Can Google Be a TV Star?

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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

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

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

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 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.

“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?”