TMO Reports - Analyst: Goodbye PC. Hello Game Machines & Entertainment Servers in the Living Room

by , 3:30 PM EST, November 29th, 2004

As technology becomes cheaper, faster and more powerful, game machines like those from Sony and Microsoft or versatile entertainment servers will beat out the personal computer for supremacy in the living room, according to one industry watcher. One capable player could be Apple Computer, the analyst believes, who has the upper hand with devices like the iPod and software like iTunes and iDVD.

Merrill Lynch analyst Steven Milunovich wrote in a industry trends commentary Monday that game machines "will be the next advanced platform", which could have "important strategic implications.

"The future of microprocessors, storage devices, and development environments could be driven by the booming video game industry," he wrote.

In a research note obtained by The Mac Observer, Mr. Milunovich wrote, "it's premature to know which (if any) device will become the centerpiece of the digital family room of the future. Still, we doubt that PCs (even Media Center PCs) will win because they are too complex and unstable. It strikes us as more likely that either (1) the game console will move up market to become the leading device or (2) a new system we dub the entertainment server will be created."

Mr. Milunovich said he believes Apple is a "likely candidate" to build such an entertainment server because the company "knows how to create audio and image management for the masses." He wrote that he believes such a device would be based on iPod, iTunes, iPhoto, iDVD, and AirPort Express products. "A 200 (gigabyte) Apple server at a reasonable price and possibly with PVR technology could be Apple's next category killer."

A possible Apple entertainment server would store 250 DVD videos and would be a separate device from cable boxes, video game consoles, and other personal video recorders, he believes.

Mr. Milunovich cautioned entertainment servers need to be bare bones and uncomplicated, much like the easy use of today's televisions.

"PC operating systems (Apple included) have too many unnecessary features and, in our opinion, are too unstable to be the foundation of a family room entertainment server...We believe Apple could combine its iTunes, iPhoto, iDVD and AirPort Express technology on top of an embedded Linux (operating system) (possibly a scaled down MacOS) to field an entertainment server. It might connect to the Internet, but would likely not be used for Web surfing. By not trying to replace the PC or pull PC functions into the family room, it has a chance to be stable enough for entertainment use."

Mr. Milunovich warned that whoever wins the war of the living room, some companies will be winners and losers as well. "Microsoft may have more to lose given its PC dominance," he wrote. "We don't expect Intel will be in any of the upcoming game machines and, therefore, believe it is at risk...Apple has a chance to take center stage in a potentially large market."