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The Next Home Invasion

The promise of the digital living room has been around in one form or another for nearly 30 years.

Consumers have been told they'll be able to choose from an infinite library of movies and music, watch sports games from the camera angle of their choosing, order any product they want, or video-conference with Grandma, all from the comfort of their couch.

So far, the reality has fallen far short of the promise. Even if it hadn't, it isn't clear that most consumers would have paid for the nifty vision.

Despite past failures, at least some analysts think the digital living room will soon become commonplace in the U.S. With the popularity of everything from digital cameras to MP3 players, Americans are becoming increasingly comfortable with digital media. And the tools and devices needed to link that digital content to consumers' existing entertainment systems are already available, if not necessarily easy to use or easily explainable to consumers.

"All the trends point this way," says Jonathan Gaw, an analyst with market research firm IDC. "It doesn't make sense to me that we'd come this far and all of sudden we'd just stop."

A whole host of companies are betting Gaw's right. Intel (INTC - Get Report), Microsoft (MSFT - Get Report), Sony (SNE - Get Report), Yahoo! (YHOO - Get Report), Apple (AAPL - Get Report) and Time Warner (TWX - Get Report) are just some of the industry heavyweights hoping to benefit if and when consumers decide to digitally redecorate their living rooms.

But they first have to prove that there's a market for it. The cable industry has been trying to bring interactive television to consumers' homes since the 1970s, but nearly all efforts have been financial failures.

To be sure, it's not as if the digital revolution has completely passed the living room by. Microprocessors have been incorporated into amplifiers and other entertainment equipment for years. Digitally encoded CDs displaced LPs nearly 20 years ago and DVDs have done the same to video tapes in the last five years. According to the Consumer Electronics Association (CEA), 10% of American households now have digital video recorders, which store video on PC-derived hard drives.

But little of this technology has offered any kind of interactivity for consumers, and most has been completely disconnected from personal computers or the Internet.
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