I remember a couple of years ago, I read a great book called The Search: How Google and Its Rivals Rewrote the Rules of Business and Transformed Our Culture by John Battelle. In the book, the author depicted a scene that a mom ordered a baby diaper product for her kid due to a TV commercial shown on her TV. And this specific diaper commercial was displayed to her at this time because the advertising system knows her information and web search queries. This scene sounded for me at that time like a futuristic novel, which is beautiful but not realistic. Today Google announced Google TV, a product that could be a big stride toward realizing the scene. Basically, Google TV is a set-top-box that enables users to consume web content on the TV screens. Although it is not new and companies like Boxee are already doing this, it is still great to see that Google offers a nice integral interface between TV and web content so that you don't have to press input button in order to switch to computer desktop. More importantly, you have the universal web search on your TV screen, which could potentially tap a huge advertising market for Google. TV advertising is a $165 billion market. And if the vividness of TV commercial could be combined with interactivity of online ads and the information of users search intention, it would create the new generation of TV advertising and help Google build its next multi-billion dollar business. I believe it is a great vision that Google has. But barriers remain. The vision will only be achieved if Google TV can hit critical mass. The key strategy for Google TV is to extend its search to more audiences rather than selling the boxes. To realize this strategy, Google TV needs to be adopted by mainstream population. But do normal users nowadays have clear understanding of Google TV and its benefits? Probably not. Even if they do, are they willing to spend money on the benefits and how much? We don't know the price point for Google TV yet, but this is a question to be answered. If the value proposition is not strong enough, it is hard for Google TV to achieve mass adoption. Moreover, Google TV could potentially hurt cable business given the abundance of web content. If we can get the same show online for free, there is a fair change that we might want to cut our cable subscription. In this case, content producers' largest revenue contributor, cable companies, will put more pressure on content owners, letting them put less shows online for free. Then we will either see less free premium content online or more paywalls for online premium videos. This may eventually make free web video content less compelling. In short, to achieve Google TV's great strategy and vision, many consumer and operation related issues are waiting to be resolved. And implementing it is not an easy job. Jia Wu

We've published an in-depth analysis last year examining the competition between free online video services YouTube and Hulu. We believed that Hulu was in a better position than YouTube when it comes to profitability outlook, as Hulu's premium content could charge higher ad CPM and it's lower cost for carrying User Generated Content (UGC). But apparently a pure advertising model is not the best way to maximize profit, not even sufficient for the publishing industry, let alone the TV programming and filmed entertainment industry, which carries extravagant production cost. So quite expectedly, Hulu is going to put up its pay wall as soon as May 24, according to a couple of news source. The new subscription service, Hulu Plus, would continue to provide for free the most recent episodes of shows. But viewers who want to see old episodes would have to pay $9.95 a month. $9.95? Yes, just one dollar more than the cheapest streaming plan from Netflix. We believe that it is not a coincidence for Hulu to set the price so close to Netflix. With the new subscription service, Hulu is now in head-to-head competition with Netflix. Driven by its outstanding performance in the last quarter, Netflix's stock price has surged almost by 100% since January this year. Now Netflix is one of the leading US companies in the media sector that show robust growth, primarily due to its attractive streaming service. Given Hulu's entry in the market, is Netflix going to maintain its edge in the competition? Early evidence shows that Netflix is in a strong position which might be hard for Hulu to catch up. As the subscription services from the two are mainly providing back-catalog of shows and movies, the services look almost identical, except that Netflix might sometimes have new movies for DVD rental. Although Hulu offers for free recent shows, they are also available for Netflix users. Netflix's advantages of being slightly cheaper and offering DVDs are not significant, but this could still make consumers somewhat favor Netflix over Hulu. Furthermore, Netflix has ample distribution portfolio including all major game consoles, iPad, set-top-boxes, computers and TV services such as Boxee. Netflix app on iphone is also believed to be released soon. In contrast, Hulu only distributes content through PCs despite some early attempt of multiple device access. But its owners do not want Hulu's content to be accessed on big screen TV sets at this moment, which would cannibalize their existing revenues. In addition, it is not costless for existing Netflix users to switch services, as Netflix's rating and recommendation system knows ours taste well, while switching to Hulu might require us to build up our profiles once again from scratch. Looking at users numbers, Netflix has 14 million subscribers as of Q1 2010, while Hulu has about 40 million unique viewers in February 2010 according to comScore. Industry consensus for digital media freemium model is that about 5%-10% of total users could be converted to paying users, which leads to Hulu's potential high-end subscriber number to 4 million.Based on this assumption, Hulu's annual subscription revenue could reach 4 x 10 x 12=$480 million. But of course, Netflix's competition would put pressure on Hulu's acquisition of subscribers. So maybe $200-$300 million is more realistic, if not too optimistic, number for Hulu to generate. It almost doubles Hulu's current revenue size, but is still far from people's original expectation on the company. We are sure that Hulu will eventually improve its service, distribution outlet and increase the size of catalog, while with the pressure from Netflix and its investors, Hulu has a lot to work on right now. Jia Wu

We met with Boxee which was demonstrating its first set-top box, developed by D-Link and based on Nvidia’s Tegra 2 chip. This is a powerful platform allowing full HD capability. The box will not include an integrated HDD in order to keep the price below $200, but supports USB drive attachments. It will ship in 1H10 in the US and Canada. Boxee let slip to us that they also expect it to be available “shortly after” in Europe. Boxee currently has 750,000 users through its PC-based platform. This device is certain to give a boost to those numbers and looks like a compelling new entry into the connected TV market. Meanwhile, Yahoo continues to make progress with its connected TV offer. In spite of our scepticism over the widget strategy, based on our own user research, Yahoo expects to have shipped between 3 and 5 million TVs globally by the end of Q110. 60% of sales have been in Europe and the remainder in the US. The company’s target is to have shipped in between 10 and 12 million devices by 2011. Like other connected TV companies their goal is to develop a large scale platform from which monetisation of app stores, advertising and other opportunities can be realised. As things stand today Yahoo appears to be fairly well positioned, but it will come under threat from many alternatives over the next few months, and TV manufacturers will be wary of becoming too dependent on a single partner. One competitor could be Sonic Solutions’ Roxio/CinemaNow platform, which is being repositioned as a white label service for retailers and device manufacturers. Indeed, as we were meeting Sonic was in discussion with one of the major US retailers. It makes sense that retailers would be interested in selling connected TV services in addition to the devices on which they make small margins. We can expect to see a great deal of activity in this space in the US and Europe over the coming year as the connected TV landgrab continues. Client Reading: Consumer Imperatives for Digital TV Media Browsers