The battle for control of home entertainment

Intel's Viiv promises PCs beaming music, films and TV around the house. But it's not the first time they've tried - and Danny Bradbury remains to be convinced

Intel is trying to invade your living room again. At the recent Consumer Electronics Show in Las Vegas, it introduced Viiv, a hardware specification for PCs that are designed to sit next to your TV, rather than in your home office. Chris Hogg, Intel's UK marketing manager, says Viiv PCs, which are already being shipped, do not look like traditional computers. "Most consumers think of beige towers when they think of PCs, but a lot of these devices will be in very consumer-friendly form," he says.

Viiv-based PCs will carry several new features. After initial boot-up, they will be able to go into standby mode and resume instantly, making them more like TVs than traditional PCs. Featuring 7:1 surround sound, they will also be able to switch between different video and audio formats in real time, eliminating frustrations caused by incompatibility. They will also be able to stream video to other devices, meaning that you can start "mirroring" television programmes to multiple screens around the house.

It all sounds very promising, but for one fact: Intel has done all this before, with limited success. The predecessor to Viiv was the Entertainment PC, essentially a Pentium 4 with some extra audio capabilities built into a shiny, living-room-friendly case.

"There was less of a platform-building effort around that," says Hogg. "An Entertainment PC was any computer that someone put Windows Media Centre edition on to. Viiv will be different because the new platform mandates a more powerful processor and standard chip sets."

Intel is more serious this time about driving the PC into the space underneath your television that is currently occupied by your VCR, set-top box or DVD player. Early last year the company reorganised itself into several business units, including a Digital Home Group. Viiv is that group's first product.

Windows Media Centre Edition (MCE), which only ships with Entertainment PCs, is also the mandated operating system for Viiv-based PCs. It is largely Windows XP with extra features, such as TV recording and a TV-like remote control.

David Weeks, Microsoft's Windows client marketing manager, is the first to admit that most copies of MCE are not based in the living room at all. "We took a stab at saying it's for the living room but we got that wrong," he shrugs.

"We found that people were using it as an additional TV in another room; maybe a fourth bedroom or study." This means that the Entertainment PCs touted by Intel and its partners have not been making it into the living room, either.

The problem is arguably that the PC and the living room are fundamentally incompatible. Entertainment PCs, like Viiv PCs, are normal consumer PCs with souped up interfaces and audio capabilities. This lets the average non-technical consumer install enough badly behaved shareware, viruses and spyware to slow down and eventually cripple the machine.

"People don't want to have a computer in the living room when it's ugly, and when it breaks down, and when every time they want to reboot it, it will take five minutes. People just want to use a Sky box that's always on, and just does what you want it to do," says Nigel Russell, an analyst at the technology consultancy Cap Gemini.

Even if MCE doesn't make it into the family room the second time around, Microsoft has other weapons. Microsoft TV is software for broadband DSL and cable providers to put in set-top boxes, which can then be used to deliver television over broadband connections. And then there is the Xbox 360, which arrived in the UK last month. The machine, which automatically hooks up to MCE if it finds it on a home network, acts as a digital media extender, so that video from an MCE-powered PC in a home office can stream to a TV in the living room.

Nevertheless, Microsoft has some problems with the Xbox. Concerns over product quality have led to a lawsuit against the company from angry US customers who claim that the box overheats and crashes.

So why are Microsoft and Intel so eager to take a second shot at this slippery market? Revenue from hardware and software sales is a driver, says Paul Jackson, principal analyst at the technology market research company Forrester. "Microsoft is more focused on where it can go with consumers because it's tapped out in the enterprise world," he suggests. "It can't sell any more operating systems or office packages because everyone's got them."

But the ultimate goal for many companies is to capitalise on services, argues Nigel Russell. "We have all these people coming from different industries but all going for the same goal: customer ownership at home," he says. "Who will become the trusted brand in home entertainment?"

When a company gets a device into the living room, whether it's a sealed set-top box, a games console or a Viiv PC, they can begin bundling services together into the home using their device as a delivery point.

The number of service providers offering triple play (video, internet access and telephony) in the UK is still small. But once that market has matured, there are other services to consider. Security and home monitoring is one example, while streaming music to the hi-fi is another. And high-definition television is yet another premium service currently at the start of its growth curve.

Andrew Burke, CEO of BT Entertainment, is looking even further ahead. In the years to come, he believes that remote healthcare services could be possible, envisaging a machine for diabetes sufferers that can "send blood sugar levels back to a clinic".

BT Entertainment will begin offering its own television service over broadband DSL in the autumn, based on Microsoft's TV software platform.

More complex, post-triple play services are years away, but the immaturity of the market points to a guaranteed revenue stream in the coming years. No wonder everyone is trying to get in now.

Alongside telecommunications providers such as BT that are eager to sell more than just cheap bandwidth, cable companies including NTL are offering video on demand, and satellite providers are not standing still. Sky's launch of a broadband movie download service and its purchase of the broadband provider Easynet gives it a stronger capability to offer interactive services than it has with its satellite TV infrastructure.

One company keeping its powder dry is Sony, which is due to ship its Playstation 3 console in the spring. Paul Jackson predicts the PS3 will act as a media hub for the household (as opposed to the Xbox360, which is more of a spoke, connected to a hub-like MCE PC).

"The issue with that vision is that Sony has never done devices like that," Jackson says. "It has never done network devices or run an infrastructure services business apart from Sony Online Entertainment and its disastrous Connect Music Store." The Connect online music service, designed to compete with iTunes, was panned by the press due to its poor music choices and delivery software.

As Sony reorganises, shedding 10,000 employees and 20 per cent of its product model numbers to focus on flagship consumer electronics devices, the PS3 begins to look like a make-or-break product, not only for the living room PC but for the company as a whole.

Clearly, for some more than others, in the battle for the living room, everything is at stake.