Can Google Be a TV Star?

Big TV Ambitions, Small Chance of Domination

By Todd Spangler -- Multichannel News, 9/6/2010 12:01:00 AM

Google has cornered the market on Web searches, and its Android software is on track to power more than 50 million mobile phones by the end of the year.

Now it’s turning to TV — but even Google, with its massive war chest, may end up frustrated trying to get in front of a sizable TV audience.

To crack into TV, Mountain View, Calif.-based Google has enlisted other big-name partners: Sony is gearing up to launch a Google-enabled Internet TV, featuring both a standalone TV model and set-top-box-type unit incorporating a Blu-ray Disc drive. Logitech is working on a Google TV controller with a wireless keyboard, called the Revue. Best Buy expects to carry Google TV devices at its retail outlets, and Dish Network plans to provide integrated access to Google TV features later this fall.

The search giant’s utopian idea is to deliver open-source software to let consumer-electronics makers, pay TV providers, content owners and others create new ways to search, discover and organize content on the TV. That, according to Google’s plan, will let it extend its Internet power to the big screen in the living room. The company is an undisputed online juggernaut, boasting 620 million daily website visitors and generating $22.8 billion in advertising sales last year.

Already, Google TV provides searches across YouTube clips, Amazon’s video-on-demand service and Netflix’s Internet-streaming feature. Recent reports surfaced that it is also mulling the idea of renting movies through YouTube for $5 each.

And fundamentally, Google’s tack is different from other Internet-connected video approaches to date. Apple, for one, last week announced a new broadband set-top box that provides access to Netflix and the ability to rent 99- cent episodes from ABC and Fox — basically, an end run around traditional pay TV services.

Google, on the other hand, is aiming to be absolutely central to the total television experience, embracing it and extending it in new ways. In fact, the company is angling to work with operators to enhance traditional television services, said Rishi Chandra, group product manager for Google TV.

“I don’t see the Internet replacing cable TV anytime soon,” Chandra said. “But no matter what the cable companies do, people are leaving this experience to go to another screen … The better answer for cable is to keep the video on the best device in the living room.”

But Google TV faces challenges that may be insurmountable, according to analysts and industry executives.

MANY HURDLES
For starters, entrenched operators aren’t likely to give the new venture a boost. Cable, telco and satellite TV companies spend considerable resources developing their own guides and acquiring content, and they’re not eager to embrace a way for someone else to piggyback on top of their lucrative video services. At the same time, TV providers already are deploying interactive applications and opening access to Internet content.

Google’s proposition to situate itself alongside traditional TV services will inevitably clash with most operators’ business philosophies, said Jeff Miller, CEO of ActiveVideo Networks, which provides cable operators with a “cloud-based” solution for delivering interactive content services.

“Of all the Web companies, the one that makes the most money is Google because they’re the gatekeeper — they’re the way you find stuff on the Web,” Miller said. “Cable operators want that position for video.”

Even if pay TV providers were eager to work with Google TV, the process of embedding, testing and deploying that code into their set-tops could take years. Note that Dish at first isn’t actually providing Google TV capabilities in its own receivers: Subscribers will still need to purchase an external Sony or Logitech device and hook it up to their Dish DVR.

Another massive hurdle for Google TV — and, more broadly, the concept of Internet-connected televisions and video devices— is that its success rests on the assumption that people want to actively interact with and consume Internet content on a device that, for decades, has delivered one-way entertainment. Most people who sit in front of a TV want to do only one thing there: watch it.

“The vast majority of TV consumption is ultimately passive,” said Brian Wieser, director of global forecasting for Mediabrands’ Magna Global division.

Assuming some portion of the populace finds value in skimming through YouTube videos or running “apps” on their big-screen TVs, Google TV and its brethren will have trouble getting past a host of technical and business-related roadblocks.

Google itself acknowledges that gaining a foothold in the TV world will be an extremely difficult task. CEO Eric Schmidt, in announcing the strategy at the company’s developers conference in May, noted: “It’s much harder to marry a 50-year-old technology with a brand-new technology than many of us in the new technology area thought.”

Price is one factor that could spell Google TV’s doom as a mass-market play. The cost of the components necessary to run Google TV would be roughly $50 to $75, according to one industry executive’s analysis — a significant extra cost for typical digital TVs, whose components excluding the panel are in the $100 to $200 range.

Google declined to comment on the cost estimates, saying pricing will be determined by partners. (Sony and Logitech have not announced expected pricing.) Chandra said the premium will be similar to the difference between smart phones like Apple’s iPhone and regular mobile handsets, and that prices should come down over time.

“Obviously, any value we’re creating for the user has to be justified by the cost premium,” he said, adding, “The iPhone was 600 bucks when it first started, now it’s 99 bucks at Wal-Mart.” But it’s not clear many consumers will be persuaded to run out and buy a Google TV device, even for a modest price premium. “Where’s the demand? There isn’t any,” said Steve Hawley, principal analyst and consultant with TV Strategies. “There’s lots of potential on paper, but there’s lots of industry resistance, which may keep [Google TV] from getting more than three feet past the starting gate.”

Previous products melding the Web and TV have failed to catch fire, dating back to the mid- 1990s with WebTV, which was acquired by Microsoft.

“There have been a lot of attempts to bring the Web to the TV,” TiVo CEO Tom Rogers said. “None of them have ever taken root, because they’ve always been about turning the television into a computer experience — and television viewers have voted overwhelmingly for a TV experience.”

Consumers don’t actually want to access “the Internet” on TV per se; they want more video and an enhanced TV experience, said Forrester Research media technology analyst James McQuivey. Today, 23% of adults say they want to watch online video on their television, according to a recent Forrester survey.

“You have 10 million people who have connected their PC to their TV,” McQuivey said. “The reason people put up with those barriers is because they love video.”

NBA Digital, a joint venture between the National Basketball Association and Turner Sports, is working to deliver video and other content on NBA.com optimized for Google TV to gain experience in the emerging distribution channel, said Bryan Perez, senior vice president and general manager.

“If you look at the data, it tells you that the provision of data and content directly to the TV is going to happen, and it’s probably happening faster than anybody thinks,” he said. Consumers who use Internet-connected TV devices are disproportionately men 18 to 34, which is the NBA’s core demographic. “For us, it’s about following the audience,” Perez said.

So far, however, consumers are largely indifferent to the Internet-connected TV features that have come to market. Only 20% of people who have connected TVs say they’re happy with them, according to a Forrester survey of 3,990 people in June 2010. About 26% said they don’t use them much and 14% said the TV is not even connected to the Internet. Only 3% are disappointed with them.

“They got those features for free,” McQuivey said. “It’s more of an ambivalence than anything else, I would say.”

If and when a class of Internet- based applications emerges that becomes a must-have, service providers will likely co-opt the feature themselves. Even then, cable, satellite and telco TV operators will want a controlled environment — not the anything-goes, open Internet pitched by Google — to ensure the content is appropriate and that the service doesn’t generate excessive customer- service support calls.

Verizon Communications’ FiOS TV already offers YouTube clips on TV, plus Twitter and Facebook, and Cablevision Systems is experimenting with a way to deliver Web and PC content directly to the TV. “Service providers will take longer to get there than Google,” said Kurt Scherf, vice president and principal analyst at research firm Parks Associates. “But ‘good enough’ is good enough, in a lot of cases, especially when you talk about the power of the bundle.”

In that context, to handicap Google TV’s prospects for success, it’s worth considering the history of TiVo.

Digital video recorders only took off after the feature was integrated into provider set-tops, and included as part of the monthly lease fee. And although TiVo has various partnerships with Comcast, DirecTV, Cox Communications, RCN and others, the company continues to bleed subscribers — losing 125,000 in the three months ended July 31, 2010, to stand at 2.38 million. By comparison, multichannel video providers had more than 36 million DVR subscribers by mid-2010, according to Magna estimates.

So why is Google pursuing this strategy, when it knows it will likely take many years to build a significant base of users, even if everything goes reasonably well? The idea is to drive more Web usage from television viewers: More searches mean more AdWords revenue, more integration with TV means more YouTube videos viewed, and so on.

“We would love to get more users in front of our applications — like maps, search and YouTube — and we were finding is that getting those in the living room is a real challenge,” Chandra said.

Google points to the rapid rise of its Android operating system for mobile phones, postulating that it can replicate that success for TVs in partnership with the likes of Dish and others. Shipments of Android-based phones are expected to top 55 million worldwide in 2010, according to research firm Digitimes.

Google, by offering the Android operating system and Chrome browser in an open-source model, proposes to provide a standard platform for running apps — regardless of TV manufacturer or service provider. The promise is that cable operators could use Android to tap into (potentially) thousands of Android developers who could cook up widgets and Web apps optimized for TV screens. Again, Google holds up as an example its meteoric rise in mobile: At the end of June, the Android Market had more than 70,000 apps, more than double from around 30,000 in April.

OPEN TO INNOVATION
“Pay TV has been incredibly successful, but the closed environment hasn’t been great for innovation outside of what the cable companies have done so far,” Chandra said.

However, others say the analogy to mobile breaks down because smart phones are used in fundamentally different ways than TVs are. Consumers also upgrade their mobile phones far more frequently than they swap out their set-top boxes or TV sets.

“Intellectually, you should be able to say, ‘Yeah, mobile devices could be like TVs,’ ” said Ellen Dudar, chief product officer for interactive TV developer Fourth- Wall Media. “But people’s behaviors are so entrenched when it comes to TV. You kind of have to drag people forward.”

Besides, there still isn’t enough evidence that a large number of people will find indispensable utility in being able to tap into Internet content from the TV, ActiveVideo’s Miller said. Today, during 33.9% of the time people spend surfing the Internet on computers or mobile devices, they’re also watching TV, according to Nielsen’s “Three Screen Report” for the first quarter of 2010.

“After you go through all this trouble, what’s the benefit?” Miller asked. “Everybody faces the main issue: How much work do people want to do in order to watch TV?”