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James McQuivey, VP, Principal Analyst, Forrester Research, moderated a panel about Google TV at the Streaming Media West conference in Los Angeles. Google TV is in a race to own the living room of the future by giving consumers an easy and fast way to search content, navigate television channels, and bring online video to the forefront of the TV experience.
Combatants intent on owning your living room experience include your friendly neighborhood cable company, Google (Google TV), Apple (Apple TV), Microsoft (Xbox), Sony (Playstation), Boxee, Roku, every flat screen TV manufacturer, and even Western Digital (WDTV), the hard drive maker.
I sat down with James after his session to talk about the boob tube, which will soon be the epicenter of the lean back AND lean forward home entertainment experience, allowing us to watch (and listen to) everything from basic and premium cable channels to on-demand video, Hulu, Netflix, Blockbuster, Pandora, TiVo, Youtube, Blip, and Vimeo, access home videos and family photos from network enabled hard drives in the home, and socialize with our friends around the content we share and consume.
While Google does not try to portray itself as a threat to cable and satellite operators, Google TV, and its competitors, will soon challenge the traditional masters of the living room TV experience.
Google TV doesn’t come cheap. The Intel chips required to run Google TV are in the $40 – $50 range, which is in stark contrast to the $5 chips in the typical TV or cable Set-top box. But once someone has a Google TV box, the things you can do with Google TV make the cable box experience seem like an antiquated Atari gaming console in comparison.
Cable boxes just don’t have the computing power to do much of anything that requires advanced processors and memory. And cable operators aren’t about to roll out more expensive, powerful boxes any time soon. Google TV, and similar services from Boxee and Apple, will soon replace the cable program guide with an improved user interface and a breadth of features to make searching, finding and consuming content a joyful Television experience, regardless of where the content comes from (Cable, Web, DVD Player, TiVo, local hard drive). As shown below, users can search for their favorite programs using the Google TV search interface and get results that include a variety of platforms and devices.
For the right to dig up roads and lay miles of cable in communities around the US, cable operators have to abide by very strict consumer protection regulations, enforced by the FCC. Cable operators are not allowed to use household data and share that data with advertisers.
Google’s hands aren’t tied in the same way. In a Google TV world, addressable advertising is an unregulated reality. Google can collect personal information about people (and anonymize it of course!) in a way that is prohibited to the MSOs. The MSOs have talked forever about being able to deliver targeted advertisements to the household level. We’re still waiting. Google TV, on the other hand, is capable of providing such a holy grail scenario to brand advertisers and the broadcasters that attract eyeballs on behalf of advertisers.
You can put money on the fact that at some point Google will start to integrate advertisements into the search process. For example, as I search for Burn Notice or Entourage, Google will display an ad based on what I’m searching for and who I am, in real time.
My guess is that at some point we’re going to see an inflection point in the relationship between networks, such as ESPN, FOX, TNT, MTV, and Cable and Satellite operators, such as Comcast, DISH, Time Warner and Cablevision. Historically, the MSOs have been the primary delivery channel to get ESPN programming to massive audiences. And the networks had enormous interest in earning their per subscriber carriage fees from the MSOs.
ESPN costs distributors more than $4 per subscriber. The Comcasts of the world are willing to pay this carriage fee because they have exclusivity on the content in the markets they operate in. However, at some point, ESPN will renew its contract with a distributor, such as Time Warner, and decide that it no longer wants to provide exclusivity, because it can make $1, $2, $3, $4 per subscriber through other channels – the ESPN.com Web site, Google TV, Youtube, Mobile Operators, iTunes, FLO TV. At that point ESPN may be willing to negotiate out the exclusivity part of the agreement with MSOs, and be willing to take less money per subscriber, say $2, because ESPN can make the lost revenue up through all the other channels of distribution and monetization that are available to it.
Maybe the ESPN Insider fee goes up and subscribers also get the live broadcast. Maybe I can subscribe to ESPN for $4 per month on an a la cart menu right from my Google TV dashboard, which already has my credit card on file so that the process is a 1 click experience to activate, on a channel by channel basis, or even a show by show or episode by episode basis, anything I want to watch.
Anyway, Google TV may not be the answer. But something like it will be. And we’re about to reach a tipping point where broadcasters grow some balls and decide to play chicken with MSOs, the hand that currently feeds them. The broadcasters that win this staring contest will have free reign to aggressively explore multiple revenue models without fear of upsetting the Cable Co’s.
And then we’ll really see some innovation.
