There is no question that CE Connected TV (which includes Smart TV, games consoles, connected Blu-ray players, streamer boxes, etc.) has lost its shine and there a number of reasons for this, starting with the fact that the returns do not currently match the time and cost that content publishers (including broadcasters) and distributors (including Pay TV operators) are investing in apps development.
The figures given at Connected TV Summit last month by the VOD platform Viewster, that only 3% of all viewing on its VOD service come through a Connected TV app, highlight the problem. CE Connected TV is immature, with limited penetration of connected devices, and even those devices must fight for consumer attention.
That leads to the second big factor: the tablet. Another completely new CE concept, the tablet has at least three big advantages compared to the CE connected TV device for delivering TV. There are only a few operating environments you need to develop for so the reach-to-effort ratio is more favourable for apps development. You can watch a tablet sitting alongside other people who are watching something else on TV, but in the same room. And in terms of reach, the tablet is a brand new device genre and is arriving in homes alongside televisions (and increasingly instead of new laptops) rather than instead of existing sets.
It is only an anecdotal survey, but looking around my own extended family and covering five households, since December 2012 four Apple iPads and three Kindle Fires have arrived on the scene. During that time, one new television set (for a kitchen) has been purchased and it was not Internet-connectable. There have been two upgrades of platform operator set-top boxes. A quick survey of family members suggests the living room TV is still dominant but free-to-air viewing (primarily) is down, replaced by tablet viewing of Netflix in particular.
As always, you must build the novelty factor into the equation when it comes to what everyone is watching and where. Everyone has a new toy, two families are in the early days of exploring Netflix and it is now summer, when television becomes less important anyway. It is a statistically insignificant survey covering 18 people but it does illustrate how the tablet has trumped everything in the CE universe this year.
At BBC iPlayer, viewing through televisions as a proportion of the total is down but not because television viewing of catch-up content is falling. It is because of the explosion in mobile consumption. The big question now, and one that is very pertinent to CE connected TV, is whether this skewing towards mobile devices will last. If you just focus on catch-up TV, this is now available on mass-market free-to-air and Pay TV platforms, including with backwards EPGs. That is an innovation almost as dramatic as PVR but like PVR, it relies on new set-top boxes and so will not change the world overnight.
TV catch-up on FTA platforms (like YouView in the UK) and Pay TV add to the problem for CE connected TV. The connected portals pioneered catch-up TV on the television screen and were among the first to give us YouTube on television, and as such they had a compelling differentiator. Now you can get this on connected operator STBs that also combine the on-demand and linear television experiences much more effectively.
So the potential for CE connected TV is under threat from three directions: connected free-to-air platforms on one side, Pay TV connected platforms on another, and tablets as well. The threat to CE connected TV has been apparent for some time. There does not seem to be any one â€˜big ideaâ€™ that is going to assure their place as a major long-term presence in the presentation of aggregated premium entertainment content but here are some reasons why, when taken together, we think they have a viable future as something other than a commodity set maker:
- CE vendors can partner with platform operators by becoming a virtual set-top box, where the platform operator UI has primacy (as illustrated by the Samsung/TeliaSonera IPTV app). Some important platform operators are very interested in how they can avoid shipping STBs altogether, including for the main television, so this is a model that will grow in importance.
- They can try to take centre stage in the delivery of a new tier of Pay TV that is specifically targeted at the free-to-air (FTA) market â€“ the co-called Pay TV Lite services with smaller fees and shorter contracts, designed to hoover up what money is left on the table in FTA homes. Many Pay TV providers are becoming interested in this idea and it is not suitable for their existing homes, precisely because it is aimed at a different market. In Pay TV Lite, operators and CE connected TV makers are not competing for attention or money, so can be partners. This is different to the virtual STB model, which is for the delivery of full Pay TV to Pay TV customers.
- They can build an alternative content ecosystem around online aggregators whose scale and ambition threatens Pay TV and might therefore prevent them from partnering on Pay TV connected TV platforms. Netflix is the obvious example. If they remain outside Pay TV platforms and continue to acquire good exclusive content, they will become a differentiator for â€˜network TVâ€™ and not just for VOD. There is plenty of special interest content that will probably never make it into the Pay TV connected platforms. If this alternative ecosystem is exclusive to CE connected TV (in the sense that you do not see it via your Pay TV STB) then even Pay TV viewers may still find a reason to exit the operator UI. Much depends, of course, on how open connected Pay TV platforms become.
- They can still focus on Pay TV and free-to-air homes that lack the new generation of connected STBs, and who will therefore appreciate catch-up and on-demand and value it as a differentiated offer, and who are going to be hunting around soon for someone who can deliver them some movies once their local DVD rental stores have closed. When the DVD stores go, we would expect interest in CE connected TV to increase notably.
On top of this, the CE industry needs to make apps development significantly easier while the devices penetrate more homes naturally. That will make the reward-to-effort ratio for content publishers or platform operators more appealing (where the reward is in viewer reach and any subsequent advertising or transactional/subscription revenues or, in the case of Pay TV platforms, just more loyalty).
It is the Pay TV and mass-market free-to-air platforms that have the momentum today when it comes to â€˜connectedâ€™ services. It is now the connected TV device makers who have the biggest challenge ahead.