Quo vadis, Viiv?

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Quo vadis, Viiv?

Santa Clara (CA) – Entertainment PCs have been available for some time, but don’t penetrate the market as quickly as some would have hoped. AMD and Intel launched their entertainment platforms earlier this year to speed up the adoption of family room PCs – apparently with little impact so far. It’s time for an update: We spent some time with Intel VP Don MacDonald to chat about the status of “Viiv.”

See more about Viiv in our slide show …

If someone asked you to explain why a certain PC carries a “Viiv” sticker and what the benefits of that sticker are, what would you say? We’d bet that there are very few people out there who could come up with an answer right away and some details beyond the fact that Viiv refers to a certain kind of entertainment PC.

Viiv was launched during the Consumer Electronics Show in January of this year. At that time, the company claimed that more than 110 different Viiv PCs were available for purchase, for prices circling around the $1000 mark. Intel drives the marketing behind the Viiv brand, but Viiv PCs aren’t PCs that are built by Intel: Viiv simply describes a package of specific processors, chipsets and network controllers as well as a software package that enables consumers to access (a so far very limited amount of) content that is reserved for Viiv computers.

If you are browsing through Best Buy and Circuit City flyers in your Sunday newspaper, you may have noticed that Viiv PCs aren’t quite mainstream yet and appear to play in a niche market.

Being curious about the current situation of Viiv, we caught up with Don MacDonald at a recent visit to Intel’s Santa Clara, Calif. headquarter. MacDonald is vice president and general manager of Intel’s digital home group and leads the direction for Viiv. Given the fact that “Viiv” is a platform brand and describes a collection of certain Intel products, it is worth noting that MacDonald was also the key personality behind the marketing for “Centrino” – the brand for the firm’s mobile platform technology package.

Just in case you are wondering, yes, we will be trying to provide an update on the competing AMD Live platform as well. Live PCs trail Viiv by almost half a year, which means that we will have to save an article about the platform’s progress for later this year.

TG Daily: After listening to Paul Otellini’s keynote at CES earlier this year, we were pretty sure that we will be seeing a flood of Viiv PCs. That has not happened yet. In fact, Viiv PCs appear to be hardly available in stores. Did you hit any speed bumps?

MacDonald: I cannot provide any detailed numbers since we are in our quiet period, but I can say this: We measured and compared the first three months of sales for Viiv with Centrino, Pentium D and Pentium 4 and we shipped more Viiv units than units for any of these other products during their first three months, which pleasantly surprised me.

TG Daily: Still, the launch and availability of products appear to be much less than we expected.

MacDonald: The two biggest challenges for Viiv are technical and communication challenges. We have taken a patient approach that is very similar to Centrino. When we launched Centrino, less than 5% of the users people tookd advantage of wireless. We did not invent wireless and we were not first ones offering wireless. But we made wireless normal in notebooks. If you remember, we launched Centrino just after 9/11: There weren’t any wireless customers and people weren’t deploying hotspots – there was a chicken and egg problem. We broke that by being a catalyst for more than 300,000 hotspots.

Viiv is the same thing. It is about acquiring, managing and enjoying content online in addition to the normal way with a shiny disc or a satellite dish. But the studios have been very reluctant putting content online, especially HD content. Behind the scenes we show them what can be done. Our job for 2006 is to make the acquisition of content from the Internet normal. If you understand the usage model, you will appreciate what we have done in Viiv. But explaining what Viiv does for you is very difficult, if you don’t care about that usage model. Job number one is not so much selling Viiv; it is creating the usage model. And that’s an industry thing we are trying to get done.

Don MacDonald

TG Daily: How do you explain people the benefit of consuming online content? Isn’t the Ipod today the only device that has success in convincing consumers to download online content?

MacDonald: It all starts with people and the usage model. If all you do is replacing a DVD player, you haven’t solved any problems. You just replaced a $50 DVD player with a $600 or $700 Viiv PC. What really matters is that we have to get back to basics.

If you look at every industry change in the past 100 years, you start with a change in technology, a change in content, a change in distribution and a change in playback. I would argue that if you see a change in each of those four buckets, you are at the beginning of a new industry. Here’s an example: Radio. The technology was analog modulation; the content originally was news broadcast and eventually became sports broadcast; the distribution was radio waves and the playback device was the radio. With digital entertainment, you have digital technology; content is everything that you can customize and personalize; the distribution works through the Internet and playback can happen through any device.

The fact that the Ipod is getting usage is secondary. What is really interesting is that you can put any content on any device. If people begin to acquire content from the Internet and move it around – whether onto an Ipod or through a network – that is what we have designed Viiv for. The usage model is coming, just like the first 1000, 10,000 and 300,000 hotspots. The device itself isn’t a big deal. The big deal is the usage model.

Sales of the Ipod in the first year were 100,000 units. With Viiv, we don’t have to be too patient. But we have to be realistic: We are dealing with four industries – networking, PC, content and communications. Besides that, the Viiv software is really difficult to deliver: We are dealing with multiple vendors and multiple countries.

The Hollywood challenge

TG Daily: Content appears to be a big factor in entertainment PCs.

MacDonald: We are working with companies such as Click Star [a joint venture between Intel and actor Morgan Freeman] so you can get content close to theatrical release. We also work with Cinequest and the local film festival; for example, they had 2000 movies submitted, 200 were selected and only one got national distribution. There are 199 great movies that did not get any distribution. In the Viiv usage model, we have access to new content. For that new content, I am happy to pay for – before it comes to TV. We think that’s a whole new industry.

TG Daily: Intel tried before to make an impact in the consumer electronics industry, with devices such as the Intel microscope and the Pocket Concert MP3 player in the early 2000s – all products that had very little success and were removed from the market. Does the Intel brand need more consumer electronics appeal to be successful with Viiv?

MacDonald: I don’t think so. We are not designed to be in the finished product business. We always do best with our core strength, which is supplying silicon as an ingredient. What we need are our vendors and channels to come up with products that can explain what Viiv is. Our brand is secondary.

LG Viiv PC

TG Daily: But you have to admit that you are playing with Viiv in a different market. In the end, a Viiv PC is a PC that has to attract someone who is buying a consumer electronics device. Buyers of consumer electronics products have very different expectations from their purchase than PC buyers.

MacDonald: Yes, that is a big challenge. We have to be careful what we are developing and what we are marketing. From a development side, Viiv was designed to do three things. Ease of use, simple connectivity and very high performance. Viiv version 1.5 is designed to be easy to use and provide simple connectivity. The software is a big challenge, because people don’t want to have an IT experience in the living room. That’s why the new crop of Viiv PCs include things like an HDMI port.

TG Daily: The debut of Viiv at CES revealed that there is a huge gap between IT and Hollywood in a sense of how business is being done. There’s a certain way how Hollywood wants to make money with digital content and then there’s a completely different approach IT companies such as Intel are pursuing. Do you still have to learn how Hollywood thinks?

MacDonald: Absolutely. Generally, Hollywood is against technology. They are paranoid for two reasons. One, they do not want the quality of content experience to be degraded. Second, they don’t want to get ripped off by content getting stolen. But they very smart and every time a new technology comes along, they learn how to monetize it.

We have been active for several years and asked them ‘why don’t you provide a better consumer experience by using technology? In the end, that’s the key thing you do – you deliver a better experience. And consumers pay for the content – most people do not steal content. It was an evolution from the cinema to the television, from there to cinema television, VCRs and DVDs and now to the Internet. Technology can help you to make it very simple.’

We still need to make Hollywood feel comfortable that the technology is reliable and that there is a good quality experience. When you look at the evolution of the industry, it always happens over a period of time. Just because we launched Viiv in Q1, doesn’t mean that we are done in Q3.

TG Daily: But everything appears to be revolving around content and not so much technology. Does Hollywood depend on technology or does technology depend on Hollywood?

MacDonald: I would have to say that we depend on Hollywood. People don’t buy a set top box just because it is a nice set top box. They want to watch that movie. But services are the other component: Devices are a necessary precursor for services or content. Hollywood is just behaving as it always did. ‘Let us do the things the way we always have’. In that way, you could say that this is why those changes are so important. We realize that the Internet change is happening and it is happening without the studios.

TG Daily: Intel has taken side with the HD DVD camp and does not support the Blu-ray group. What are the reasons and will you support Blu-ray in the future?

MacDonald: What we care about is the view of the consumer. HD DVD and Blu-ray use similar technologies. Both use the next-generation content protection system AACS. We are very firm advocates to say ‘I want to copy my discs legally and I do not the DMCA to be used against me. I am not a criminal’. The HD DVD group said they will embrace AACS including a function for a mandatory managed copy. We believe that the interest of consumers is best served by allowing legal copies of their disc. HD DVD does it, Blu-ray does not promise this. That’s the number 1 reason why we support HD DVD over Blu-ray. If Blu-ray were to provide the same consumer friendly features than we would reconsider our position.

TG Daily: Thank you for the interview.