Cable MSO Challenges – Internet TV

Sep 22, 2013

Stuart Smith

Stuart Smith

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As part of a continuing effort to examine the challenges that Cable MSOs face, this post will take a look at the emerging role of Internet TV and its potential impact.

The traditional silos of Internet, TV and phone have dominated Cable MSO marketplace for some time now. For all intensive purposes, consumer choices for TV are generally limited to cable, fiber or satellite providers. The question is, how will this change with the advent of Apple TV and Google TV.

What is Internet TV

Internet TV is essentially TV on demand that is chosen from an archive of content. It differs from standard cable TV because consumers only pay for the shows they want to watch and are not compelled to choose between subscription packages that may include channels of little or no interest.

Early entrants into the market such as Hulu enabled PC users to stream video content to their computers. Content could then be viewed on a TV provided that their computer had the appropriate video card or Digital Living Network Alliance (DLNA) compatible device. This differs from the new Internet TV offerings.

New Internet TV ventures have developed the equivalent of the cable box that enables content to be watch directly on the TV. These new TV devices allow consumers to have the choice of watching content (TV, movies, videos etc.) and/or accessing the Internet as well as other applications directly on their TV without having to go through another device first. The battle is for control of the living room.

The Two Internet TV Contenders

There are two big names that have entered into the Internet television arena. It should be noted that they are very different companies. Apple makes its money from hardware such as the IPhone, IPads and PC’s. Google is an Internet titan that relies on collected consumer information to generate targeting advertising revenue. For both companies, television/content is NOT a core product, this is important distinction between Cable CPE MSOs and Internet TV providers.

Apple TV

The first is Apple TV, which launched its first device in 2007. Despite selling a few million units, Apple has not made significant inroads in Cable MSO markets and has posed little threat. The reasons for the lack of success can be attributed to several factors including but not limited to:

  • Lack of content. Content can be expensive, the most popular TV shows or cable channels like ESPN are expensive because of the advertising dollars they can command. As with movies, some consumers can wait to watch movies or their favorite TV shows, for those that are unable to watch their favorite programs DVRs and other recording devices still play a significant role.
  • Difference in generations. Generation M (12-24 year olds, those who grew up with the internet) is too small and does not have the purchasing power of older generations. Many in the older generations are just fine with their current ability to view TV and have Internet separately.
  • Economic conditions. New Internet TV devices cost several hundred dollars. This is a lot of money to have a fancy box sit unused or go obsolete within a couple of years.

“TV makers are only beginning to make the Internet available on television sets. The results to date: not good. They’re so lackluster that more than a third of people buy them, bring them home, and then ignore the connected features of the TV altogether”
Source: James McQuivey, Forrester Research

Google TV

Google TV is expected to launch in the Fall of 2010. The Google TV product differs from Apple TV as Google TV is a software platform for set-top boxes and HDTVs based on the Android operating system and co-developed by Google, Intel, Sony and Logitech. The set-top box can be purchased separately or prebuilt into SONY TVs.

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“Its more open approach could yield a number of major partnerships beyond launch deals with Sony and Logitech, and it can even play nicely with pay TV’s set-top boxes. Logitech’s Google TV box communicates with your cable or satellite provider’s box to pull in its information and display it using the Android interface.”
Source: Sean Portnoy, ZDNET

It is possible that Google TV can do better than Apple TV because it is an open platform that will ultimately allow a greater number of uses. On the other hand, Google TV faces the same challenges listed above for Apple TV. Another issue that Google will face is the rising feeling among consumers for greater privacy. Google is the world’s largest gatherer of personal information. Expect some concerns when they start tracking viewer statistics also.

The one impact Internet TV will have is to force Cable MSOs to bring more advanced non-proprietary set-boxes into the marketplace faster. To ignore consumer interest in this area is to open the door wider for companies like Apple and Google.

The New Issues of the Age

As mentioned before, content is the key to success for TV/Video/movie streaming. The best content gets the most advertising revenue. For Google and Apple TV to be successful they will need to make major acquisitions or partnerships to obtain content. Cable MSOs have already recognized this. For example; Comcast’s purchase of NBC from GE was in part a move to capture content.

Content will not be the only issue to be battled for. Cable MSOs still control the vast majority of broadband access. Access rights to content is going to test the concept of Cable MSO net neutrality over and over. Ultimately the consumers will dictate the end result not the cable MSOs or any other industry.

Where will this all lead? My guess is the next decade will see a huge increase of merger and acquisitions across cable, telecommunications, hardware manufacturers and software companies to produce a few one-stop-shopping solutions for broadband, TV, Wi-Max and telephone that the TV becomes the most important communication tool in a home.

Finally, given the governments interest in net neutrality, it is likely that the government will pay close attention to possible monopoly forming mergers and acquisitions.

Stuart Smith

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