Thursday, 30 August 2012

Telly Addicts Part 3 - Kicking Ass, Taking Names

The runners and riders

In the last week or so I've been thinking about the coming TV war. In my first post I laid out why the dull world of TV is actually one of the most exciting frontiers in consumer tech. In my second post I thought about what is the "Right Stuff" it would take to win, which to reiterate is:

  • Broadcast content
  • An app ecosystem
  • A physical presence in the home
  • A direct line to the consumer (and their credit card number)
  • A great user experience
  • Being able to sell at the right price point (preferably zero up-front)

So now it comes down to kicking ass and taking names, with some thoughts on the individual players and their chances of success:

The eco-system monsters

The first bucket at the super-charged challengers, the eco-system monsters who rule software land and who would like to invade TV-land. They generally have great brands, great user experience and strong app eco-systems, but little track record of executing in the mucky world of broadcast services and a critical lack of TV content.

Google
  • Strengths: Google gives good App and (surprisingly for an avowedly engineering-led firm) good UX.  One last hidden strength which people never seem to talk about is that when they bought Motorola Mobility they also picked up its set-top box business which has a lot of nous about dealing with broadcasters (something sorely lacking in the initial Google TV launch). Recent press reports suggest they are trying to sell this unit off, but if they're smart they make sure they keep some of the key knowledge and DNA within Google.
  • Weaknesses: Google TV has been a bust (so far) and its hostage to its hardware partners (maybe this will change - interesting to see Google testing the waters with the Nexus Q). The big problem - and something which has really hurt Google TV so far - is that they do not own the broadcast content. 
Apple
  • Strengths: Apple's obvious strengths are its app ecosystem and its UX chops. No one understands what consumers (really) want better than they do. They also have a great consumer brand, and are the one company which has a real experience of coming in and disrupting existing markets - crucial during a period where many incumbents will be held back by the Innovator's Dilemma.
  • Weaknesses: However its glaring weakness is its lack of broadcast content. What's worse is having seen how the marmalised the record labels, the broadcasters who own the content are incredibly suspicious of sharing anything with Cupertino. Also Apple has historically made money from hardware sales, so it will be a challenge adopting to a low cost/subsidised model (although they have been willing to pitch Apple TV cheap, and have telcos play the subsidy game on iPhone).
Microsoft
  • Strengths: XBox is Microsoft's hidden weapon which gives them an internet-connected trojan horse into millions of households. It gives them a vast content catalogue of games to sit alongside MSFT's existing PC and (nascent) Windows Mobile app ecosystems.
  • Weaknesses: XBox Live aside, Microsoft have not traditionally had a strong end-user relationship on the consumer side (unlike enterprise software, packaged software is very much a "fire and forget" business). Also they have very little broadcast content (although studios may be more willing to play ball with them than with Apple).

The wannabes

Like the eco-system monsters, these vendors are coming at the problem as new entrants from the tech world, although less explicitly from a software/OS bent. 

Sony

  • Strengths: Playstation gives Sony many of the same advantages as XBox in terms of physical presence and content. They also unusual strength in content, thanks to their previous (and previously unsuccessful I might add) efforts to build an end-to-end conglomerate. 
  • Weaknesses: Their end-user relationships are weak as so much of what they sell goes through dealers and distributors, and while they have a presence in many areas they lack overwhelming strength in any of them.
Amazon
  • Strengths: Amazon understand how to subsidise and sell content, and have the strongest customer relationship of any of the prospects. Also, although I don't explicitly list infrastructure as one of the essential criteria, their experience as a cloud vendor with Amazon Cloud Services and EC2 should help them on the delivery/execution side.
  • Weaknesses: Aside from their nascent Appstore (piggybacking on Android) they lack broadcast or software content. They also have very little physical presence in the front-room, although Kindle has shown they are not afraid of moving that way (think "Kindle TV"...).

The incumbents

These are the guys who should rule the world in internet TV, but have failed to deliver over the last ten years leaving them vulnerable to faster moving new entrants. Nonetheless they still have significant incumbency advantages and critically retain control of the all-important TV content.

Telcos

  • Strengths: Under any rational scenario telcos should rule the world. They control the networks, have long-standing billing relationships with the customers and have a hardware presence in every home. 
  • Weaknesses: Unfortunately telcos suck at execution and have the UX abilities of a five year old. This is why, despite sending me mailshots advertising their IPTV services almost every month, telcos appear to be the dinosaurs forever condemned to roam the world and have their eggs stolen and devoured by nimbler faster moving creatures.
Broadcasters/Studios
  • Strengths: There's a lot of overlap with these guys (the main difference is that broadcasters own the customer relationship whereas studios do not). Their trump card however is creating and owning content. This is their one big gambling chip because everyone will need to come to them before they can play the TV game.
  • Weaknesses: These guys have little experience on the "Internet" side of internet TV - understanding software, UX and apps. Note that broadcasters are highly fragmented between different regions which makes it hard for them to work together to build a common platform - the opposite of the global software eco-system monsters. Finally as they reap enormous cashflows from their current business models so are very likely to be held back by an "innovator's dilemma".
TV manufacturers:
  • Strengths: Much like telcos, TV manufacturers should be in a prime spot to dictate forthcoming TV standards. They have the best physical presence of all internet-TV challanges - after all they make the TVs!
  • Weaknesses: Unfortunately they spend so much time cutting each others throats in the ditches of the consumer hardware market, they never think about sitting back and working together. Instead of a unified internet TV standard each hardware vendor pursues its own equally cruddy attempt to "differentiate" (think handset manufacturer skins on Android). Ironically this just accelerates the commoditisation, as one crappy TV interface looks just like another from where I'm sitting...

Let battle commence!

The scorecard below sums up the competitive landscape. Note "balance scorecards" like this are not prescriptive - they are at best a rough and ready view. At the moment I think the ball is firmly in the court of the new challengers, primarily the eco-system monsters. They have a much clearer view of where the market will be going, a better arsenal to address that and are not held back by an incumbent's "Innovator's Dilemma".


However the one big (and I mean big) challenge they face is that TV Content remains concentrated in the hands of the broadcasters and the studios. Effectively whoever has control of this content retains a veto on the progress of anybody else. At best this gives Broadcasters/Studios the right to extract a rent on the success of any new entrant. At worst they can stymie the development of the market altogether and mean everyone loses out.

Address this stumbling block is the biggest strategic dilemma facing Apple, Google et al in their push towards connected TV. It is clear from the modest success so far of Apple TV and Google TV that they have failed to do this, partly because content-owners are so distrustful of them after seeing what iTunes did to the music labels.

I see a number of potential ways this could play out.
  • Both sides could reach an agreement, with the content providers receiving a suitable rent (unlikely at the moment but possible).
  • The new entrants could pursue Sony's strategy of trying to secure control of their own content.
  • Or new entrants could try to change the game and change the nature of TV content entirely. After all your children will never buy an LP, CD-ROM or DVD in their lives. Who's to say their children will ever watch an "episode" of a TV program ever again? But that is /definitely/ playing the long game.
Let battle commence!






2 comments:

  1. 100% agree with the success factors you outline here. They also fit pretty well with those I highlighted internally at my last job ~2 yrs ago

    What is interesting is that the app ecosystem guys have zero broadcast content. Whoever manages to bridge this gap first (or close second) may well win. If you fix these 2 hardest bits then getting a UX and presence plus payment is much easier

    It's also important to think about it by country as well. North America has very different dynamics to the UK, which is different again to France, and the Netherlands/Germany are different again. Never mind Asia....

    Though there are some interesting technology aspects to this. In the USA Cable Card *could* allow you to do an OTT set top box with all the clever bits that Google/Apple/MS/Sony could add. You may have 2 bills though, but 1 box would be great. In the UK and France you've got quite strong DTT which is an open broadcast platform (think Japan is similar too). If hbbTV and YouView get their act together, or get embraced by the other guys you talk about then these could be the foundation for success??

    Many people forget about how important 'event TV' is. If you look at BARB ratings for the UK then soaps and x-factor style TV is a huge % of viewing. This is something you want within a 24hr window so you can talk about it with friends. Sport is also the same, but lower viewing hours, but has a huge spend on it so it maybe more important??

    My $0.02

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    Replies
    1. Thanks. Interesting thoughts.

      Yes. Broadcast content is the key - you highlight the dilemma very clearly - whoever bridges the gap first may well win. Which makes me think actually the best way to play this theme as an investor is via the studios as they are the one guys who will have to have a seat at the table, however things play out.

      If they are smart they pool their content and negotiate together - sort of how various patent holders like Alcatel-Lucent, Technicolor pool standards-essential patents (e.g. for MP3) and sell them together. Alas I doubt this will happen as their aren't the same regulatory drivers (the requirement to sell standards essential patents on a Fair and Reasonable Basis) acting in the content market. It's an interesting analogy though - after all TV content or patents its all just IP.

      Agreed there are huge regional variations. Maybe this is something where the US cracks it first (as with app ecosystems) and then everyone else follows? Certainly I think the US is where the most desirable TV content dwells (pace the BBC) which gives it an advantage.

      Yeah the tech is interesting. Good to think about the various channels to get content into the home - historically satellite/cable has had a massive advantage as its not been possible to stream simultaneous HD streams (5Mb /stream) into the home any other way. But with fibre broadband we are (slowly) getting there. Maybe I should have talked more about the potential for YouView and other broadcaster-led IP services - thats something thats probably easier to do in Europe with much stronger free-to-air services than the US. The tech angle is also why I'm very surprised Google are selling off the Motorola STB business - surely this should give them an enormous edge in terms if they want to build Google TV into the broadcasters STB. Why throw this away?

      Event TV - interesting point. I guess this introduces another category of content creator/owner (alongside studios) which will be demand their own bit of "rent".

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