Notwithstanding the glitches, the demo last week was impressive: the seamless blending of TV and web content, the beautiful UI, the smooth search and browse capabilities. Now, a few days after the heady discussion and CEO briefings at Google’s I/O developer conference, we can reflect a bit on what the outlook might be for this ambitious new Google initiative.
Is Google TV (GTV) another Orkut or will it turn out to be more like the software it’s built on — the increasingly successful Android platform.
The specter of other failed or only modestly successful attempts to bring web and TV together are a cautionary narrative running in the background. For example, a range of articles have cited Microsoft’s largely unsuccessful “Web TV” (MSN TV) in particular but also Boxee and Apple’s “hobby,” Apple TV, among several others. The road to “connected TV” or “smart TV” is paved with dead set-top boxes.
Given my lack of technical background, I’m unable to assess the merits or limitations of the technology inside. What I want to explore here instead is likely consumer demand and the potential reaction of and impact upon vested interests such as cable TV companies.
The first question to ask is: When the hardware and GTV service become available later this year, how big a market exists on day one?
GTV partner Logitech says that there are currently 60 million HDTVs in American households. To put that in perspective, there are roughly 116 million US households in total, about 115 million of which have TVs according to Nielsen. That’s right, US television penetration is almost 99 percent. Compare that to roughly 70-75 percent internet penetration in the US.
GTV partner Sony is selling a new “Internet TV” with GTV built in and, later, a GTV-connected blu-ray player. Presumably other TV makers will follow suit. However if you have an HDTV set, you won’t need to buy a new Sony set. GTV will work with existing HDTV screens, with a Logitech box.
Source: US Commerce Department/NTIA (2010)
To access GTV, users will also need wireless broadband in the home. A recent study from the US Commerce Department reports that just under 73 percent of US urban households had broadband access in 2009.
Source: US Commerce Department/NTIA (2010)
In addition to broadband, as mentioned, GTV will require wireless access to that high-speed connection. I was unable to find a reliable estimate of current US households with existing wireless networks. It’s also unclear how many of the 60 million HDTV households (per Logitech) overlap with those that have wireless broadband. But the demographic profiles of broadband households and owners of more expensive HDTV sets suggests considerable overlap.
Let’s make the relatively loose assumption then that about 40-50 million existing HDTV households will only need to buy the Logitech box (or Sony blu-ray disc player) to get GTV. Dish Network TV subscribers will also gain access without an additional hardware purchase or upgrade (I believe).
At the post-GTV keynote press event nobody would talk about pricing of course. But we can make a pretty good guess about how much the Logitech box will likely cost.
You can buy many blu-ray players today for under $200. The Roku box (which streams Netflix to TV) is $99. Apple TV is $229. Given these “price points,” I would speculate that the practical price ceiling for the Logitech box is $300 — and probably more like $200-$250. By contrast, Sony “Internet TV” could be anywhere from $500 to well over $1000 for larger-screen models.
Google has an interest in aggressively developing the market for several reasons (i.e., Android, advertising). So I would expect the company to counsel/persuade its partners to make GTV hardware affordable to mainstream users.
Many consumers may not immediately see the need or have the desire for GTV. However it should be relatively easy to make the case and stimulate consumer demand for the “internet on TV,” especially if the cost is effectively only $250. There’s no additional subscription required; that’s a pretty compelling proposition.
In many ways the “connected TV” market is analogous to mobile. Several years ago very few people got the internet or even some stripped-down version of it on their phones. There was also very little demand for it as well. Today, millions of people access the internet on their mobile devices — roughly 70 million people in the US today. That growth is the result of smartphone price competition and improved user experiences led by the iPhone and later Android.
Let’s assume the GTV offering works as advertised and is easy, intuitive and smooth. With that assumption, at the $250 price point I posited, it’s quite possible that by the end of 2011 there could be 15 to 20 million people hooked up to the internet on a Google TV device. (Given that Android apps will work on GTV that extends Android’s reach as well.)
The next question is: will Google “disintermediate” the cable companies? I asked a version of this question to the CEO of Dish Network: Would consumers simply opt out and watch Netflix and Hulu and other web video instead of conventional cable TV? (Hulu will have the ability to block GTV access if it chooses.) Dish’s CEO didn’t think so, saying that the TV content was at least half the value of this new equation.
He’s probably right that people won’t cancel cable, but perhaps for a different reason.
Consider that more and more cable TV packages are being sold as part of larger product bundles that include internet access. More Americans are being enticed into those bundles with discounts. Inertia then sets in and cable TV “cord cutting” becomes less likely. Indeed, many cable companies provide the basic internet connectivity “infrastructure” required for GTV.
However research firm Convergence Consulting Group estimated that roughly 800,000 cable subscribers had abandoned cable for internet video:
Based on our TV Cord Cutting Model, as of year-end 2009 almost 800,000 US households had cut their TV subscriptions (to rely solely on Online, Netflix, OTA, etc). We forecast cord cutters will grow to 1.6 million households by year-end 2011.
I’m sure more alarming to the cable TV industry are In-Stat’s numbers, which are considerably larger. According to the Associated Press, “in 2006, cable TV companies had 68.5 million video customers. The number fell to 63.3 million in 2009.” Not all of these folks are leaving because of online video options but it’s a contributing factor.
Some danger to cable TV revenues from GTV and/or competitors (e.g., Apple TV) thus surely exists. But it’s probably not that significant in the near term. Over the longer term, however, the cable industry may see widespread defections especially if new mobile broadband competitors provide cost-effective alternatives (e.g., WiMax/LTE) to cable as ISPs.
The final topic of this post involves advertising. Advertising on network, local and cable TV is a roughly $65 billion market in the US. Many agencies and brand advertisers have grown more resistant and skeptical of network TV “upfronts” and decried the lack of “accountability” and targeting on TV, as online advertising is becoming increasingly sophisticated in targeting audiences or market sectors.
In response, there are a number of efforts to create “addressable TV,” where households and TV audiences can be more readily targeted, demographically, by location and so on. There are similar scenarios for GTV as well.
The word on GTV and advertising from Google I/O was that all ads would come from existing sources: networks, cable providers and online sources. Impliedly, Google would not become the traffic cop or the arbiter of advertising on TV. However there was some speculation from Google personnel that ad units and formats would evolve over time.
Here’s an obvious hypothetical scenario that might illustrate how TV-web interconnectivity could add direct response elements to all TV advertising, as it has to all awareness marketing online.
Imagine a tourism television add for Italy (say, Tuscany) with all the beautiful images of the countryside and the happy people drinking red wine and eating lots of good food and so on. That emotionally appealing video could then invite users to “click” to learn more or receive a brochure or book a trip.
By clicking on the TV ad, a landing page from the internet is pulled up with hotel and airfare information. The consumer can then book a trip right from the TV or at least sign up to receive email about travel deals on trips to Italy, etc.
By extension, any TV commercial could be similarly linked to forms, landing pages, e-commerce sites and so on. An even more obvious scenario is paid search ads in GTV search results:
In the example above, there would undoubtedly be a range of advertisers that might want to get attention in association with a GTV query for the show “Lost.” Among those advertising against that query online are NBC and Cafe Press, which sells fan memorabilia. Amazon might want to sell you DVD sets of earlier seasons or the “complete boxed set.” You get the idea.
Google currently offers Google TV Ads, which can run on TV (via Dish) or on YouTube. Google also offers ad serving and display ads, which could equally show up in various places on GTV, entering through the web or maybe Android (via AdMob) or traditional TV.
At one point three or four years ago TiVo grandly aspired to be an intermediary or gatekeeper between its audience and advertisers on TV. While ad skipping has gained momentum, TiVo itself was never able to realize its vision. That was partly because cable TV providers started offering their own DVRs and blunted TiVo’s growth and “ownership” of audiences. It’s relatively easy to imagine Google TV getting in-between viewers and “content” (internet + web) in the same way search has online.
If the search and browse functionality that Google TV demonstrated last week becomes the way that millions of US households “enter” TV and access their favorite shows, news, sports or discover new content, Google may not become the “gatekeeper” that TiVo wanted to be, but it will have developed another massive, growth platform through which to distribute its full range of ad units.
There are many analysts and others out there expressing doubt and skepticism about the outlook for Google TV. However I’m not one of them.
Other than a poor user experience or excessive hardware cost, the only thing that might prevent the growth and adoption of Google TV is equally or more compelling offerings from competitors. Either way, TV is about to undergo another (fairly radical) transformation.