When It Comes to Sharing in New Entertainment Revenue, Glass is Last
Andy Tarczon, Founding Partner
May 26, 2011
TDG’s newly released report, OTT TV Platforms, 2011 – Forecasts & Analysis, predicts that net-ready or “smart” TVs will rapidly become a primary platform for over-the-top (OTT) TV delivery. This forecast is seemingly great news for TV manufacturers who have long been living on razor-thin margins. The idea that their new platforms can enable new video services and applications means potentially lucrative recurring revenue sources. Sadly, much of that is an illusion. When it comes to sharing in new entertainment revenue, unfortunately glass is last.
Today’s PayTV business models see money flow from the consumer to the operators, the programmers, all the way back to the cameras creating the work. Revenue bypasses the television manufacturer. Even in the digital models dominated by Netflix and iTunes, revenue flows backwards leaving television manufacturers standing at the end of the line (the wrong end).
So smart TVs and the new experiences they help create seem like logical entry points for TV OEMs to gain access to that revenue, be it in the form of purchases from app stores, pre-loaded software deals, or even advertising within the embedded guide. There are some key challenges, though, that must be addressed if this approach is to be effective.
Fragmentation is not a strategy
“Build an app store and they will come” is the strategy some TV makers are adopting, spending countless dollars to create their own platforms and app stores, and fragmenting the market into silos of branded, incompatible solutions. The belief is that the best platform will win, but the reality is that it creates an environment in which developers and content creators must weigh the potential value of each device in terms of market share and potential audience. For example, Streaming Media put out a comprehensive guide to the Internet Set Top Box (iSTB) market showing just how convoluted and confusing this space has become.
As with iSTBs, net-ready TVs are a category of OTT TV platform. In reality, however, there are actually a wide variety of disparate platforms that fall under that common moniker, each made by a different OEM with its own proprietary spin (e.g., Samsung, LG, Panasonic, Sony, Google, Apple, and on and on). As well, there are numerous iSTB platforms trying to license into the television space (e.g., Boxee, Roku, and others). With each manufacturer offering a platform that is incompatible with the others, consumers end up confused because the product category is so fragmented.
Standardization is not only warranted but will win out in the end. Fragmentation has never gained long-term support. Just ask Sony (Beta), Toshiba (HD-DVD), Amiga, and now Nokia (Symbian).
Can GoogleTV and iTunes Unify the Market?
Much hype surrounded the initial launch of GoogleTV, which unfortunately failed in its first iteration. Rumors of Airplay licensing now swirl in the industry. However, when seen through the eyes of the television manufacturer, these are environments that enable transactions and revenues to occur on someone else’s platform, similar to pay TV where revenue bypasses the TV maker. Apple and Google are not companies known for sharing revenue, leaving manufacturers remaining as “dumb pipes” of video. Most of the manufacturers are well aware of this challenge and both platforms are meeting resistance.
Short-Term Payments Are Not Optimal For Long-Term Recurring Revenue Opportunities
As TV manufacturers look for creative ways to increase revenue and profitability, some are going so far as to include specific OTT service buttons on their remote controls allowing easier service use and stickiness for those OTT TV services. Netflix basically paid manufacturers to put a button on their remote controls, and this week Wal-Mart’s Vudu service announced it would be adding buttons to Vizio and other TVs.
These payments to TV OEMs may be direct cash or valuable co-promotion (wanna bet Wal-Mart will heavily advertise these new boxes?), but they do not involve ongoing revenue shares with the manufacturer. No. They are merely short-term cash or payments for new client acquisition.
Finding Common Ground
I recently posed an interesting question to CE manufacturers dealing with this issue. Are they better off building proprietary platforms that cannot “talk” to one another, or would they be better off working with their competitors to create a common platform that met the goals of entire value chain? As usual, the question was met with a mixture of emphatic rejection and thoughtful nods at the possibility, yet no OEM was willing to agree publicly to the idea.
Industry efforts like UltraViolet will soon permit content sharing across disparate platforms, but the challenge is which TV OEM will be the first to move in this direction. It’s been done before (i.e., acTVila in Japan), but could such a play work here in the U.S.?
Let’s think about these issues through the eyes of the various players:
-
Developers must prioritize platforms and development resources. Netflix may be at the front of this struggle, as more than 200 specific platforms now support the streaming service. The company recently shifted its strategy from developing clients for each unique platform to building its own API and applying resources to the validation process. If Netflix isn’t developing for every platform, how can we expect smaller players to do so? Again, market fragmentation hurts everyone.
Key to market growth is the creation of common platforms that allow all parties - developers, programmers, and even PayTV operators - to extend their services in new and meaningful ways. Until the TV makers accept this reality and come together to enable such a platform, they will make little progress in winning a share of the recurring entertainment spend.
ShareThis