to be used by the meaningful-size OTT
providers and that’s where we find ourselves in a logjam,” Halt said. "Philosophically, OTT players don’t
want to move into IP licensing. DivX Plus Streaming has an opportunity to be a growth engine for DivX,
but only if the ecosystem play is rolled out before other players catch up and only if it's handled through a
3. THURSDAY, DECEMBER 12, 2013 CONSUMER ELECTRONICS DAILY—3
process where it can get into OTT. Does that mean a partnership or selling the business? That’s the deci-
sion that we have to come to.” With possible deals for DivX and MainConcept, Rovi will potentially un-
ravel the company’s entire acquisition of Sonic Solutions. It sold off the video streaming Roxio Entertain-
ment Store and Roxio consumer software earlier this year. It also is revamping its TotalGuide IPG, mov-
ing to lighter versions for cable operators, instead of the embedded guides that were at the heart of CE
agreements. TotalGuide was originally expected to debut with cable operators in 2012, but suffered a se-
ries of delays, Halt said.
“It took two years to develop the product and two years later it was identical to what was originally
envisioned and you can’t have that,” Halt said. “We introduced a highly embedded guide” when lighter
versions were being sought by cable operators. While Rovi has added staff more accustomed to the
quicker pace of IT development, “we have to make a decision how much we want to do with that product
going forward," Halt said. BendBroadband is among those expected to deploy TotalGuide in set-tops in
Q1, Rovi officials have said.
Rovi dropped the TotalGuide name from its iOS-based xD guide that’s designed for tablets. While
xD has been deployed with BendBroadband and Armstrong Cable, Rovi expects to gain more customers
when it introduces an Android version of the guide in late Q1, Halt said.
Rovi also is faced with renewals of licenses that expire in 2015 and 2016, including those with Com-
cast and EchoStar. Comcast and EchoStar signed separate 12-year licensing agreements with Gemstar, a
company Rovi acquired in 2004, Halt said. At the time the first pacts were signed, Gemstar was struggling
financially, he said. “This is a great opportunity to pick up a large amount of subs for a television use patent
license” and "getting them back and paying,” Halt said. “We are excited about the renewal opportunities.”
Rovi’s alliance with Nuance Communications on adding voice control to its IPGs is “early on” in
development and is an “area where we want to stay at the forefront,” Halt said. But Rovi also has to rec-
ognize businesses where it shouldn’t invest and rather seek a partner, Halt said. — Mark Seavy
BMO Capital Markets Conference Notebook
Take-Two Interactive is "very pleased and excited" about how the PS4 and Xbox One launches
have gone so far, said President Karl Slatoff. These are still "early days" for the consoles, but there had
been "a lot of noise" before their launches by "a lot of doubters" who believed console gaming may be
"dead," he said. The "successful" launches proved that "console gaming is alive and well," he said. The
"pretty quick uptake" in sales of each new console was a "very positive sign for us," he said, pointing to
announcements by Microsoft and Sony that each console had sold more than 2 million units globally since
launching last month. (See the separate report in this issue.) Take-Two was also "very pleased" with the
performance of its NBA 2K14 game on the PS4 and Xbox One, he said. The publisher sold more units of
the game across all platforms at launch than it did of the prior entry in the basketball series on the avail-
able platforms last year, he said. He didn’t say how many units of NBA 2K14 were sold so far. — JB
——
U.S. demand seems to be about the same for the PS4 and Xbox One, said BMO Capital Markets
analyst Edward Williams. He predicted that PS4 supplies will be stronger than those of the Xbox One in
the U.S. through the end of 2013. He doesn’t think the lack of backward compatibility on either console is
much of an issue and it will become even less of an issue as more new games, especially new intellectual
properties, are released for the consoles, he said. BMO has held a more game industry-focused investor
conference in November in New York for several years. But the company decided to instead hold an
event in December this time including more of its analysts and the other business sectors that they cover,
he told Consumer Electronics Daily. Very few game companies participated this time. Although at least
5. THURSDAY, DECEMBER 12, 2013 CONSUMER ELECTRONICS DAILY—5
back on scene pretty dramatically,” Baker said. Headphone unit growth rose 14 percent over Black Fri-
day week 2012, but revenue soared 70 percent to $60 million, an impressive number for a category that
didn’t make the top 50 category list three years ago, Baker said. The headphone category was fourth in
revenue this season behind TVs, tablets and PCs. Headphone ASP was $41, nearly double the average
headphone tag in a typical month, Baker said.
The top five CE categories delivered positive revenue in 2013, Baker said, with TVs, tablets and
notebook PCs generating $3.1 billion of overall revenue. “We are beginning to see emerging product
categories contribute significantly to the overall market growth,” Baker said. Two-thirds of the categories
with more than $30 million in sales grew over last year, he said.
Tablets were the second highest revenue category, with unit volumes soaring 105 percent. Android
tablets jumped 146 percent in unit sales but grew at half that rate in dollars as ASPs fell from $151 to
$105, it said. Seven-inch Android tablets were 80 percent of all Android tablet sales, with 1.8 million
units sold at an ASP of $82. Windows tablet sales increased 8 percent on strong promotion for the Sur-
face along with the launch of smaller Windows tablets. Windows tablet increases offset 8 and 9 percent
drops in desktop and notebook sales, according to NPD. Notebook sales slipped 2 percent, it said.
Overall PC and tablet sales grew by 58 percent to almost 5.9 million units. Notebooks unit volume
fell 2 percent, while desktops had a 7 percent increase due to Apple having the iMac this year compared to
last year when shipments were delayed, Baker said. Apple’s unprecedented promotional activity during
Black Friday paid off as it had increases of 34 percent in notebooks, 51 percent in tablets and 277 percent
in desktops, NPD said.
Apple participated “more aggressively in Black Friday sales promotions than ever before,” Baker
said. “They’re looking for market share,” he said, saying the company “struggled a little bit” in the last
year with share. The combination of strong promotions and a solid product portfolio — including the
competitively priced iPad mini — made for a successful week for Apple, he said.
Android-based tablet unit volume jumped 146 percent and revenue climbed 70 percent, though
selling prices dropped from $151 to $105, NPD said. Seven-inch Android tablets tallied 1.8 million units.
Windows devices grew 8 percent as the strong Surface promotion and the introduction of smaller Win-
dows tablet sales offset the declines of 8 percent in Windows desktops and 9 percent for notebooks.
Soundbars continued their growth, adding $30 million in sales versus Black Friday week 2012, a
74 percent growth in unit sales and 86 percent in dollars, according to NPD. That came at the expense of
home-theater-in-a-box systems, which dropped 26 percent, or $8 million, Baker said. ASP for soundbars
grew from $117 to $126 for the period, NPD said.
Attachment sales boosted the overall tablet category, with accessories growing 26 percent in reve-
nue over 2012 and phone accessories up 18 percent. Attachments, “even during a busy period as Black
Friday week, continued to shine,” Baker said. Tablet and phone accessories generated more than $130
million versus about $75 million two years ago, he said.
Aggressive promotions along with new players and product categories were “all the things the indus-
try needed after several stagnant years,” Baker said. Holiday sales growth is “an important momentum
builder for 2014,” he said, tempering the comment by noting that since much of the volume was driven by
heavy promotion, “similar outcomes in 2014 are much more uncertain.” On whether the trend will continue
6. 6—CONSUMER ELECTRONICS DAILY THURSDAY, DECEMBER 12, 2013
through the season or if consumers are shopped out, Baker remained cautious about the remainder of Decem-
ber. “We had one whole extra day of shopping” for Black Friday week due to earlier Thanksgiving store
openings, he said. It’s too early to know if Black Friday week cannibalized sales from Cyber Week or later,
he said. NPD’s CE sales figures don’t include Amazon Kindle products, mobile phones, or videogames.
* * * * *
An early Hanukkah contributed to a sluggish post-Black Friday week at retail, according to in-store
tracking service ShopperTrak. Brick-and-mortar retail sales for general merchandise, apparel, furniture
and other products were down 2.9 percent from Dec. 2-8, and store traffic fell 21.6 percent compared to
the comparable period last year, ShopperTrak said. With Hanukkah falling on Thanksgiving, “consumers
completed their pre-Hanukkah shopping in November rather than early December, as they did in 2012,”
said ShopperTrak founder Bill Martin. Sales bounced back on Saturday, Dec. 7, when sales showed an
increase of 1.4 percent over the comparable 2012 Saturday shopping day, he said. With the shorter Christ-
mas shopping season now in "full swing, shoppers can’t procrastinate like they did last year,” Martin said.
ShopperTrak expects shopper activity to increase each week up until Christmas. — Rebecca Day
'Painfully Aware' of Backlash
FCC Chief to Cheerlead Inflight Cellphone Rulemaking Before Congress
FCC Chairman Tom Wheeler backs a proposal to authorize cellphone use on airplanes in-flight, in
prepared testimony for a Thursday House Communications Subcommittee oversight hearing. “I do not
want the person in the seat next to me yapping at 35,000 feet any more than anyone else,” Wheeler plans
to tell Congress (http://1.usa.gov/1bWwJOQ). “But we are not the Federal Courtesy Commission.”
The prospect of cellphone conversation on planes has sparked outcry and legislative opposition in
both the House and Senate in recent weeks. Wheeler plans to argue the FCC’s role is technical and the
Federal Aviation Administration is the expert agency in judging which devices can be used on planes.
The oversight hearing is set for 10 a.m. in 2123 Rayburn, to be followed by an FCC meeting in the after-
noon. Wheeler will describe two parts in the process of changing the rules the FCC has under considera-
tion: First, maintaining and expanding the existing prohibition, which now forbids transmission on all
mobile frequencies with the exception of those provided by airline-provided signals, and second, a provi-
sion giving airlines permission to give their passengers a mobile signal if they elect to install certain on-
board technology. Wheeler's prepared testimony says he has called the CEOs of major airlines to explain
and reassure them.
“I am painfully aware of the emotional response this proposal has triggered,” Wheeler plans to say.
“Yet, I firmly believe that if we are serious about eliminating regulations which serve no purpose, the deci-
sion is clear. A vote not to proceed on seeking comments on this issue is a vote against regulatory reform.”
Wheeler’s testimony and that of the four other commissioners — Republicans Mike O’Rielly and
Ajit Pai and Democrats Jessica Rosenworcel and Mignon Clyburn — testifying with him touch on issues
from the IP transition to spectrum policy to FCC process changes, which the subcommittee also has fo-
cused on with legislation clearing the committee this week. (See separate report in this issue). Wheeler
expects to define three principles guiding his chairmanship — promoting economic growth and national
leadership, guaranteeing a so-called "network compact" between users and industry, with a focus on ac-
cess, interconnection and a particular focus on "public-purpose benefits" to networks and making net-
works work for everyone — and to reiterate his support for the FCC’s net neutrality order.
7. THURSDAY, DECEMBER 12, 2013 CONSUMER ELECTRONICS DAILY—7
The IP transition and potential transition trials loomed large in written testimony. The FCC will
also hear a status report from the Technology Transitions Policy Task Force at its Thursday meeting,
Wheeler plans to tell Congress. “This report will lay out the schedule, including plans for an Order for
consideration at our January Open Meeting,” Wheeler's testimony says. “That Order will recommend to
the Commission how best to: (i) obtain comment on and begin a diverse set of experiments that will allow
the Commission and the public to observe the impact on consumers and businesses of such transitions
(including consideration of AT&T’s proposed trials); (ii) collect data that will supplement the lessons
learned from the experiments, and (iii) initiate a process for Commission consideration of legal, policy,
and technical issues that would not neatly fit within the experiments, with a game plan for efficiently man-
aging the various adjudications and rulemakings that, together, will constitute our IP transition agenda.”
Trials, “if structured properly, can produce helpful insights into how best to approach reform, and I
will be keeping a keen eye on how the trials and future reforms affect all consumers,” Clyburn expects to
testify (http://1.usa.gov/18m9zQY). Pai, an early advocate for IP transition trials, plans to outline his own
principles and beliefs on how the transition should be conducted. “No tariffs,” Pai plans to warn
(http://1.usa.gov/19C7mfp). “No arcane cost studies. And no hidden subsidies that distort competition to
benefit companies, not consumers. We must also repeal the old-world regulations such as retail tariffing that
no longer make sense in a competitive all-IP world. While they remain on the books, wholesale expansion
to IP may just be too tempting.” O’Rielly is “very supportive” of IP transition trials, “as long as the Com-
mission does not allow the trials to lead to delay or inaction,” he plans to say (http://1.usa.gov/J6n9fL).
Wheeler plans to defend his decision to delay the incentive auction to the middle of 2015, a change
that he said will “substantially enhance" its success. Pai's testimony reflects a “disappointment” there was
no “clear path forward” to holding the auction in 2014 but said he supports the new timeline because it's
more important to get the auction right. Pai plans to also press the agency not to move forward with creat-
ing scores to evaluate broadcast station value, advocating for market forces dictating prices instead. All
carriers should be able to participate without limits, and smaller license sizes should be considered, Pai
expects to say.
Rosenworcel emphasized the importance of the agency’s proceeding to update E-rate as well as
911 location accuracy standards, in her prepared testimony. “If you use your wireless phone to call 9-1-1
from indoors, you should cross your fingers, because no FCC location accuracy standards apply,” says
Rosenworcel's testimony (http://1.usa.gov/1cBhQQo). “This is an unacceptable gap in our communica-
tions.” O’Rielly plans to press the FCC to complete a 2010 review of media ownership rules and vote on
changes. The agency has “failed” to comply with congressional obligations “to review and repeal or mod-
ify any of its media ownership rules that are no longer in the public interest as a result of competition,” he
says in testimony. Pai plans to testify at length about his concerns with quantile regression analysis
benchmarks. The USF requires “necessary corrections," O’Rielly expects to say. — John Hendel
No Market Breakdown
PS4 Sales Running Slightly Ahead of Those of Xbox One Globally
Xbox One sales passed the 2 million mark globally in its first 18 days available and the console is
averaging more than 111,111 units sold per day, Microsoft said Wednesday. But PS4 sales are apparently
running slightly ahead of Microsoft’s console because Sony Computer Entertainment said Dec. 3 that its
new console had already hit the 2.1 million sales mark (CED Dec 4 p9).
8. 8—CONSUMER ELECTRONICS DAILY THURSDAY, DECEMBER 12, 2013
The PS4 launched one week earlier than the Xbox One in North America last month. The PS4 ar-
rived Nov. 15 and the Xbox One followed Nov. 22. But neither Microsoft nor Sony has said how many
units of their consoles were sold in the U.S., which is the largest videogame market, or in Europe. "We do
not break out sales in each market," a Microsoft spokeswoman said Wednesday. Neither console will ship
in Japan until 2014.
The Xbox One remained "sold out at most major retailers," said the Microsoft spokeswoman. The
company is "working hard to replenish stock as quickly as we can," she said. Xbox One sales were on a
"record-setting pace" in its first 18 days, said Yusuf Mehdi, corporate vice president-strategy and market-
ing, Xbox, in an email to reporters Wednesday. "Demand is exceeding supply in our 13 launch markets,"
he said.
"At peak demand, customers were ordering" the Xbox One at more than 1,000 units a minute on
Amazon.com, said John Love, Amazon director-videogames. Microsoft’s console is one of the most
popular Christmas gifts this holiday season and was a top seller on Black Friday, said Chris Nagelson,
Walmart U.S. vice president-entertainment. Walmart is "refreshing our inventory as fast as we can to en-
sure customers can give and receive" the console for Christmas, he said.
Microsoft and Sony are seeing strong usage of the consoles among those who bought one, they said
separately. Microsoft was "particularly excited to see consumers engaging in a wide range of games and
entertainment experiences on the platform, with more than 1 million paid transactions on Xbox Live to
date," including digital games and video purchases, said Mehdi. Xbox One users are spending more than
83 million hours combined using games, TV and apps on the console since the system launched Nov. 22,
said Microsoft. Not clear was how many of those hours were spent solely using the console to watch TV
or use apps including Netflix, Hulu Plus and YouTube, rather than playing games. Microsoft didn’t break
out usage by each activity. The Xbox One is also "proving to be the most popular online multiplayer com-
munity for gamers," with more than 39 million Xbox One achievements unlocked, it said.
"Hundreds of thousands" of PS4 owners have "embraced the integrated streaming capabilities"
of the PS4, SCE America and SCE Europe said in a joint news release. There have been almost
800,000 gameplay broadcasts online and more than 7.1 million spectator sessions of people viewing
others' gameplay via video streaming platforms, totaling more than 20 million minutes of live game-
play streamed from PS4s, the SCE divisions said. Ten percent of all content via the Twitch platform
has come from PS4 systems since the console launched Nov. 15 in the U.S. and Canada and Nov. 29
in Europe, Australasia and Latin America, based on average minutes broadcast, said the SCE divi-
sions. HD streaming platform Ustream, meanwhile, reported an average of 31 minutes of PS4 stream-
ing per broadcaster, said the SCE divisions.
Strong U.S. demand for videogames this holiday season is being driven by the launches of the new
consoles, as well as a strong lineup of new game releases, the Entertainment Software Association (ESA)
said Wednesday in a separate news release. About 79 million U.S. consumers intend to buy videogames
this holiday season, it said, citing the findings of an online survey done for ESA by NPD. Almost 30 per-
cent of those who said they planned to buy games and game-related items as gifts also said they planned to
spend more on those items than last year, said ESA.
The survey also indicated that videogames and related items are among the top five categories of
gifts that Americans plan to buy this holiday season, said ESA. Physical games and next-generation con-
soles are among the top three categories of videogame products most likely to be bought by gamers, it
9. THURSDAY, DECEMBER 12, 2013 CONSUMER ELECTRONICS DAILY—9
said. U.S. consumers 25 to 44 years old are planning to spend an average of $219 on videogames and
game-related content, it said. More than 3,000 U.S. consumers over the age of 13 were polled for the sur-
vey Oct. 15-22, it said. Survey respondents said they now play videogames on at least one system or de-
vice, including dedicated game systems, smartphones, tablets and computers, said ESA. — Jeff Berman
Retail
Conn’s pricing is "typically the same" as that of rivals in its markets, CEO Theodore Wright told
the J.P. Morgan investor conference webcast from Chicago Wednesday. But in "some cases," its pricing
is lower, "particularly on advertised products," he said. Its pricing on a Samsung 65-inch TV will be
"absolutely competitive" with other retailers’ pricing, and in some cases its pricing will be lower, he said.
But Conn’s is "not going to be competitive ... every day" on a Samsung 32-inch TV, he said. That $350
TV is "really not" a TV that it can offer financing on and it won’t usually advertise and promote such a
model, he said. Consumers are more likely to buy such a model from Walmart, he said. — JB
Companies
Liberty Global will limit TiVo’s DVR service to the U.K., leaving other European markets for
the cable operator's Horizon IP-capable video platform, said Rick Westerman, Liberty Global senior
vice president-investor relations, in an interview at a UBS investor conference in New York. Liberty
inherited the TiVo agreement when it bought Virgin Media earlier this year and will continue to ex-
pand it in the U.K., where there are 1.8 million TiVo subscribers, he said. Liberty will expand Hori-
zon to new European markets in 2014, following up on the launch in Ireland and Germany this year,
said Westerman. “For legacy reasons, we will stick with TiVo in the U.K.,” Westerman said: “There
is no way you can make the kind of capital investment required to swap that out” for Horizon. “U.K.
customers like TiVo, so we will stay the course there, but everywhere else we will push forward with
Horizon.” Liberty's Horizon service runs on a Samsung-produced DVR/gateway based on Cisco's
NDS middleware and Snowflake interface. The four-tuner gateway also has Wi-Fi, ThinkAnalytics
recommendation engine and IP apps like YouTube. In Germany, the DVR/gateway sells for $525 and
carries a $10.50 monthly fee. Liberty has about 365,000 subscribers to the Horizon-based service. In
buying Virgin, the “biggest negative” has been the “underperformance” of its commercial business,
Westerman said. Liberty recently hired former Vodafone executive Peter Kelly to head Virgin’s com-
mercial operations and is shifting the unit’s focus to small office/home office (SOHO) businesses
from medium- and large-size companies, Westerman said. “There are thousands” of SOHO locations
that our “network passes that we think should be relatively easy to bring on board,” he said. Liberty,
which slashed 600 jobs from Virgin after buying the company, increased its forecast for savings from
the acquisition to $350 million from $180 million, with the majority coming in operating expenses,
Westerman said. Liberty won’t fully recognize the savings until 2016, and should start getting some
“tailwinds” from it starting in mid-2014, Westerman said. — MS
Consumer Electronics People
Outerwall's Redbox President Anne Saunders resigns, plans unknown ... ClearView Audio hires
Gregory Galliford, ex-Hewlett-Packard, as chief financial officer.
