Now that there’s been time to reflect on the CES aftermath, it’s more perplexing than ever.
Heading out to CES a couple weeks ago, over-the-top TV and its variations weighed heavily on my mind. We knew that TV makers were going to embed more video apps into their “smart TVs” and that Intel was planning to introduce a set-top box for its own streaming content service, despite initial problems in licensing programs from studios.
How would the hardware makers, struggling amidst miniscule margins, try to extract an ongoing revenue stream from content flowing through their devices? Was it possible for retailers to snag a few pennies from those ‘net-connected TV sets? Would the growing presence of attractive OTT content re-direct viewers’ dollars from their current providers?
To put it in appropriate Vegas terminology: Who’s getting a piece of the OTT action?
A week of CES overload posed many more questions, but delivered very few answers about how web-delivered video’s growth creates a clear revenue model to challenge legacy cable business models. The essential take-away is that big, global companies, some of them desperate for new funding sources, will try anything.
he mind-boggling visions of CES vendors plus the countless, often contradictory, analyses of the electronics extravaganza affirm that I’m not the only one who is uncertain about what happens next.
It is clear that TV set-makers such as Sony, Samsung, LG, Panasonic and others want to earn an annuity from the apps embedded into their smart TVs. But they are offering scant details about deals. For example, Panasonic unveiled an arrangement with HSN (a/k/a Home Shopping Network) to integrate HSN’s “Shop By Remote” into the SmarTViera (Panasonic’s brand) sets. The service lets viewers buy products from both the live network feeds as well as via the network’s online catalog through the TV set. HSN is negotiating similar arrangements with other smart TV makers. No one is discussing revenue splits.
The re-emergence of the “new” Google TV in LG, Sony and other TV brands also sets the stage for content delivery as well as video search and discovery features. Google TV further opens the door for revenue-sharing structures, although none of the companies is yet willing to explain how such arrangements might work.
That’s because, despite several years of rollouts, no one is quite sure how to do it. It’s still experimental.
The one OTT reality that emerged from CES – and from the financial analysts I interviewed – is that retailers are unlikely to get much if anything at all from the evolving ecosystem. At most, the dealers may earn a bounty for selling TV sets with smart apps, including subscription services such as Netflix or Flixster. Basically, such payments would be one-time sales commissions, much as dealers receive from wireless phone carriers for selling the handset and service.
Right now, only Walmart may find an annuity in OTT, via its ownership of VUDU.
Even against that mottled background, the entertainment landscape is pocked with uncertainties. For example, the much-touted marketing push for UltraViolet, announced at CES, raises new questions about how each element of the value chain is compensated. Inevitably, the studios and content owners at the core of this project expect to be the major “winners.”
UltraViolet, the cloud-based video “vault” service supported by nearly 100 organizations, is slated for a multi-million dollar marketing campaign this year. In addition to Sony, LG, Samsung, Toshiba, Panasonic, Cisco, Motorola Mobility, SeaChange, Irdeto, Adobe and dozens of other hardware/software vendors, the Digital Entertainment Content Ecosystem (DECE) LLC, which manages the project, includes cable operators such as Comcast, Cox Communications, Liberty Global and Rogers Communications.
In a little-noted field trial in three markets (including the San Francisco Bay area) in late 2012, Comcast offered video-on-demand movies and then offered its subscribers the opportunity to “buy” the titles via the UltraViolet vault system. All the movies were from Comcast subsidiary Universal Pictures, which is a DECE member as are most other major studios, except Disney.
Although no details about the Comcast test are available, it is another reminder that carriers as well as producers, distributors and equipment companies expect to find new ways to squeeze revenues from these alternative and ancillary video distribution avenues. (Other DECE members, such as Dolby, Marvell, IBM, VeriSign and Widevine Technologies are presumably making sure that their technologies are compatible with whatever platform emerges. Nonetheless, some analysts challenge a fundamental premise of UltraViolet: Will next- generation viewers want to collect and “own,” even digitally, libraries of favorite movies and TV shows?)
Throughout CES, which continues to attract a growing number of Hollywood “creatives” eyeing new distribution structures, there was a larger-than-ever recognition that alternatives are increasing. The sizeable cable contingents – from CableLabs, CTAM and other organizations – were keeping an eye on competitive prospects.
Yet there were sharp reminders about the uncertainty. Intel, despite the pre-CES hype about its planned streaming service, actually showcased at the front of its booth a set-top technology it has implemented for Comcast Xfinity.
All of these activities showed me that OTT and Internet/cloud-based VOD are part of the “new normal” in video distribution.
But none of it actually shows me the money – or who gets it.
Gary Arlen is president of Arlen Communications LLC in Bethesda, Md., and a long-time interactive TV enthusiast. Reach him at GArlen@ArlenCom.com.