October 28, 2002 12:52 PM PST

Media Center PCs in the spotlight

Microsoft and Hewlett-Packard plan to officially unveil the Media Center PC on Tuesday, but Sunday newspaper inserts leaked out pricing and model information ahead of the event.

The new computers are made by HP and run the new Windows XP Media Center Edition, a derivation of Microsoft's flagship operating system. The Windows XP hybrid sports a second interface for accessing digital media features, including a digital video recorder (DVR) for recording TV shows to the computer's hard drive.

But based on pricing and features, analysts questioned whether the Media Center PC would take off--at least initially. HP declined to comment on pricing published over the weekend, but later on Monday the company released pricing and configuration information on its Web site.

"This is a product that is an experiment for Microsoft and HP. Microsoft wants to find more ways into the living room, and HP does as well," said NPDTechworld analyst Stephen Baker.

Microsoft Chairman Bill Gates introduced the new operating system software, then code-named Freestyle, at the Consumer Electronics Show in January.

The difficulty, Baker said, is that the companies are moving into a new product category with new features whose appeal may not be readily apparent, like the second user interface and the specialized DVR features that, like TiVo's namesake device, let consumers replay "live" TV or save programs to a hard disk.

"The question is how to differentiate this on the shelf, like the TiVo features, instead of just appearing to be a very expensive computer," Baker said. "These products aren't going to sell well at first."

Pricing could be another problem. In the year to date, the average PC price at retail, where the bulk of Media Center PCs are expected to be sold, was $824, according to NPDTechworld. PCs priced over $1,500--the same range as two Media Center PC models--accounted for about 3 percent of the retail market.

HP will offer three basic models, although consumers also will be able to order custom-configured systems. The Palo Alto, Calif.-based computer maker had previously said retailers would price the new systems between $1,500 and $2,000, but according to Sunday's ads, one model starts at $1,350.

High-end features--and prices
The midrange system, the Media Center 873n, features a 2.53GHz Pentium 4 processor, 512MB of double-data rate (DDR) SDRAM, 120GB hard drive, DVD+R/RW drive, 64MB Nvidia GeForce2 MX 420 graphics card, Creative Labs Audigy sound card, five USB 2.0 and two FireWire ports, 56kbps modem, 10/100 networking and Klipsch Pro Media 2.1 speakers, according to Sunday newspaper ads. Major retailers such as Best Buy and Circuit City started offering the system over the weekend for around $1,650.

The high-end 883n and low-end 863n apparently are not yet in stores. The $2,000 high-end model is nearly identically configured to the 873n but with a 2.66GHz Pentium 4 processor and Klipsch Pro Media 5.1 surround-sound speakers. The entry-level $1,350 model, the 863n, comes with a 2.4GHz Pentium 4 processor, CD-RW and DVD drives, 80GB hard drive and no speakers.

Analysts did not warm up to the $1,350 model.

"You're still talking about the upper reaches of the current PC market," Baker said. The 863n would be the lowest-priced current model PC with a DVR, he added. "How does anyone position this kind of product as being more than just high-end PCs?"

ARS analyst Toni Duboise agreed with Baker's assessment that the systems just aren't priced right for the current market, even though HP has thrown in attractive extras like DVD recording drives and the DVR feature.

"It's still a high-end system, and I don't think the luxury items are going to be selling this Christmas," she said. "I think this is going to appeal to a very small, very niche audience."

On the other hand, the pricing is better than Duboise expected and competitive with Sony Vaio PCs. The Vaio RZ-14G is nearly identically configured to the Media Center 873n and sells for $1,699 before a $100 mail-in rebate. The high-end Media Center PC sells for the same price as the similarly configured Vaio RZ-16G. Both PCs also come with TV tuners and DVRs.

Like the Media Center PC, the new Vaios come with DVD recording drives and specialized software for listening to music, working with photos or recording TV shows to the hard drive. Sony, too, has developed a digital media interface for quickly accessing the features. Consumers also have the option of using a remote control or, on some models, a front-access panel to access digital media options. Another feature allows consumers to share digital media across a home network so that, for example, music on one PC can be listened to on another PC.

"HP is obviously cognizant of their primary competitor, which is Sony," Duboise said.

Analysts did praise Microsoft's move to ease copy-restriction features that would have encrypted recorded TV shows to the PC's hard drive.

"This was the right thing to do," said IDC analyst Roger Kay. "It wasn't the best way to encourage sales."

Who needs it?
Analysts questioned how much consumers would be interested in the new features of the Media Center PC. Windows XP Media Center Edition sports a second user interface for accessing digital music and photos, watching and recording TV shows and viewing DVD movies. Consumers could also pull up the features by remote control or a front-access panel on the Media Center PC.

Most of these features are available on standard PCs, but without the remote control or special interface. Some computer companies insist there is no real market, at least right now, for TV watching or recording on PCs. Dell Computer, for example, stopped shipping TV tuner cards with new PCs about a year ago, citing lack of demand.

"I can completely understand why," Duboise said. "This is not the convergence device. I do believe it's coming, but it's not here yet."

As the No. 1 PC maker and biggest volume mover, Dell often is a good measure of consumer trends. But some analysts note that what's right for Dell may not be right for every company.

"You could make a case that if Dell doesn't move into something, it's not up to prime time for them," IDC's Kay said. "But it doesn't mean that it's not ready for somebody else."

Ultimately, Baker believes HP and Microsoft have to start somewhere. "Sometimes you have to push people where they need to go," he said. "This is going to be part of a learning curve, and how do you morph the PC more into a den or living room product?"

Baker sees huge potential gains for Microsoft if the company can create interest in PCs based on the operating system as much as the microprocessor. Clock speed has been the major differentiator among PCs, but Microsoft and HP could make the operating system an important factor.

"Microsoft could try to get all the PCs above a certain price point configured like the Media Center PC," he said. "Differentiating based on operating system could put more emphasis on features, which could benefit (PC makers) and consumers."

Still, analysts think Microsoft and HP might be a long way from reaching that point, in part because of the mixed messaging around Media Center PC marketing. Microsoft had said the target market is college students and young urbanites, people living in a cramped space where a single device for computing and entertainment would make sense.

But the headliner for the launch in New York is actor Tom Arnold, whom Microsoft picked for his appeal to sports fans. The company's market research apparently revealed that digital music enthusiasts also are typically sports fans.

The choice of Arnold raises red flags about the marketing of Windows XP Media Center Edition and the new HP PCs running the OS, Duboise said.

"The thing about this Media Center PC, it's about expanding the PC for multimedia," she said. "They're going the wrong route. I would go the entertainment route rather than the sports route. I think there is a mismatch there."

 

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