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August 13, 2013
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Implications of Chromecast for pay-TV and content owners

We all know by now that Google is up to something, perhaps big, with the launch of itsChromecast dongle-style screen-sharing device. Not only are there a lot of hushed discussions by industry professionals and openly by consumers about what this means for the future of TV, but there is also a lot of confusion around the device capabilities, Google’s strategy and whether this is a truly disruptive device or just a great form factor—essentially a replacement for an HDMI cable from your computer to the TV.

To find out more about the Chromcast strategy, we spoke with two digital entertainment industry experts, Analyst Steve Hawley and Consultant Mark Donnigan, who works with Dune HD on their set-top box business.

VIDEONET: What is this Chromecast device and how does it differ from set-top boxes, streaming video players, smartphones, tablets and the rest?

STEVE HAWLEY:  The Chromecast is essentially a stripped-down streaming video device that makes use of technologies that Google owns (VP8, Chrome and Android), or are free (WebRTC), which is a big reason it’s so affordable. Nobody should confuse the Chromecast with set-top boxes that allow operators to choose the software, blend and secure a combination of broadcast and online content, and provide consumers with consistent controls for the experience across all content providers.

MARK DONNIGAN: What I feel is getting lost in the discussion about Chromecast which many people are having, is that this is essentially a screen-sharing device that screencasts your computer, tablet or phone content onto the TV. One of the biggest concerns for those building commercial pay TV services should be video quality. The user experience on the TV is well established, and expectations are high. Streaming internet content via a screen-sharing mechanism such as Chromecast simply cannot meet consumers quality expectations due to limitations imposed by the hardware, software and even content rights. With limited access to native Chromecast apps, and IP video only, consumers will not be able to experience broadcast or pay TV quality.

VIDEONET:  Ahead of the release of the Google dongle, the company claims the device is sold out and back ordered for weeks. Does that mean this model is more disruptive than connected TVs/consoles? By disruptive, I mean to traditional pay TV models.

MARK: Three factors combined make it desirable but not necessarily disruptive:  Google, TV and $35. Consumer response to the device was phenomenal, which means their product messaging and price point were spot on. The disruption that occurs could be in the connected TV space. While connected TVs are sold by the millions every year, fewer than half are ever connected to the Internet–meaning consumers either find the connected benefits irrelevant or too complex to manage, or the industry needs to do a better job of educating consumers on the benefits. Chromecast introduces a very easy way for consumers to connect their TVs to what is becoming a very popular source of user generated and paid content, the tablet or mobile device–whether they have the features built in or not–and Google has done a good job of educating consumers on the benefits. The trick is in ensuring that consumers know their Chromecast experience will be quite different from what they’re used to.

STEVE:  It is disruptive, but not because it’s entirely new. Chromecast can be simply another distribution channel for pay TV and OTT content providers, and in turn, it becomes yet another platform for them to develop and test for.

Dune HD's Connect wireless USB STB

What makes it disruptive is Google itself: one, given the price point, and two, Google’s history in the TV device space. When Google introduced its Google TV client middleware a few years ago, it did nothing to correct the misperception that it was a service, which raised the hackles of the TV community. One of its launch partners, Logitech, lost many millions of dollars in stranded inventory, and its CEO lost his job. Last year, Google launched the Nexus Q network media player to much fanfare, butnever shipped. Not to mention that a good percentage of Android phone users will never be able to upgrade their phone’s OS – another dead end.

Also, the fact that it was immediately backordered, and that the free Netflix offer was withdrawn so quickly, further evidence the launch was not well planned, and that should alarm content providers that would depend on it for distribution.

VIDEONET: Chromecast is limited in terms of content, apps, EPG and hardware so does that mean the set-top box dongle is a tough model because consumers are used to a certain quality in terms of user interface and content options?

STEVE:  Yes, it’s limited in content, apps and EPG, but content providers are already stepping forward to express their interest. The fact that a number of content providers have stepped forward to indicate the possibility of support for it demonstrates that in a few months’ time, it may even become another me-too; just at a lower price point.

That said, Chromecast is also a captive channel to market Google’s own portals, YouTube and Google Play, making Chromecast as much a Trojan horse to the living room for Google as it is a potential new channel of distribution for TV and OTT content.

Also, unless Google imposes strict UI guidelines like Apple does, each content provider will have a different user experience, which may frustrate consumers.

MARK: The STB dongle concept doesn’t have to be limited in content and features, Chromecast is just taking different approach to what’s on the market today. Dune HD, for example, sells theDune HD Connect StickSTB, which is a full-featured STB in a small dongle form factor. Operators and IPTV/OTT content providers do not have to sacrifice content and quality to go down the dongle path. It’s a smart evolution of the STB category if done thoughtfully.

VIDEONET:  The price point means consumers will make an impulse purchase but do you see consumers sticking with the service ahead of Apple TV, Roku, pay TV options, etc? 

STEVE: Yes, it’s definitely in the “impulse-buy” category, but it’s equally important to look beyond price. One point of comparison is the way these devices contribute to the multiscreen experience. Apple TV is content-centric, while Chromecast and Roku are device centric and pay TV is service-centric. Chromecast has a lot of catching up to do, if we are comparing it with Roku.

But there’s also the question of quality-of-experience. Consumers do have high expectations for video quality, and many early reports expressed concern over latency, jerkiness and video quality. If the video is device-shifted from a tablet, smartphone or PC to the Chromecast, and not played from an app that’s native to the Chromecast itself, there’s no quality guarantee.

Steve Hawley

MARK: It will be interesting to see what consumer reaction is long term. I still believe the $35 price point makes it incredibly desirable–it’s a brilliant “why not” price point that mainstream consumers can jump into risk free. Early reviews are also positive, so there’s a definite place in the market for the device. The questions around industry disruption are the ones to pay attention to. Roku and Apple TV’s business should be more concerned about this than the industry as a whole.

VIDEONET:  Is the lack of a remote control an issue?  

MARK: Not at all. The tech-savvy customer—early adopters of Chromecast—uses the app EPG more frequently and is comfortable with the transition. I expect the app-based EPG to only gain market share over the coming years.

STEVE:  That’s right – second-screen apps to control the TV experience are already becoming standard equipment for TV and multiscreen services – not just Chromecast but also Apple TV and many of the pay TV operators. So that’s not a differentiator per-se. But Apple TV and pay TV operators each have their own common user experiences for all content, whereas Chromecast is likely to host a different experience for each content provider.

VIDEONET: Do you see pay TV operators supporting the cheap STB dongle model? Is it possible yet? 

MARK: I definitely see operators moving toward the StickSTB form factor, but not a “cheap” model you reference, and nor does it have to be expensive. Operators have very specific requirements for content delivery, not strictly around user experience, but also in maintaining control. I talk with operators all the time, and consistent themes come through about their needs. They want: 1) a full slate of content delivery options—Broadcast, pay TV, IPTV/OTT, browser and apps; 2) fully secure solution that is compliant with their content licensing agreements; 3) multi-screen support; 4) customization with easy middleware integration capabilities, operator branding and unique service packages; and 5) industry-standard technologies so updates are easy and fast.

There are a host of dongle-style formats and I’m familiar with most of them. The categories are Chromecast, which is essentially a screen-sharing device, the StickSTB line from Dune HD, which acts as a full broadcast grade set-top box, and tens of devices from Asian manufacturers that don’t support the security or industry-standard technology requirements operators need.

Mark Donnigan

STEVE: A few years from now, when all content providers and pay TV operators stream their content – and we have to admit that this is clearly the trend – all-streaming distribution may be viable. But nearer term, the range of content will be limited via that model. Set-top boxes that can host both a traditional pay TV software environment and adaptive streaming—and there are some with dongle form-factors—are best able to offer the complete solution now; and as Mark said, there really aren’t any cost shortcuts if it has to present and secure “real TV.”

The best way to look at this confusing array of devices and apps and environments is to look at them as channels of distribution. Then, it’s incumbent on the content or service provider to prioritize their distribution mix based on their business objectives. In some ways, the enabling technologies can be thought of as secondary. The highest-value earliest-window content will continue to go to set-tops in their many form-factors, for the foreseeable future, and not low-cost streaming devices such as Chromecast or the other variants.

 

Mark Donnigan is a consultant working at the intersection of digital technology and entertainment to support companies in all stages of maturity. Steve Hawley is Principal Analyst and Consultant for tvstrategies (Advanced Media Strategies LLC), which provides consulting and advisory services to companies that offer premium video services. Together they have over 40 years of experience in the digital media industry.