Parks Associates Blog

Wednesday, December 31, 2008

Hot Topic for 2009: Web-enabled TVs

2008 was full of all kinds of Web TV and Web CE announcements, about which I dutifully blogged as I could. I think that 2009 will include some similar focus, where not only premium Web video is made available, but also stripped-down Internet applications (a.k.a. "widgets").

So, what's the outlook for the CE industry in 2009?

The Web TV Market
The challenge for HDTV manufacturers is how to differentiate and add value to their displays in a rapidly-maturing market. With HDTV display prices on the decline and manufacturer margins squeezed, the next stage of display competition will focus on connectivity and value-added applications. Although certain TV manufacturers (Panasonic/LG Electronics) have been attempting to work with tru2way for several years, there is frustration at the lack of carrier and retail support for their efforts. Their short-term move is more of an“over-the-top” route. At the 2008 Consumer Electronics Show, a wide variety of connected TVs on display each offered a slightly different content and feature offering. Panasonic is working with Google to bring some of its applications – including photos and YouTube – to the television. Samsung has developed an RSS “Widget” offering, focusing on personalized information from USA TODAY. Sharp’s benefits include remote customer support. Sony has Internet television offerings that provide not only video, but access to music via Slacker.

I would expect that we’ll see every major manufacturer implement at least some basic connectivity and provide some sort of Web or PC-linked application (such as allowing photo viewing). And, I think we’ll see aggregators like Netflix, CinemaNow, Amazon, and others begin to provide CE manufacturers – including the display companies – with turnkey content services. The Intel and Yahoo Widget announcement will be another defining characteristic of the Web-enabled TV market. I think you may see more TVs roll out that are capable of receiving third-party Web/widget applications, much like the iPhone. In this way, you’ll see consumers be able to customize their TV experience for just the type of information they want – weather, traffic, specific sports scores, etc. And, I think you’ll see television providers (cable, satellite, IPTV) follow suit, using their electronic program guides and advanced set-top boxes to provide a more customizable television experience.

If you Build Them, Will Consumers Come?
We received some interesting consumer data back from a study titled Digital Media Evolution, which was fielded in mid-November 2008. In this study, we asked consumers to rate their interest in a number of home network and Web-enabled applications on a variety of consumer electronics devices, including digital cameras, televisions, portable multimedia players, mobile phones, digital photo frames, and Blu-ray players.

For “Connected TVs,” we asked consumers about their interest in the following features:

  • Watch or listen to the video, photos, and music found on Internet sites like YouTube, CNN, Flickr, and Yahoo! Music.
  • Watch or listen to the video, photos, and music stored on home computer
  • Watch or listen to videos, photos, and music uploaded from your computer to websites like Snapfish, Kodak Gallery, PhotoBucket, or YouTube, on your TV.
  • Rent and watch movies obtained directly through the TV.
  • Access to a continually expanding library of over two million popular songs through your TV.
  • Access to a continually expanding library of over 5,000 popular movies & TV programs through your TV.
  • Customized news, traffic, weather, sports, stock, and other information displayed as text or video on non-intrusive portions of the screen and on your command.
There is certainly strong interest in some Web-connected features, particularly those that expand video-on-demand offerings, including TV shows and movies. What this means for consumer electronics companies – including manufacturers of displays, Blu-ray players, etc. – is that they will aggressively pursue streaming and downloadable content deals. I think it’s a step in the right direction and will support the consumer desire to have greater availability to a wider array of content, both user-paid and ad-supported, while not having to buy an additional black box to install in their entertainment console. It could certainly lead to some interesting developments, as consumer electronics companies move away from a pure “sell-it-and-forget-it” practice and actually build new business models that center on recurring revenues, subscriptions, and value-added content and services applications. While I don’t think you’ll see huge revenues flowing back to the device manufacturers, it could be a compelling business opportunity in the long-term and a key point of differentiation in the short-term.

Sizing the Market
Manufacturers and their partners in positioning for premium services, expect to generate only 200,000-300,000 unit sales in 2008. The play aims at future years with manufacturers anticipating millions of unit sales.

We did a forecast for Web-enabled TVs for a report earlier this year, focusing specifically on applications for watching Web video (CinemaNow, YouTube, etc.). Our forecast is pretty conservative, but it’s a much smaller forecast than for just HDTVs with an Ethernet jack on the back of them. As you look at total projected sales for HDTVs for the next few years (we think that sales will sit around 26-28 million units in the U.S. through 2012 as consumers start to replace second and third cathode ray tube sets with flat-panel HDTVs), the Web-enabled portion will remain relatively small – from 2% of total sales in 2009 to about 20% in 2013.

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