This year’s Consumer Electronics Show in Las Vegas highlighted the recent increase in innovation within the TV industry. While certain individual developments such as HDTV video calling, video previews on your remote control, and ‘Wii-like’ control of the on-screen mouse via the remote control all piqued interest, a plethora of high-quality Internet-connected TV and 3DTV products captured significant attention. These products illustrated how significantly a consumer’s TV experience could change over the coming years (see also 'Is 3DTV ready?').
Like most previous TV innovations, 3DTV is a combination of device features and service distribution upgrades that drive incremental revenue for both manufacturers and platform operators. Internet-connected TV, however, is perceived by some as offering manufacturers a lot but platform operators relatively little. Feature differentiation is still seen as a key source of competitive advantage amongst device manufacturers: adding YouTube offers device manufacturers the potential to increase the retail price of the device by around USD100. Investment by manufacturers in proprietary TV software platforms that support applications (such as Samsung’s ‘TV apps store’ announced at the show) will surely be a feature consumers are willing to pay for. This in turn will provide manufacturers and application developers with new sources of revenue, in the same way the mobile industry has benefited from widget-based applications.
History, however, suggests that the industry faces some significant challenges in creating a vibrant Internet-connected TV application ecosystem. As widget frameworks evolve and proliferate, with each manufacturer championing its own products, there is a dramatic increase in the number of platform variants that service providers will need to support. For example, the BBC is already supporting 23 different device variants of its iPlayer in the UK market alone. As the number of platform variants rises, so costs of production increase proportionately, taking investment away from the content consumers really want.
Content producers have been here before: an identical situation developed in the mobile phone industry over the last ten years. Literally thousands of mobile handset models were created by top handset manufacturers, each with different feature sets and software frameworks. Producers and application creators were required to build different versions of their content for each individual model, and in many cases different firmware versions of the same model. Couple this with complex systems needed to identify the device software version and deliver the right application file, and the costs of creation and distribution increased dramatically. Many organisations were spending over 50% of their costs creating and managing variants rather than on the content itself.
Two years ago, Apple transformed the mobile industry as it stepped into this market with the iPhone/iTouch selling over 60 million devices worldwide as at January 2010. These devices all operate on a single unified software platform, enabling content creators to focus solely on content. As a result, major content producers such as ES, Gameloft, and Glu have focused efforts on these devices, delivering fewer games to the fragmented mobile market. It simply makes greater economic sense.
Given this precedent, we foresee three possible outcomes for the TV industry:
- One or more manufacturers delivers a compelling, unified, vertically integrated Internet-connected TV that does for TV consumers what the iPhone has done for mobile users. To do so, that manufacturer will need to secure rights to core content that will deliver sufficient sales volume to underpin the ecosystem, create a stable, managed software platform on which developers can create new applications economically, and invest significantly in service marketing to raise consumer awareness.
- TV broadcasters (with content rights) and platform operators (with device innovation) may combine to deliver an effective platform, e.g. projects such as Project Canvas. In this scenario, it is the broadcasters and platform operators that will take the lead to deliver the above ecosystem characteristics.
- A third and highly plausible scenario is fragmentation and incompatibility in TV software application platforms. This in turn will lead to limited scale, high costs of application development and consumer confusion, leading to low revenues for content producers and service providers alike.
The mobile industry has been here before and both application developers and consumers have suffered as a result. Will TV and set top box manufacturers learn the lessons of the Apple iPhone and develop strategies to deliver this vision? Will key players in each market grasp the opportunity for innovative content creation broadband-connected TVs present? Or will device fragmentation prevail driving up costs and stifling innovation? Those are key questions that will define this first era of connected TV.
Analysys Mason works with players across the value chain in identifying appropriate strategies and implementing optimal solutions to maximise value in the future TV market. Our experience of working in mobile, PC and TV content creation, aggregation, and distribution has enabled our clients to realise maximum value from consumers in design and delivery of next generation content propositions and maximise returns to shareholders.
For more information, please contact Mike Grant at mike.grant@analysysmason.com.