EIS Mini Project: Google TV

Transcription

1 EIS Mini Project: Google TV Jordi Benito Aguilar Diego Granell Nebot Telma Tanaka de Moraes 11/October/2010

2 EIS Mini project: Google TV 2 Introduction Television is one of the major mass media of the United States (99% of American households have at least one television and the majority of households have more than one 1 ). Nowadays, all you need to do in order to watch TV in your home is to buy a TV set, to choose a content distribution type, to install your TV and it is done. It seems quite simple, but actually the television ecosystem is very complex. Recently, a lot of changes in the television ecosystem are happening in a way that will definitely transform the concept of watching TV. Producers TV Networks NBC, ESPN, HBO System operator Air, cable, satellite Users The dominant player in the TV ecosystem is the system operator and in order to watch TV, Americans can choose among 3 types of distribution: (1) broadcast television ( over-the-air ), (2) cable television and (3) satellite television. The first one is free for those who are in a broadcast area and the three major players are NBC, CBS and ABC. Their revenue is based on: (1) advertising revenues and (2) some funding received by cable and satellite companies for the right to include the network in its channel lineup. Cable television is definitely the most important one, since more than 50% of all American homes subscribe to basic cable television services, although most cable viewers in the US are in the suburbs and tend to be more middle class. Cable TV systems charge a monthly fee varying according to the programming, which can be basic, premium or a la carte programming. Premium cable network scramble or encrypt their signals so that only those paying additional monthly fees to their cable TV system can legally view them (via the use of cable box or converter). Because their programming is commercial-free (except for promos in-between shows for the networks' own content), these networks command much higher fees from cable TV systems. 2 Satellite television offers programing offers programming similar to cable TV. Users of satellite television receive the signal by a satellite dish and set box. In many areas of the world it provides a wide range of channels and services, often to areas that are not serviced by terrestrial or cable providers

3 EIS Mini project: Google TV 3 Rank MSO BasicVideoSubscribers 1 Comcast Corporation 23,212,000 2 DirecTV 18,760,000 3 Dish Network Corporation 14,318,000 4 Time Warner Cable, Inc. 12,706,000 5 Cox Communications, Inc. 1 5,038,000 6 Charter Communications, Inc. 4,716,000 7 Verizon Communications, Inc. 3,203,000 8 Cablevision Systems Corporation 3,067,000 9 AT&T, Inc. 2,504, Bright House Networks LLC 1 2,222,000 Top 25 Multichannel Video Programming Distributors as of Jun (1 25) 4 More recently, streaming media is been presented to end users as an alternative system operator, by broadcasting through internet. The service provided by Hulu or Netflix are good sample of this. These distributors can charge a monthly fee (Netflix) or base their revenues on advertising (Hulu). Google TV 5 is a software and hardware platform for set-top boxes or smart HDTVs based on the Android operating system and co-developed by Google, Intel, Sony and Logitech. The system will include an open-source platform that will enable developers to create widgets for the system. It is anticipated that Google TV will have fewer user restrictions than current systems. The Google TV platform is expected to allow users to access any website from their television, with particular support for services such as YouTube, Twitter, Netflix, and Hulu. 6 Producers TV Networks NBC, ESPN, HBO Internet TV Google TV, Apple TV Users Over 800,000 US households have already scaled down cable TV subscriptions, as they now seem to rely almost exclusively on online TV services, according to an April report by the Convergence Consulting

4 EIS Mini project: Google TV 4 Group. The Toronto firm predicts that this figure could reach 1.6 million by the end of The Yankee Group estimates that as many as 1 in 8 consumers will unplug or downgrade their paid TV service by April, as they take advantage of the over the top options. 7 It is clear that this move represents a new threat to cable companies but we cannot forget that most of the cable companies are also the internet provider. What would be Comcast response to Google TV? Is limiting the internet speed an option? What should Google do in order to minimize the consequences of this new competitor s reaction? In addition, it is still not clear what this more represent to Netflix and Hulu. Some people defend that Google TV will benefit them, since it will give them access to more clients (now in the living room). On the other hand, internet television could be a major threat because TV networks would build Google TV software applications that provide watchers directly access to content. 8 This Google s new initiative could also represent an attack to Apple TV that is offering a similar service and Microsoft since the Android and Chrome will be the main operation system and browser at Google TV. Ecosystem The Google TV Partnership The Google TV project has been developed in close collaboration with a network of partners including leading players in the retail, consumer electronics, processors, peripherals, satellite TV, and computer software industries (Best Buy, Sony, Intel, Dish Network, Logitech, Adobe). Together, this innovation ecosystem operates as follows: Currently, Sony produces smart internet TVs and a set top box with a Blu-ray Disc drive. In the near future, these products will include Google TV s software package (Android and Chrome) and Intel technology built-in. Google TV uses the Android 2.1 operating system, Chrome browser, and Adobe s Flash 10.1, which will be integrated into the Chrome browser. Adobe s Flash Player 10.1 will support hardware-accelerated video playback and deliver smooth, HD (1080p) quality video on Google TV devices. Logitech will make set-top boxes for users who want to use Google TV with other televisions. The Logitech s set-top boxes will connect users TV through an HDMI port and a controller (which includes keyboard capabilities). It is expected to include 4 GB memory and Dolby 5.1 surround sound. To make the product work, the end user will need a TV with an HDMI input and a broadband internet connection. And in order to maximize the advantages in digital content, the user might need a satellite or cable settop box with an HDMI output as well

5 EIS Mini project: Google TV 5 On the other hand, the DISH Network through its subscription system will provide the premium content for Google TV s users. Some of the features on the Google TV home screen will only be unlocked with DISH Network subscription. Also, two other players, Intel and Best Buy are involved in the partnership. Intel s Atom CE4100 processor will be used in the Logitech and Sony products, to power Google TV, and Best Buy is the first retailer for Google-TV devices. Content Offering In terms of content, Google TV will come pre-loaded with Netflix, Twitter, CNBC, Pandora, Napster, NBA Game Time, Amazon Video-On-Demand and Gallery. In addition to this, Turner Broadcasting has optimized its most popular websites for being viewed on Google TV, including TBS, TNT, CNN, the Cartoon Network and Adult Swim. NBC Universal will now put CNBC Real-Time, an application which lets you to track favorite stocks and news feeds, onto Google TV as well. HBO has also expressed it will offer a few hundred hours of content through HBO Go subscriptions and the National Basketball Association has built an application called Game Time that lets viewers follow game scores in real-time and view highlights. Google TV will also have news sites such as The New York Times and USA Today and music sites like Vevo, Pandora and Napster. Although it might be considered an excellent start in terms of content, there are still many omissions in the TV content side. There is no content from Disney s ABC, Viacom s Paramount or Fox, the biggest producers of leading US TV series, and there is not much content from cable networks either. One report shows that Google is in talks to offer Hulu's paid-subscription service on Google TV. Hulu is owned by NBC, Disney and News Corp and can bring a much more convincing amount of content. Strategy As shown in Exhibit 1, the firms being part of the network of partners are aimed at increasing their share in the new smart TV market. Their strategic objectives are totally aligned with the entire alliance s goal of creating a unified application platform for smart TVs. While Google wants to set the standard, definitive operating system and browser for the smart TV, each one of the others players wants to add value and thus differentiate it s current offering, attract the early adopters, boost sales in the smart TV segment, and maintain their leading position. Sony s goal within the Google TV alliance is to be pioneering the smart TV sector, attract early adopters and maintain its leading position as a premium TV provider. Next, Intel wants to be at the heart of the TV evolution, delivering processing power and intelligence for world-class HD video, audio and advanced graphics required for the new smart TVs. Logitech wants to be the exclusive provider of Google TV s peripherics. Additionally, DISH networks aims to differentiate its service offering and reposition itself in the internet TV market. Finally, Best Buy wants to take advantage of being the first, exclusive seller of Google TV s devices.

6 EIS Mini project: Google TV 6 However, this alliance lacks of strategic partnerships with internet providers and the major broadcast networks. As shown in the Exhibit 2, in the current market, the only internet technology able to support HD quality video on Google TV devices is cable internet, and this is highly controlled in the United Stated by Comcast and other cable providers. In the special case of Comcast, it is a direct competitor of Google TV through its cable TV offering. Since Comcast might see initiatives like Google TV as a competitive threat, especially once satellite TV provider DISH Network entered the Google TV alliance, Google TV might expect retaliatory actions from Comcast in order to lower Google TV s potential to attack its profit sanctuary within the traditional TV pay industry. In addition, as mentioned previously, the four major broadcast networks CBS, ABC, NBC and Fox still haven't embraced Google TV. The major broadcast networks and other powerful players might fear that Google TV could incline the balance of power to Google. Risks Initiative risk Very Low Google TV has been developed and is currently ready to be launched. At this point of the game, Google has already developed 95% of the product and is very unlikely that Google have any problem to finish the product. Co-innovation risk - Low As we have seen in the ecosystem, Google TV needs several players to develop their products so that Google TV offers its complete value proposition. To minimize the co-innovation risk Google partnered with some key top companies to assure all the technology are ready for the launch. The necessary technologies: Smart TV: Google TV needs a TV with a mini computer integrated (chip and memory) where the Google TV platform can work. Google partnered with Sony, Intel and Logitech to develop TVs with the necessary capabilities. Sony and Intel developed a Smart TV with access to the internet, and Logitech and Intel developed a Set Top Box (STB) to make the current TVs smart. Applications: Google TV envisions being the standard platforms for TV. This will only happen if Google is able to attract developers that want to create products for this platform. Google will leverage the success of the Android OS for mobiles. Google TV also uses the Android OS and there are already thousands of apps developed for it. However, as has happened with the IPad, this apps need to be updated for a bigger screen with higher resolution and it will need some work from developers. So far, the main applications to launch the platform are already in place as Netflix, Hulu or Pandora are already offering its services to TVs through external devices such as Blu Rays and Game consoles like Xbox, and through the Smart TVs already in the market. Google will need to incentivize developers to invest

7 EIS Mini project: Google TV 7 resources to develop applications for the android platform instead of other platforms like apple or zune (Microsoft). High speed internet: Currently companies like Netflix are succeeding in internet TV because internet is fast enough to stream in standard video quality, but it is uncertain whether the current internet network could handle the capacity to offer video streaming as the dominant TV channel. Although the current technology is ok to launch Google TV it may be necessary to upgrade the network. In addition, as we discuss later, is very unlikely that internet providers like Comcast will like their customers to switch from cable TV to Internet TV. Adoption Risk - High This is the main risk Google TV is facing. Many companies are trying to set a standard for video streaming and we have seen several attempts to dominate the living room entertainment. Game consoles attempted with the latest generation of XBOX and Playstation. Apple launched apple TV, and Microsoft have the Zune. The adopters for the Google TV to succeed are TV manufacturers, retailers, content providers, content producers, developers and customers. We have seen that many of these adopters are also part of the co-innovation risk. This is happening because is not only important that they develop the technology and products, but is also important that once develop it they use it with Google TV. Because there is high competition on having the standard platform for TVs, these players have the option to take their products to other platforms like Microsoft or Apple. The most important adopters are the content providers, either TV or applications providers. Google has partnered with Dish to provide the Dish content through the Google TV platform. Although this is a good move for Google because it will acquire a solid customer base, Dish is not the market leader and there are serious concerns that big player like Comcast, Direct TV or Time Warner will adopt it. Google TV opens the platform to everyone. That means that channels no longer need companies like Comcast or Direct Tv to reach the customers. As an example, we are seeing that channels like CBS or TNT are increasing the content offered through its website. With Google TV, they will be able to provide its content without any intermediary (as they do know through the website) while reaching a much higher population that their website reaches. This poses a real threat to the current business models for TV providers. Nowadays a customer pays a flat fee for a bundle of channels, but the trend in the industry is towards a customized offering. For example, offering on demand service. Google TV will speed up this transition because it will enable channels and content producers (like HBO) to offer their products directly to the customers and the customers will only pay for the channels they really want. Besides, free channels like CNN, CBS, or TNT will be completely free and the customer will pay nothing for them, as it happens today if you go to their website. Is logical to think that Direct TV or Comcast will try to adopt it as late as possible, and only the threat of being wipe out of the business will force them to adapt into the new ecosystem and find their value proposition under this new conditions.

8 Technology EIS Mini project: Google TV 8 Companies like Comcast or Time Warner are a major threat for Google TV because these companies are the major internet providers and also TV content providers. The industry agrees that the future is the Internet TV because of its flexibility and enhanced capabilities that it will introduce. What the industry doesn t agree is the timeframe where this transition is going to happen, and this is the question that companies like Comcast and Time Warner should be asking themselves. Should they fight with Google TV or should they embrace it? Is the industry here? or it s here? Internet TV Cable/satellite TV Time Google TV needs high speed and high capacity internet because video streaming is very GB consuming. We are starting to see like these companies are moving towards putting a limit on how much GB you can download, to avoid network saturation. For example, Comcast put a cap of 250GB per month in its internet offering in West Lebanon. This is a major threat for Google TV because a competitive response from Comcast (or Timer Warner) could be to segment the market by GB downloaded, and charge a premium for high capacity internet users (Google TV customers) as a barrier for customers to change from Cable TV to Internet TV. However, Internet providers are facing a threat to the internet business with the deployment of LTE9 (equivalent to 4G wireless internet). This new technology will be able to be a substitution of DSL/cable as it will be able to achieve speeds of 5 to 12 megabits per second, equivalent to the speeds that are currently offered by Cable/DSL. However, there are serious doubts that a wireless network could handle the capacity needed to stream video as the dominant TV channel. This means that a wide adoption of internet TV can help DSL/cable providers to have a competitive advantage over LTE and protect its business. So, the question for Google is when will Comcast or Time Warner need to adopt Google TV to protect its internet business? Will these companies fight for both businesses, TV and Internet, or they will do a bold retreat in TV to focus the fighting in the internet business? Some people could argue that internet providers like Comcast should deploy optic fiber because its performance is way beyond LTE or Cable, but this deployment is so capital intensive that ROI is still too negative, which makes optic fiber a technology to compete in the future rather than today. 9

9 Technology EIS Mini project: Google TV 9 LTE Optical Fiber Cable/satellite TV Time Other key adopters are the TV manufacturers and retailers. The company who gets its platform installed in the majority of the TV will be the one who set the standard. It has been a good move to partner with Sony as they are the sales world leaders in TVs and that means that Google TV will reach a substantial amount of customers. However, other companies are developing smart TV and we still don t know who is going to be the market leader in smart TVs. Besides, smart TVs are just starting to arrive into the market and it may take a long time (maybe more than 2 or 3 years) to be de dominant TV in the market. Therefore, for Google TV to succeed they need their STB. They partnered with Logitech to offset the coinnovation risk, but the price of $ for this STB may have a big effect on sales and the adoption of Google TV by the customers. Competition in the Google TV STB market would be good to have a low price, but the partnership with Logitech may make it difficult. Another good move has been to partner with Best Buy to assure that products with Google TV will have shelf space in the US leader electronics retailer. Content producers, small content providers (i.e. Netflix or Hulu) and app developers are the ones who would benefit the most from the adoption of Google TV. However, Google TV is not the only offering in the market and content producers can also offer its products through Apple TV or through the internet. Google advantage is its open source and gratuity, and therefore if Google gets to a critical mass of customers, the adoption by content producers and app developers would be fast. In addition, Google has succeeded introducing the Android operation system, which makes it easy for app developers to adapt their current products to this new platform that uses the Android OS. Finally, but not less important, the customers need to adopt it. It may seem easy for customers to adopt it because of the popularity of smart phones, which essentially are offering the same for small screen devices. However, TV customers are much more than these tech savvy customers, and Google will need to reach to this other families who are not into this new world of the smart phones. This is why Google has partnered with Dish. Dish provides an easy distribution of Google TV to a big customer base. But for 10

10 EIS Mini project: Google TV 10 Google TV to succeed would need to reach all kind of customers, either partnering with Comcast or Direct TV (which as we discussed before is not likely to happen in the near future) to offer its services through Google TV or having a big marketing campaign. Google will need to find a way to distribute its product to the whole market, because waiting for the smart TV to be the dominant player may be exposing the project to fail in front of new competitors that are not still in the market. Competitive Landscape Competitive landscape in the internet TV space is much complex than it might seem. The players that are ahead in setting a standard platform (Apple, Google, Microsoft) for the TV have different interests. This is because the fight is not only in the TV market but also in the internet and computer space. We have seen Google, which main business is the search engine, developing OS and internet browsers. Now they want to win the TV space to assure the presence of their products, mainly the search engine, in the huge TV market. On the other hand, Microsoft has developed a search engine although their main business is the operating system. Now Microsoft sees the Google OS as a threat to their dominance of the Windows and wants to win the TV market to maintain Windows as the standard OS. Also, Apple has succeeded with the iphone and itunes. Now apple sees the TV as the perfect platform to offer ITunes to their customers. Google and Apple are one step ahead of Microsoft in developing a TV platform, because they have successful products in the mobile market and are using the capabilities acquired to develop the TV platform. In addition, they are just introducing its TV platforms, Google TV and Apple TV. Microsoft has been late to develop their mobile OS and phone, which is being lunch this year, and still has to develop a platform for the TV. But Google and Apple now that Microsoft will fight back. If this is not challenging enough, Google TV is changing the TV provider ecosystem and is probable that companies like Comcast or Direct TV will pull their lever to stop Google, or any other platform, of succeeding. Especially important is the threat of having Comcast against the project, because as we said before it also provides internet and could change the business model towards charging premium prices to users with high usage of internet, Google TV users. Conclusion The Google TV represents a big first move to set the internet TV standard. Despite Google has been successful in reaching strategic partnership with some of the leading players in the internet TV s value chain, there is still a high level of uncertainty because this first move might change the competitive landscape and is also proposing a completely new business model of internet and television. At the current moment, the Google TV partnership still lacks two important parts of the value chain: Internet and TV content. First, since the four major broadcast networks CBS, ABC, NBC and Fox still haven't supported Google TV and might want to wait until one of the proposed TV platforms (Apple TV or Google TV) wins

11 EIS Mini project: Google TV 11 the battle; Google should take the initial steps in order to add more content. Although a partnership with Hulu and Netflix in the short term might bring a much more convincing amount of content, we strongly believe that Google TV will be adopted by the needed critical mass according to their ability to attract the main cable/satellite TV networks. Second, Google TV needs an internet technology able to support HD quality video on Google TV devices to survive. Although it s expected that the upcoming 4G technology be able to meet those requirements, nowadays cable internet represents the only internet technology able to support the Google TV s offering. Thus, Google should partner with phone internet providers such as AT&T and Verizon in order to develop the 4G technology and its adoption. When 4G is ready, the home internet competition will be higher and then internet cable providers will not be able to increase the price of internet access. By taking this step, and also building a critical mass of users, Google TV might convince cable internet providers (Comcast and Time Warner) that Google TV is the future mainstream internet TV platform, and will then have much more bargaining power with Comcast to partner with them and avoid a retaliatory action that might include a internet price increase. Consumers that want basic channels Tech Savvy Current Cable/Satellite TV customers Laggards Google TV features and content addresses this part of the market Google TV needs to add more content to have a wide adoption

12 Exhibit 1: The Google TV Partnership Google Sony Intel Logitech DISH Best Buy Experience Internet Online Advertising TV Market Home Entertainment Processors Peripherics/ electronics Satellite TV provider TV users TV Channels Retail Intents Capabilities Markets Set the OS standard Increase user volume R&D Browser & OS Online Advertising New customers Increase online time/ user Get early adopters Maintain tech leadership Premium price R&D Strong brand/quality reputation High End customers Early adopters Tech savvies Increase sales Exclusivity within Google TV s devices R&D Brand equity New smart TV market Increase product offering Low cost/good quality New smart TV market Differentiate offering Reposition business model Content Customers Increase customer base Maintain retail leadership Sales force Marketing Shelf space Customer Service Early adopters 11/October/2010

13 EIS Mini project: Google TV 13 Exhibit 2: Google TV s ecosystem map