TOKYO (Nikkei)--The market for digital appliances that consumers use by linking them to home networks will expand sharply through 2010, Sony Corp. (6758) President Kunitake Ando said Monday.

In light of increased household access to high-resolution images due to the spread of flat-panel televisions, Ando said, "Not only hardware but also content and user-friendliness will become crucial factors that determine the winners" in an emerging competition to supply products for the "digital living room" -- where consumer electronics, IT equipment and games are all connected to a network.

Ando was speaking at Global Information Summit 2005, an annual business forum organized by The Nihon Keizai Shimbun.

On developments in the telecommunications sector, Toshiba Corp. (6502) President Tadashi Okamura said that "networks have entered the age of images," shifting from existing text- and audio-centered networks.

"Japanese companies have the right technologies to respond (to this important change)," Okamura said, "but new application software and content need to be developed to make the most of them."

Professor Eli Noam of Columbia University Business School predicted the focus of the consumer electronics business will shift from making and selling hardware to providing services. "It's like voicemail by a phone company replacing answering machines. Such services are paid according to usage, or by subscription," he said.

Noam cited several advantages in shifting many of the actual functions of consumer electronics to what he calls CESPs -- Consumer Electronics Service Providers. "(These are) economies of scale and scope... and greater simplicity to the user. It shifts much of the responsibility to specialists," he said.

"It also lowers the risk for consumers to try new services, rather than having to buy them, install them, and then spend weeks on the phone on troubleshooting hotlines," Noam said.

(The Nihon Keizai Shimbun Tuesday morning edition)