Wednesday, March 24, 2010, 9:45 AM ET|Posted by Will RichmondLast week, the NY Times shared some details of "Google TV," the new set-top box Google is developing in partnership with Intel and Sony. The article provided a good outline, and now, based on additional information I've gathered, I'm able to provide new details on the box and also explain what it might mean.
The first and most important thing to know about Google TV is that it is not being positioned to induce users to "cut the cord" on their subscriptions to existing multichannel video programming distributors' ("MVPDs" like cable, satellite or telco) services. Or at least that's Google's initial positioning; whether it's genuine or really just a Trojan Horse game plan is another whole matter. For now anyway, Google is taking a "friend of the industry" approach, telling MVPDs that it's briefing that it is looking to complement their businesses by bringing the full Internet to the TV (this follows the same convergence theme as the new Kylo browser).
Google is contemplating an entirely novel strategy for its set-top box, seeking to insert it alongside the existing MVPD's set-top box by daisy chaining them together via HDMI connections. In other words, the MVPD's set-top's HDMI output would be connected to the Google TV set-top's HDMI input, and then its HDMI output would be connected to the TV. The authorized TV channels would still be delivered, but Google TV would collect data from the MVPD's set-top and introduce an entirely new UI for users to control their TV experience, to include searching and browsing channels. It would also add a host of new interactive web-type capabilities around the content.
Since the Google TV box would have a full browser and connect to the Internet via the user's WiFi or wired access, it would also bring all of the rest of the Internet to the TV as well, including the full breadth of online video (yes, that would mean one more thing for Hulu to block). My understanding is that on the whole, the Google TV experience is extremely impressive and well conceived. In short, it will get the attention of any MVPD executive who has a look at it and will certainly get them to thinking about how able - or unable - they are to deliver a similar experience themselves to their subscribers.
A key reason that Google is planning to insert its box this way is because it believes that in order to deliver a compelling Internet experience on TV requires a new web-based, and open platform. For Google that of course means Android, which it is vigorously proliferating on smartphones as well. Throw in Google's Chrome browser that it is promoting for online usage and you get a glimpse of how Google's multi-platform strategy comes together. While Sony would be making the box, you have to believe it will have Google branding on it, a first for the company in the living room too.
Though it's a given that Google views a new set-top in living rooms as a way to sell more ads and deepen its engagement with users, what has to be noted here as well is that had MVPDs' set-tops been more flexible and capable of running Internet apps in the first place, Google's challenge to get a toehold in the living room with a new set-top would surely have been a lot harder (i.e. who needs a new box when the existing one does some/most of what the new one purports to do?).
To be fair, the cable industry for its part has been working hard to enhance and permeate tru2way and EBIF to drive interactivity and web compatibility for a while now. However, the reality is that consumers have long derided the UI and navigation that even state-of-the-art digital cable set-tops offer (especially as compared to the ever-improving experience the web delivers). I was reminded of this last week subsequent to my post on cable/Hollywood's new movies-on-demand ad campaign. A number of people emailed to tell me that the cable VOD UI is so cumbersome as compared with, for example Netflix and TiVo, that regardless of cable's day-and-date availability and 1-box ordering convenience, cable VOD was too severely handicapped to ever truly succeed. This synchs with what I've been told privately by numerous industry insiders over the years - that using its set-tops to fully incorporate everything the web offers is futile.
All of this sets the stage for a fascinating negotiating dynamic between Google and the MVPDs. On the one hand MVPDs will be threatened by mighty Google's new set-top, which could well disintermediate them long-term - if you buy into the Trojan Horse theory that this is just Step 1 in Google's long-term drive to own the living room. As a result, MVPDs could simply tell Google to pound sand, leaving the company to sell its $299 (likely retail price btw) set-top at retail.
Such a retail-only strategy for Google is fraught with risk because the gadgetry-feeling new box is very unlikely to sell in the millions (let alone the tens of millions) in these recessionary times. Google needs to look no further than about 5 miles east down Route 237 from Mountain View to Alviso where TiVo is based to understand just how hard it is to gain widespread adoption of a new high-end box through a retail-intensive strategy. No doubt that volume-hungry Intel and Sony will lose interest in Google TV plenty fast if its adoption curve mirrors TiVo's (and don't forget TiVo has offered the highly compelling functions of digital recording and ad-skipping!).
The better strategy for Google - and the one it's trying to pursue, possibly first with DISH Network - is to get MVPDs to partner with it to deploy the Google TV boxes. In this model the new Google set-top would be leased by the MVPD to the consumer as the enabler of a new $10-15/mo (my estimate) "now-enjoy-the-full-Internet-on-your-TV" type of service. Some of you are no doubt scratching your heads at this idea and saying "Wait, MVPDs promoting 2 separate boxes in the home? - that makes no sense!" "And, oh by the way, no way is an MVPD going to sign up to service an Android Google TV set-top either!" and "The idea of letting Google get between the MVPD and its customers? That's like inviting the fox into the henhouse!"
I get all of this, and for the largest MVPDs (Comcast likely at the top of the list, btw), these issues - and plenty of others I can think of - would make a Google pitch of this sort a very tough sell. However, plenty of MVPDs have over-the-top's long-term potential cord-cutting threats already squarely on their radar screens. Therefore, a deal with Google that offers an immediate convergence play, backed by Google's powerful brand and resources, plus the potential for new subscription and ancillary ad revenue sharing opportunities, could look awfully appetizing. Throw in the possibility that Google could sketch a path to a 1-box solution, meaning the MVPD gets the set-top capex off its balance sheet once and for all, and this could tip the deal for some.
All of this is more than speculative ruminations. Though we don't know Google's exact plan for Google TV, when combined with all of the other OTT activity, it could well be the final straw for some MVPDs to see the inevitability of an impending paradigm-shift. This could force these MVPDs to reconsider their strategies for the tumultuous 10 years ahead. As I've said many times before, we needn't look any further than the demise of the U.S. auto industry - based on the strategic and product blunders they made 10 years ago - to understand how high the stakes are for MVPDs to get their current choices right. With Google TV underway, the Internet wolf might finally be at the subscription TV providers' door. Having gobbled-up many incumbent business models already, Google must be taken seriously.
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