In Part I, we looked at “over-the-top” video and the current state of the cord-cutting phenomenon. Now we’ll look at the players, the obstacles they face and what it will take for OTT to reach mainstream success.
OTT Players and their Challenges
Though in its infancy, OTT has already become a busy space, with industry leaders across multiple categories looking to capture the market. The resulting competition creates a lot of choice for consumers, but also complexity, as there doesn’t seem to be any one, perfect solution.
Each player has its own unique strengths and weaknesses, but none currently provides a complete alternative to traditional cable and satellite TV.
Examples: LG, Panasonic, Samsung and Sony
Connected TVs have been available for several years, including offerings from leading manufacturers including LG, Panasonic, Samsung and Sony. Although adoption has been slow to take off, connected TVs now enjoy broad industry support, with Best Buy promising to only sell connected TVs in 2011 and Wal-Mart promising the same by 2012.
With heavy industry support and no price premium attached, these devices will continue to sell. Forrester estimates over 43 MM connected TVs will be in US homes by the end of 2015.
A big challenge for connected TVs is consumer awareness. According to Forrester, 61% of consumers are unaware of connected TVs and of those that do, 40% question the value.
A key problem plaguing connected TVs from the beginning has been poor user experience, partly due to software design, but mostly the result of under-powered processors that aren’t capable of offering compelling services and the kind of snappy user experience that consumers have grown accustomed to on their PCs and smartphones.
According to Forrester, if current trends continue, most connected TVs sold will probably never be used to consume Internet services.
Connected Set-top Boxes
Examples: Apple TV, Boxee, Roku, TiVo
Connected STBs each have their different strengths. Here are a few of the standouts and what sets them apart:
- Apple TV provides a great user experience and has the strength of Apple’s content and services ecosystem behind it;
- Boxee has built an innovative platform and enjoys strong media buzz;
- Roku has great content and an even better price point;
- TiVo is a household brand and working hard to evolve the device beyond the DVR capabilities it helped to pioneer.
As expressed on several occasions by Apple CEO Steve Jobs, the big hurdle that each of these devices share is that consumers don’t want to buy another box when cable provides one for free (or almost free). This has been and will continue to be TiVo’s greatest challenge.
And, since none of these services provide the same level of content as cable, most consumers aren’t ready to cut the cord in favour of one or more of these solutions. Even Apple TV can’t compete with cable when it comes to content. In fact the new Apple TV has considerably less content available than the previous version.
Connected TV Platforms
Example: Google TV
As a connected TV operating system, or platform, Google TV is a category unto itself and potentially the most promising player.
Google wants to turn your TV into a computer that runs the Google TV OS. The experience, at least now, is a lot like a souped up, more webby TiVo. Meaning it’s an evolved, Internet-enabled version of the DVR cable experience. Google is trying to play nice with cable operators in an attempt to tap into that $70 billion broadcast ad market, which makes sense considering that Google is, after all, an advertising business.
By augmenting rather than seeking to displace the traditional broadcast TV experience, Google may have a better chance of reaching critical mass with consumers, especially as compared to the previously mentioned standouts and their entirely independent offerings.
Unlike Apple, who seeks to control the entire ecosystem and experience, from hardware to software to services, Google, as exemplified by their Android handset strategy, is all about partnering with hardware manufacturers. In the case of Google TV, the most important of their initial launch partners is Sony, who has released the first TV to integrate with the Google TV platform. The Sony partnership paves the way for Google to deliver their TV platform to consumers in a way they’ll pay for, a new TV – directly addressing the go-to-market viability of connected STB providers.
Having Google TV baked into TVs will be key to the platform’s success, but the main reason Google may succeed where others haven’t is the fundamental difference in their approach. This isn’t a separate or alternate input to the primary TV viewing experience (like Apple TV, Boxee, Vudu or Roku). Nor is it limited to standard cable/satellite content delivered through a better DVR (like Tivo). This is the television experience. At least it aspires to be.
Despite Google TV’s promise, they have several major challenges yet to overcome:
- Lack of broadcaster cooperation: As reported in the media, Google TV’s launch was marred by reports of blocked content (when accessed via the integrated web browser) from several major broadcasters.
- Complexity: Not only is the device difficult to set-up and use, but it’s not clear to consumers exactly what it does and how it augments or replaces their existing cable TV experience.
- Expensive: All that power also comes at a price, and without a clear value proposition Google TV may be too expensive for most consumers.
- No app marketplace at launch: 3rd party apps are key to the success of OTT platforms. By limiting the launch to a small group of hand selected app providers, Google has limited the value of the platform to consumers and alienated 3rd party android developers who are eager to develop solutions for the platform.
Examples: PS3, Xbox 360, Wii
With a massive existing install base, powerful processors, and easy-to-use interfaces, gaming consoles could quickly become the dominant OTT platforms. Xbox alone has 30 million units installed in the U.S. and 42 million worldwide, and industry rumours indicate that upwards of 60% of Netflix’s total usage is from gaming consoles.
Analysts also point to new motion controllers such as the Xbox Kinect as the killer app for video functionality, providing a level of control and interactivity never before experienced in online video.
Similar to Connected STBs, the biggest challenge for gaming consoles in terms of OTT video has been consumer awareness and adoption. Some reports show that only 6% of console owners are watching streaming video. In addition there hasn’t been a wide selection of content available, although that appears to be changing quickly.
Content & Software Services
Examples: Netflix, Amazon, Hulu, Vudu
Netflix is clearly winning here. They play nice with content owners, are available on every Internet TV platform, and now account for 20% of the Internet’s bandwidth usage during primetime.
Vudu (which is now owned by Wal-Mart) is unique in how they appeal to videophiles and movie fanatics with near Blu-Ray quality streaming (1080p) and a massive content library.
As a company owned by content owners, Hulu is faced with a particular set of challenges. While one would think this would be an advantage, it’s actually become a liability due to the inherent conflicts they face in potentially cannibalising existing revenue sources. With HuluPlus, they’re asking consumers to pay for content they can get for free elsewhere, and asking them to pay more than they would pay Netflix for access to a much larger content library.
Given these challenges it’s difficult to see how Hulu can successfully compete with Netflix, who in some ways appear to have already won the battle.
The biggest challenge for content and software service providers is that none, including Netflix, are a complete solution. Consumers need to cobble together several services to come close to the breadth and quality of content available on cable. And since none of these services provide the same level of content as cable, most consumers aren’t ready to cut the cord in favour of one or more of these services.
Make no mistake, incumbent TV providers won’t go down without a fight.
Cable and satellite operators are the most threatened by OTT, and for good reason. A cable TV subscription with premium packages (HBO, Showtime, etc.) can easily become the most expensive utility in the home, and cost prohibitive for many consumers, especially in a struggling economy.
Telco TV operators are understandably worried that OTT providers will capture the value of their massive IPTV investments, relegating them to the role of “dumb pipe” provider.
With lower-cost OTT services offering increasingly feasible alternatives to high-cost pay TV services, consumers have more reason than ever to eliminate or scale back their subscriptions. Despite some analyst reports to the contrary, common sense dictates that this must be at least partially to blame for growing cord cutting trends, such as Comcast’s reported 275,000 subscriber loss in Q3 of 2010.
But the incumbents are fighting back, with, among other things, TV Everywhere initiatives that allow pay TV subscribers to access content from any device. In addition they’re starting to add more capable processors and compelling OTT services to the heavily subsidized set-top-boxes they provide consumers.
Most importantly though, cable, satellite and telco TV providers have the deepest content relationships in the industry. And these relationships continue to become even deeper and more complex with deals such as the impending Comcast/NBC Universal merger. In an industry where content is and always will be king, these content relationships provide the greatest defence against upstart OTT providers.
If the incumbents can leverage their content relationships and learn from the mistakes of the music industry by embracing, rather than attempting to block the inevitable march of digital technology, they may have a future in over-the-top video.
What Will it Take
As we’ve seen, there are still major categorical and universal challenges that must be overcome in order for widespread OTT adoption to take hold. Here are some of the things I believe need to happen for mainstream cord cutting to become a reality:
- Powerful processors – Processors need to be powerful enough to offer compelling services. If connected TVs want to compete with Google TV they need systems that are just as responsive and powerful. CE manufacturers would be smart to follow Sony’s lead and adopt the Google platform as their own.
- Apps marketplace (like mobile, only bigger) – Apps can do for TV what they’ve done for mobile, create a thriving ecosystem of publishers and consumers, including viable business models and security for content owners, opportunity for 3rd party developers, and choice and quality for consumers. In an OTT future apps will be the new TV channels.
- Great User Experience – In the last few years Apple has significantly raised the bar on user experience. Consumers now demand a highly responsive and easy-to-use experience on all their devices, including the TV.
- Premium and timely content (live & on-demand) – Consumers are impatient. If they can’t get the content they want they’ll go elsewhere to get it, including illegal file sharing services.
- Interactivity – Content creators need to take advantage of the interactive capabilities made possible by Internet technology to create apps that extend the TV viewing experience.
- Business models – OTT enablers need to provide viable business models for content owners so they don’t block content. It’s important to remember that Netflix pays for the right to stream content. Google shouldn’t be surprised that content owners are doing what they can to block unauthorised streaming to the living room.
- Advertiser education – To attract the kind of ad dollars that broadcasters enjoy, advertisers need to be made aware of the brand value in sponsoring interactive TV experiences.
- Consumer education and marketing – Most consumers who own a connected TV don’t use the Internet features. Still other consumers are confused by the ambiguous utility of platforms like Google TV.
- Broadcast networks need to get onboard – Broadcast networks have the content people want to see. They should learn from the music industry and leverage these new delivery channels rather than fear them. Of course as mentioned in point number 6 above, it’s also the responsibility of OTT enablers to provide the security and business models that make this possible.
- All-in-one platforms – What’s currently lacking are single platforms that have it all: ad supported free content (Hulu), subscription content (Netflix) and paid video-on-demand (Amazon). According to a recent Forrester report, the thing that consumers want most from their connected TVs is more video. Google, Apple and Roku are getting there but each have holes to fill that require the cooperation of content owners.
Kyte is an end-to-end, cloud-based publishing platform for live and on-demand media. Today, the Kyte Platform powers web and mobile video experiences for many of the world’s leading media companies and brands, including ABC, Clear Channel, ESPN, MTV, and Armani Exchange.
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