Parks Associates Blog

Friday, May 21, 2010

Google TV - Searching for Success

For at least a year or so, I've been doing my best to categorize all of the different solutions that are specially designed to bring Web content and applications to a "connected TV." I'm putting the term in quotes because there will be different ways to experience connectivity between the Internet and the display other than an embedded solution. For example:

  • Connected game consoles: In the U.S., penetration of Internet-connected game consoles jumped 38% between 2008 and 2009, and are now at about 30 million households. We know that the console is being heavily implemented as a set-top box, as more than one-third of Microsoft Xbox 360 users are watching video on at least a monthly basis. We believe that online video revenues at the game console alone brought Microsoft and Sony north of $500 million in 2009.
  • Connected TVs: Penetration is quite limited to date, but we expect that unit sales worldwide will exceed 130 million by 2014. In short, Web connectivity will soon become a built-in ubiquity in most televisions.
  • Connected Blu-ray Players: Just bought a flat-panel TV and don't feel like replacing it for a Web-connected set? For a smaller investment, many Blu-ray Disc players come equipped with many of the same content services as what you'll find on the high-definition displays.
  • Networked Digital Media Players: These are the devices such as Apple TV, the Roku player, and others that provide a relatively lower-cost option to connect a TV to online video services. Although we're projecting a pretty quick peak of sales in the U.S. followed by a decline as online video access becomes embedded into consumer electronics products, alternative set-top box platforms may have more significance in international markets, where they may actually be branded by broadband and pay-TV operators.

The market potential for Web-connected consumer electronics is significant, with annual worldwide shipments nearing 300 million units by 2014.

In light of this opportunity, 30+ technology companies are all aimed at bringing Web services to consumer electronics. Among them are companies in the "Connected Television OS" area that are working to build in applications and Web services directly into the TV itself. Among them are:

Of course, while there are companies advocating an embedded solution, companies such as ActiveVideo Networks and Clearleap argue that Web services and interactivity can be delivered with transcoding done in the headend. Further, companies like Vuze indicate that the PC in the home is capable of transcoding and serving as an intermediary between the home computer and the television. So, there's plenty of room for debate.

Google is entering the market at a time where there is much indecision about what will be the ideal technology solution that will benefit the TV manufacturer, content owners, and advertisers. Certainly, Google's presence in Web advertising, including delivery and analytics, provide it with a huge potential for scale. One problem that has been troubling to the television manufacturers is how big their share of any potential revenue for online content might be. To date, the business models between television manufacturers and content providers or aggregators have been revenue sharing based on online video orders. So, the TV manufacturer may get a few pennies per VoD order. In a time when online video revenues on connected CE devices other than the game console are forecast to be around $180 million in 2010 and growing to perhaps $800 million by 2014, it won't be a a huge revenue stream. So, a deal with Google that can add advertising revenue to transactional monies would be a gain for the manufacturers.

Is Search Really a Problem?

So, while Google comes armed with the business model, I do wonder if Google has developed a solution for a problem that I'm not convinced is as dire as they indicate. After all, they lead their explanation video about Google TV discussing why it's difficult for consumers to find the content that they want on TV. Really? We might quibble about the benefits or detriments of the various electronic program guides that are in use today, but I think that the EPG is doing an increasingly effective job of allowing for search and discovery. And, if the Google TV use model means I literally have a Logitech keyboard positioned on my knees to manually type in search entries, I'm not convinced that this use case is going to attract many folks. Granted, the keyboard in the living room is going to be unecessary for most folks, as smartphones, tablet computers, and other interfaces allow for more text entry, but I'm just not sold on search (as Google presents it) as the killer app here. The television service providers are innovating every day with their own program guides, search, discovery, and recommendations. I don't think anyone will be lacking with decent search options for their TV.

Where are the Content Partners?

Another issue with Google is how much high quality content they'll bring to the table. Google's main content partner today is Sony. They will need to bring a number of major content players into the fold to have a successful solution. I'm sure that Best Buy will probably offer up Roxio CinemaNow content, but they'll have to expand beyond that. What's driving the demand for connected TVs is premium content, as the results from our recently completed Digital Media Evolution II study indicates.

I think that providing premium video-on-demand content is going to continue to be an area where the pay-TV providers excel. A couple of weeks ago, I had some time to try to catch up on video-on-demand. With credits available on my VUDU account, I tried that platform first. What I quickly found is that my Verizon FiOS service had the same movies, and the high-definition versions were available a whole lot quicker than the download for VUDU's HDX format. Now, The Wall Street Journal is reporting that the studios and the operators are in discussions to signficantly reduce the window between the theater and pay-TV availability. This makes sense. Interactive digital TV services are already in more than 40% of U.S. households. By 2014, it'll be more than 60%. That's a huge scale that the pay-TV operators have as an advantage. So, what are the online services going to offer that's any better?

Is the Walled Garden Really the Evil Empire?

Related to this point, Google's foray into a very open Internet approach is being much ballyhooed as a way of throwing off the shackles of the walled gardens provided by TV service providers and today's connected CE offerings. I'd argue that this latest round of consumer research would indicate that demand for open Internet access isn't what's driving consumers to a connected TV. They want good content, and they want it easy to find. Take a second look at the chart. I'm just not convinced that consumers want an open Internet experience for calendaring, music, photos, and commerce. I'm much more convinced that tailored applications - including tru2way, EBIF, LUA-based interactive features (available today from more and more pay-TV operators) are going to bring the Interactivity of the Web without the "Wild West" component of many fits and starts with searching, text entry, the back button, etc. If the walled garden approaches can deliver this in a controlled environment that doesn't overwhelm the average user and helps a provider deliver the highest-quality content available, then I don't see why everyone would necessarily want a browser-based approach in their connected TV.

Will Service Providers Care?
DISH Network is a partner here, but will Google find additional service providers to join? One question is what's in it for the providers? For DISH, a current lack of good interactive applications would be a reason for joining the fold. But, will you see the cable industry or AT&T or Verizon knocking on Google's door anytime soon? I doubt it. These companies are already developing their own interactive applications and services. In fact, if you compare the revenue potential between the online and pay-TV worlds, it's clear operators will still control the lion's share of revenues for services such as premium VoD and for interactive advertising. The revenues in the online world are certainly nothing to sneeze at, but the operators don't have to cede control to Google in order to pocket some serious revenues in the next few years.

Multi-platform Measurement
I do think that Google's entrance will now start to help refine how providers of online assets will work with consumer electronics companies to implement more multi-platform content and multi-screen audience measurement. The measurement and reporting is a particular area where some work is needed. The more that content providers, online companies, and CE manufacturers can work together to build consistent reporting and feedback mechanisms into their products, the more effective they will be in monetizing their Web services and attract more premium partners.
See You in a Few Weeks
This announcement certainly comes at an intriguing time, and we've got all kinds of speakers and sessions at the CONNECTIONS™ 2010 event that will speak directly to the rise of connected consumer electronics, digital content, and evolving business cases. We have keynotes, presentations, and discussions with many of today's leading vendors of connected TV and digital media solutions - among them 2Wire, Actiontec, ActiveVideo Networks, Alcatel-Lucent, Allegro Software, Alticast, Arxan Technologies, AT&T, BigBand Networks, BridgeCo, Cisco Systems, Comcast Interactive Media, Comcast Spotlight, comScore Inc., DivX Networks, Epix, ExtendMedia, Gigle Networks, IBM, Intel, Intertrust (representing Marlin), Latens, MEC (WPP’s Group M), MOD Systems, Motorola, Navic at Microsoft, NDS, Nielsen Online, Opera, Orange/France Telecom, PacketVideo, RedMere, Rovi, Roxio CinemaNow, Samsung, Sony, Technicolor, thePlatform, Verimatrix, Verizon, Vuze, XSpanD, Yahoo!, and Zenverge Check out our lineup, and we hope that you can make it to Santa Clara in a few weeks!

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