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November 30, 1995

THREAT TO MULTIMEDIA HOPES AS HOME COMPUTER MARKET SHOWS SIGNS OF IMPENDING SATURATION

By CBR Staff Writer

Whenever a multimedia company pops up, targeting the home audience, it always has one thing on its side – the potential audience growth. No matter how speculative the business, no matter how flaky the plan, the marketing director will point at the low penetration of personal computers into the home, factor in the startling growth in shipments and adopt a wide grin. But what (whisper it) if it weren’t true? What if sales of home computers hit a wall? There’s evidence that such a slump may be about to affect the US market, and a recent survey covering European consumers shows dissatisfaction with many of the concepts of multimedia. The industry in the US worked itself into a sweat when Cirrus Logic Inc (purveyor of audio and graphics chip sets) announced that one of its largest customers had too much inventory and was cutting back its orders and warned that its profits for the December quarter would be 10% to 15% lower than the previous quarter. Analyst’s reactions varied from ‘so what?’ to ‘sell!’

Less sanguine

Cirrus’s share price lost 31% of its value in one day. Enough analysts took this as a general sign of troubles ahead that personal computer-related stocks stumbled. One of Merrill Lynch’s semiconductor analysts reportedly cut his investment rating for six chipmakers. These reactions signal that investors are already pretty twitchy, and in truth, some have worried for months that the personal computer market, booming for the last four years or so might be about to sag. Until now the fastest growing sector has been home computers, and multimedia authors have been banking on that growth to carry them along. Most analysts now forecast a slowing of growth in the US, while differing widely as to the extent. Dataquest, which in previous years has predicted a 30% year-on-year increase in shipments, has dropped this to 20%: that doesn’t look too bad, but others are less sanguine. This summer, San Francisco research company Odyssey Ventures set out to track the uptake of multimedia technology in US homes. Every six months it phones a random (but, it claims, representative) sample of 2,000 consumers US-wide to track the market for home computers, multimedia CD-ROMs and on-line services. The results showed a slowdown. The July-August survey concluded that 32% of US households have a computer, compared with 31% in January 1995 survey. Six months previously the market penetration of home personal computers had been 27%. It may sound as if the market is ripe for growth, but the survey further shows that two-thirds of the 10m US homes with children and an annual income of $50,000 or more, already have a personal computer. The good news is that US users are busily upgrading their machines for multimedia. The growth of CD-ROM drives, modems and on-line services, in particular, has outstripped the growth of home computer ownership: 13% of households are now estimated to have CD-ROM drives, against 9% in January. The proportion owning modems also leapt, to 18% from 16%. Meanwhile, the percentage of US households that subscribe to an on-line service grew to 9% from 7% over the first six months of 1995. While the upgrade trend looks good, there is a worrying undercurrent: even fast 80486 boxes will be stretched by the more processor-hungry games and multimedia applications now beginning to emerge. Adding compact disks and sound-boards can take a user a long way along the multimedia path, but it cannot create a new machine. The US home market may be nearing saturation but the Europeans are still buying boxes apace. The European home computer market is the fastest- growing sector on most of the marketeer’s charts today. And since the Americans bought their boxes first it is quite possible that Europeanhomes will end up with the lion’s share of fast multimedia personal computers. This is all good speculative stuff, but is it true? No-one knows: the relevant research doesn’t appear to exist, but the killjoys at Inteco Corp dampen that idea. Rather like Odyssey, Inteco surveyed households, this time 16,300 of them across

the UK, France Germany, Italy and Spain. Like the US survey, the European study shows saturation may be about to bite in Europe too. Moreover it shows a worrying degree of cynicism and disillusion with multimedia in general.

By Chris Rose

More specifically, although demand for CD-ROM-based products remains strong, users are dreadfully disappointed by on-line and Internet applications. The home personal computer boom on which manufacturers are all hanging their hats is, in one sense, illusory it says. As with Odyssey in the US, Inteco discovered that most computer sales were into homes that already had one. In the UK, just 23% of 1995 sales are going into new homes where the householder doesn’t have a personal computer at work. Roughly one third of personal computer users in the countries surveyed have CD-ROM drives and these are being heavily used – some half the time a personal computer is used it will be accessing a CD-ROM application. And if you are wondering how much time the average personal computer gets used per week, Inteco reckons around 18 hours in the major markets – UK, France and Germany. The last picks up the award for European country having the most CD-ROM drives per personal computer owner with nearly half (48%) having them installed. Italy is next with 37%, France 25% and UK trailing with 24%. It is no coincidence that the UK, like the US, was one of the leaders in getting personal computers into homes, and now lags in the CD-ROM stakes. CD-ROM authors will be heartened to know that on average, each user has 13 titles (though how many of these came bundled with the machines, and how many were actually bought is nor revealed). But regrettably, the survey shows that most people that don’t already have personal computers haven’t even heard of CD-ROM, so CD-ROM appeals only to the initiated – it is not going to drive the market, at least not yet: 64% of respondents in the UK and Spain that didn’t have a personal computer didn’t have a clue as to what a CD-ROM was, and the figure rises to 75% in Germany and 76% in Italy. If CD-ROM is popular among personal computer owners, on-line services in Europe continue to receive a lack-lustre welcome, unlike the healthy growth that Odyssey discovered in the US. Germany has the highest proportion of modems per home user, 32%, where the UK has only 14%. European on-line service providers extrapolate such figures and see tremendous potential growth. But unfortunately for such hopes, the survey concludes that only 10% of Internet access comes from the home. That could be taken as an indication that most information on the Internet is business-orientated, but it more likely indicates that people prefer to spend their employers’ money, as the report finds ‘surfing the net’ is overwhelmingly done on other people’s phone bills. Surprisingly, it is quite up-beat about the potential for personal computer-based home shopping, particularly in the financial services sector.

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Already 68% of car insurance is sold over the phone, it says, and once the consumer has made that conceptual jump, moving to the personal computer is a quite plausible step. Note that it is a jump from phone to personal computer not interactive television. The researchers are scathing about television as a medium for handling these kinds of transactions and are particularly scornful of the suggestion that computers and televisions will merge. Indeed Inteco believes the two types of boxes are more likely to diverge than converge. Miles Thistlethwaite, a senior vice-president at Inteco, points out all the problems in bringing the two together: television is essentially a passive device, serving a social need and, in 85% of households, is to be found in a family room he says; 74% of personal computers are sited in a private room – be it office, study or bedroom. It’s the little ergonomic things – the television viewer sits three feet away from the set while the personal computer user tends to sit up close and read small fonts, that militate against successful convergence from the user’s point of view. From the manufacturer’s point of view, the two products are simply too different to combine easily – the television, essentially unchanged for decades at a low and stable price; the personal computer a volatile, expensive item that is stubbornly refusing to drop its prices at the high end. As a result the company believes products such as ICL’s PCTV will fit into a nice market category. And the moral of this tale? Only that investors, authors and service providers should think thrice before assuming that a burgeoning home computer market will continue to carry their pet projects. As the man said as he plummetted past the 31st floor, So far, so good.

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