While entertainment service revenues will increase as a result of a rapid rise in the number of digital homes, spending per household will come under pressure from cut-throat competition and commoditisation. A report from The Diffusion Group predicts that household spending on digital home entertainment services will peak next year and progressively decline.

The majority of digital home entertainment service revenue in the United States will continue to be controlled by providers such as Comcast and Verizon, suggest Dr Predrag Filipovic, director of TDG digital home solutions group. “Although consumers will have more choice in terms of the providers they use for specific entertainment services, only a small share of the revenue and profit pool will shift to alternative or non-facility-based providers.”

His report, Digital Home Control Points and Revenue Distribution thru 2016, presents various digital home architectures, the associated revenue and profits pools, and the impact that commoditisation and price erosion will have on the market. It looks at how various players are aiming to dominate the digital home and forecasts how they will affect long-term revenue and profit distribution.

The report concludes that the proliferation of internet services, such as broadband video delivered over open networks, will spur the shift towards a distributed digital home architecture that is less controlled by incumbent providers. In response to this loss of control, incumbents will be forced to offer a wider array of digital home entertainment services that, when bundled together, result in lower costs for the end-user. The early signs of this can be seen in the price erosion produced by triple-play offerings of video, voice and data services.

While incumbents will maintain control, ‘new media’ providers will carve out a small but respectable share of digital home entertainment service revenue between 2008 and 2011. The entry of these players will result in a net increase in the total digital home service revenue pool but at the cost of traditional video purchase and rental markets.

Digital Home Control Points and Revenue Distribution thru 2016 by Dr Predrag Filipovic is published by The Diffusion Group.