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Digital Futures Forecast 2003 July 2003 Author:   Michael Gold About This Report Table of Contents Download the full report About This Report Many innovative products and services that are on the drawing board today will reach the market during 2004 to 2006. What kind of environment will such products and services encounter as they emerge—and as they mature toward the end of the decade? Today's business developments can benefit from an informed perspective about future markets for digital devices and related services. This report provides numerical forecasts for expected changes in benchmarks for key business sectors in the digital domain and explanations of why we think markets are heading in the indicated directions. Sectors that the report covers include products and services for homes, offices, and the mobile environment, emphasizing DVD, digital TV, hard-disk recorders, mobile communications, and portable-intelligent devices. Market statistics often provide a limited perspective, or they support a particular commercial agenda, or they fail to account for major differences among countries and global regions. We expect that forecasts are most useful when accompanied by a plausible justification of why forecasters think the market will develop as they expect. This report expresses our assumptions and justifications in terms of the motives of the vendors and customers. For planners who absolutely need bottom-line results, zero tolerance for the kind of hyperbole that fueled the late 1990s bubble is critical. This report shows that simply looking at supply and demand provides sufficient drama, risk, excitement, and cause for hope and optimism. In contrast, we often encounter forecasts that appeal to the inevitability of technological progress—so-called technology push. Such forecasts simply aren't reliable. For example, cutthroat competition among hard-disk makers clearly shows that technological progress doesn't guarantee market growth. Moreover, the long design cycles for batteries and fuel cells show that not every technology follows Moore's Law. We also encounter forecasts that justify growth expectations on the basis of announcements by leadings companies—but such justifications neglect the fact that suppliers don't dictate what customers will buy. Overreaction to announcements by Microsoft appears especially common, but ignores the fact that even the most successful companies hedge their bets by pursuing many initiatives, and not every such initiative reaches its performance target. We welcome feedback about this report and the program, and we encourage you to contact us with any questions or suggestions. For more information, contact Michael Gold at telephone: +1 650 859 6354; fax: +1 650 859 4544; e-mail: mgold@sric-bi.com. We appreciate your support of our program and look forward to working closely with you as a Digital Futures sponsor. Contents About This Report iii DVD-Video Players and Recorders 1   DVD-Video Penetration 2   DVD, Packaged Media, and the Music Industry 2   Outlook for DVD Recorders 3 Hard-Disk Video Recorders 6   How Satellite Networks Will Use Hard Disks 8   Cable VOD: Marginalizing Hard-Disk Recorders 8   A Special Situation in Japan 10   Hard Disks versus Cable VOD: Where Else? 10   News Corporation and Its Satellite Affiliates 11   A Possible Roadmap for Increasing the Popularity of Hard-Disk Video 11 Broadband Internet 13   The Worldwide Broadband Web 14   Regional Variations 15   The Upside in China 16 Digital Television 18   Digital-Terrestrial TV 19   Digital Satellite 20   Digital Cable 21   Wireless and Internet Options 22 Mobile Services and Handsets 24   Qualcomm versus the GSM 27   Outlook for Cellular Handsets 28   Camera Phones, MMS-Capable Handsets, and Java Phones 30   MMS Handsets in Europe 32 PDAs and High-End Cellular Devices 34   Not the Economy's Fault 34   The Problem of Categorizing Devices 35   Portable-Intelligence Product Segments 36   Traditional PDAs and the Palm-versus-Microsoft Competition 38   Outlook for Cellular Devices Having Various Advanced Features 39   Figures Forecast for DVD-Video Households Worldwide 1 Worldwide Packaged Media Replication 3 Contraction of Blank Videocassette Markets 3 Forecast for DVD-Video Recorders Sold Annually 4 Forecast for Hard-Disk Video Recorders in the United States 7 U.S. Cable Video-On-Demand Versus Hard-Disk Recorders 9 Forecast for Broadband Subscriptions Worldwide 13 Worldwide Broadband Internet Share By Access Technology, Year-End 2002 14 Forecast for Households Capable of Receiving Digital TV 18 Mobile and Fixed-Line Telephone Service: Worldwide Customer Growth 24 Worldwide Mobile and Fixed-Line Telephone-Service Revenues 25 Worldwide Average Revenue per Active Account 26 Worldwide Market Share for Qualcomm 27 Recent History of Worldwide Cellular-Handset Sales 28 Worldwide Average Economic Lifetime of Cellular Handsets 28 Forecast for Camera-Equipped Cellular Handsets through 2010 30 Forecast for Java and Non-Java Handset Sales 31 Sales of Handsets Capable of Receiving MMS in Western Europe 33 MMS-Capable Users in Western Europe 33 PDA Markets 1993–2002 35 Market Development for PDAs and Related Cellular Devices 37

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