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The TV industry pinned its hopes on 3-D equipment over the last couple of years. The idea was to rekindle consumer interest in buying TV sets, Blu-ray players, and other electronics again now that their old cathode-ray tube gear has been replaced by high-definition plasma and LCD sets. And hey, Hollywood is making 3-D movies by the bushel nowadays, so why not tap into that trend as a fresh growth driver?
But that gambit never played out as the industry had expected. The fastest way to make a small fortune in home-entertainment electronics right now is to start with a big fortune. Turned off by the need for pricey equipment and wonky-looking headsets, consumers turned off the 3-D idea altogether.
So the TV industry went back to the lab again. Their next big idea sounds cool -- but if this one's a hit, the real winners will be found outside the electronics sector.
But I thought my screen was high-def already?
Say hello to the idea of ultra-high-definition content. There are multiple signs this week that the electronics gurus want this to be the second coming of presliced hot dog buns.
For one, Sony (NYSE: SNE ) is working up a massive 80-inch TV set. To keep viewers from squinting at oversized pixels, this one will come with the same resolution you'd see on a digital cinema screen, a format variously known as Digital Cinema 4K or QFHD (short for quad full high definition).
Today's HD sets top out at 1.080 vertical pixels, but 4K screens double that figure in every direction to arrive at 4 times as many pixels. This resolution is good enough for producers of many IMAX (Nasdaq: IMAX ) movies.
This beast would cover the crayon marks the kids left on your living room walls and take about $30,000 out of your savings. Early adopters always overpay.
Elsewhere, the International Telecommunication Union introduced a brand-new and even more pixel-packed standard. The United Nations agency in charge of managing international media standards doubled the horizontal and vertical pixel counts again, doubled frame rates to 120 images per second, and increased the range of possible colors. At full tilt, the so-called Ultra High Definition Television standard (yes, it's meant for home users!) will consume a massive 64 times as much data as today's 1080p broadcasts and Blu-ray discs.
Now, this is a forward-looking project. The first trial broadcasts in the new format are expected by the year 2020. But you can rest assured that it's coming your way.
Why should I care?
Higher-quality digital images may sound like an esoteric idea. But if Apple (Nasdaq: AAPL ) showed us anything with the phenomenal success of its iPhone 4/4S and iPad 3 gadgets, it's that consumers really do care about pretty pictures.
Pinning the iPhone's success of its much-vaunted Retina display may be unfair, since that handset also came with plenty of other new features. But the latest iPad's is not faster than the iPad 2; it doesn't even support the Siri personal assistant that came with last year's iPhone 4S. Yet consumers are more than happy to pay a premium for it.
A more detailed picture does three things for the viewer:
- You can pack more and sharper detail into the same screen area.
- You can sit further away from the screen without losing information, which helps you replicate that cinematic experience.
- You can use a larger screen for that special feeling of total immersion, again without losing the sharp edges and well-defined details you're used to.
The size and breadth of it
To put these ideas into context, I did some math on proposed and existing formats. Here's what I found:
- Sony's 80-inch TV would be the equivalent of a humongous iPhone-style Retina display at a distance of 5 feet. At that distance, a person with 20/20 vision shouldn't be able to pick out individual pixels.
- To emulate the experience of watching movies on your iPad, only without holding a tablet 15 inches from your face, you can move that 80-incher back more than 10 feet. At that distance, you'd be rewarded with about twice the clarity of the already-perfect iPad picture.
- An Ultra-HD set, imagined at 80 inches, would match the iPhone's clarity as close-up as 2.5 feet. A full-HD set of today's standards would have to move 10 feet back.
In short, you'll have much more flexibility on how to design and enjoy perfect digital clarity with the mega-HD formats. There's a value in this concept that clunky 3-D films never could match. IMAX and Apple already showed us that top-notch pictures are worth a mint.
Where are the winners you promised us?
But like I said, the winners won't be Sony or Vizio, nor Apple if it ever introduces that long-rumored iTV set. The hardware is just a low-margin vessel for valuable content, which is exactly why Apple's hardware remains just a rumor. Cupertino doesn't play that game.
Nope. The real winners are banking on the massive amounts of data it takes to fill those enormous screens. Digital video is already one of the largest consumers of Internet bandwidth. Just imagine what will happen when every video file becomes 64 times as large.
Cisco Systems (Nasdaq: CSCO ) describes this trend in every annual release of its Visual Networking Index. For example, the networking giant expects mobile video traffic to increase 25-fold over the next five years and account for two-thirds of all mobile bandwidth by the end of that span. Cisco will happily sell high-speed networking gear to support that growth, and it will make a lot more money on that than Sony and friends will squeeze out of their TV sets.
And lest you think that the fancy new screens will lack fresh content, you should note that Netflix (Nasdaq: NFLX ) CEO Reed Hastings already identified 4K video as a weapon with which Internet-based services can kill the cable and satellite guys:
"For example, when the TV manufacturers figure out how to do 3-D or 1920 or 4K video, they have a real problem, which is none of the cable or satellite broadcasters broadcast 4K video," he said on a conference call last December. "So they've got this cool new technology, but they can't get any content for it. But to the degree that their systems are Internet connected and Internet delivered content, then they can deliver 3-D, 4D, 4K, all kinds of new video experiences to the TV."
So there you have it. The real winners when digital video standards advance are networking dudes like Cisco and Internet-based content wranglers in the Netflix mold. This is one very good reason I have bullish CAPScalls on both stocks for the long term, and it's also the reason Netflix is the largest position in my real-money portfolio.
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