If the television industry is going to get swept up in the apps hype wave there is little sign of it at this week's Appsworld event in London. There were hardly any stands demonstrating apps aimed at smart TV viewers, Accedo being a notable exception. And the dedicated TV apps conference track has focused on the many barriers which stand in the way of this emerging market while bemoaning the absence of any major revenue generation opportunities.

Accedo`s Michael Lanz did his best to drum up some enthusiasm for the TV apps business, claiming that he can already make business cases for ad-supported apps, if only in the larger smart TV markets. At the same time he admitted that "TV apps payment platforms are a mess right now. I haven't been able to make one payment using my smart TV and this is my business." Partly because one-time payment mechanisms are so user-unfriendly he believes that the TV apps business will be driven almost entirely by ad- and subscription-driven business models. That sounds a lot like how the TV industry works today, and Lanz's argument makes sense: television's industry structure will encourage entrants to adapt to its way of doing things.

The other key theme has been openness and standards, and we have heard the usual complaints that most developers will never be able to support smart TV until today's fragmented market evolves into one where one or two platforms are dominant. Unless, that is, you are the BBC, which has hundreds of developers making sure that iPlayer is available on 400 different connected devices. The BBC is now promising that the red button will evolve into a connected TV service, so that viewers will connect directly to the channel's respective online service by selecting the familiar red button on their TV remote control. Eventually the BBC will offer multiscreen red button services, so that smartphones and tablets will detect if the viewer is watching TV and synchronise content.

The most valuable contribution so far has come from Facebook's Karla Geci, Strategic Partner Development Director. In response to my question about advertising opportunities, she noted that multiscreen was allowing advertisers to become better storytellers. This is precisely what needs to happen - the active involvement and drive from the creative community - if multiscreen and smart TV technologies are not to be consigned as distant memories like so many other advanced TV technologies over the past decade or so.

David Mercer

Sky is launching NOW TV:

• To extend Sky’s reach to consumers unwilling to commit to a pay TV subscription: currently 11m UK households do not have pay TV

• As a defensive measure against the proliferation of OTT video and TV services in the UK market such as Netflix and Lovefilm which have proven particularly adept at making themselves available via a growing range of connectable devices

• Because it is a low risk strategy: launch marketing spend will be significant however NOW TV is using the same content rights, distribution technology, sales and customer service infrastructure which underpins Sky TV and Sky Go. NOW TV offers a way to increase ROI on investments the group would be making anyway.
  

Sky’s growth is slowing while competition is intensifying

Sky’s core pay TV business is slowing and limited growth potential remains in untapped households and in increasing ARPU of existing subscribers through upselling additional content and services. Competition is intensifying from Virgin Media and a rush of enthusiastic OTT specialists targeting a rapidly growing addressable market of IP connectable devices. Sky’s strategy of increasing the value proposition of the pay TV subscription has served it well for many years however it is not the ideal tool in a fragmenting environment in which consumers want more flexibility across more devices.

NOW TV diversifies Sky’s competitive arsenal

NOW TV is Sky’s vehicle to break out of the constraints of pay TV subscriptions increasing growth potential following two of the slowest quarters in Sky’s history for net subscriber additions (only 15k in Q1 2012). NOW TV will augment Sky’s existing standalone OTT service Sky Go and enables a greater degree of market segmentation without eroding the premium positioning of the Sky brand. It is also a recognition of the viability of a fast growing addressable market of connectable devices in the UK and the increasing traction of alternative content charging models in particular short-term subscription and transactional VOD. Given the emergence of Netflix in the movie space, multiple online catch-up services from UK terrestrial broadcasters, growing spending on transactional platforms like iTunes and Blinkbox and ongoing high usage of illegal online streaming providers, Sky’s strategy acknowledges the reality that there are plenty of competitors ready to grab their share of audience consumption on IP-delivered services if they do nothing.

NOW TV will target devices which would otherwise erode Sky’s share of the audience: platforms which were once threats become opportunities. NOW TV will target connected TVs, games consoles as well as the rapidly growing tablet market. We believe that the number of connected TVs, consoles and tablets in the UK will double to over 26m in 2015 from 13m at the end of 2011. Sky will leverage the expertise it has developed in offering multiscreen and out-of-home distribution to existing pay TV customers, the connected TV expertise of the recently acquired Acetrax as well as a formidable content arsenal in evolving NOW TV.

NOW TV can even target homes which subscribe to competing pay TV services by distributing content through connected TVs, consoles or tablets. It will be interesting to see if Sky could convince customers to acquire their content directly via NOW TV rather than subscribing to Sky channels via a competing pay TV service provider: will consumers prefer to add a Sky channel accessible only via their STB rather than through NOW TV which will be accessible through connected TVs, consoles, smartphones and tablets?

Will NOW TV succeed?

The appeal of NOW TV is greatest in sports and movies where Sky’s content rights differentiate it from other OTT services: Sky enjoys a lock on FSPTW movie rights across all six Hollywood majors and the broadest collection of UK sports rights including Premiership and Champion’s League football, F1 and Test Cricket. Illegal sports streams are widely available online (especially for football) and Sky will look to monetise as much of this audience as possible through TVOD matches on NOW TV. Entertainment will be a tougher proposition given the strength of terrestrial broadcaster catch-up services in the UK lead by BBC’s iPlayer however Sky’s content rights to US programming again constitute a significant point of differentiation from the rest of the market.

However NOW TV is entering a relatively small market by pay TV standards:in 2011 the UK OTT TV and Video market was worth less than $395m and is likely to grow around 30 per cent in 2012 to top half a billion dollars by year-end. While we expect NOW TV to be a significant overall market driver for OTT distribution in 2012 and beyond it will be some time before NOW TV revenues significantly impact Sky’s overall revenues. If NOW TV can break 100k subscriptions by the end of 2012 and has started the arduous process of converting the illegal sports streaming audience to the paid option, it will be performing well.

Standalone content providers will be marginalised, the role of device vendors will be diminished, and entry barriers will be raised to “historically unimaginable levels” according to our 2012 Predictions report, which is now available for complimentary download. According to my colleague, Ed Barton: “Now it is no longer enough to ‘just’ be a multibillion dollar market leader to play this game: bring an addressable market of more than a hundred million devices, global territorial coverage, tier one content relationships across all entertainment formats and tens of billions of dollars to invest over the next decade, or go home.”

The report also addresses Apple’s iTV, Smart TV platforms, second screen apps, broadband speeds, Android@Home, Amazon’s tablet strategy, voice control, new wireless home technologies, the next generation of games console platforms, and the multiscreen impact of the London Olympics.

Enjoy the report. We welcome feedback and wish everyone a peaceful and relaxing holiday.

David Mercer

Back in December 2010 I spoke with Anthony Rose the day before his departure from the BBC. Less than a year later Rose is preparing to launch his latest venture: Zeebox, which has attracted $7m in funding. He gave last week’s Informa IP Cable World Summit a heads-up on what Zeebox would be bringing to the market.

Zeebox is a free application which (eventually) will reside on tablets, smartphones or PCs. The iPad version launches in early November. Zeebox is a TV guide for the social network age. It allows users to see what their friends are watching at any given moment, and switch to that programme instantly on the TV set by selecting an option in the application on the personal device. People can also get real-time statistics on what is being watched, which shows are most popular, and chat in real time about live shows.

Part of the magic is in the application’s ability to tell the personal device, via the DLNA-enabled home network, to switch HDMI inputs on the connected TV if required, and then to select the appropriate channel and programme seamlessly from within the application. The service also works with DLNA-enabled set-top boxes, although these are not as commonplace just yet.

The Zeebox service also incorporates metadata and content recognition technologies which allow the app to understand what is being watched on the big screen at any given moment, and to incorporate relevant material on the personal device. Zeebox hopes to patent this technology: content recognition is a hot area being pursued by a number of emerging players such as Civolution.

Zeebox is initially aimed at the Europe-centric free (ad-funded and public service) TV market, so Amercians might think it has little relevance in that market. Its functionalities are dependent on open standards and APIs, and on the presence of DLNA in connected devices. Specifically Rose claims that the first implementations will be compatible with Samsung, Sony, LG and Panasonic 2011, and some 2010, TV models.

Rose claims that pay TV operators need not be left out of the opportunity: they could enable their devices with DLNA, and they could use Zeebox to drive viewers towards pay services. It was clear from Rose’s answer, however, that this is very much a secondary objective in the early stages.

So one of the key questions for Zeebox is how many people are actually using the connected TVs on which the success of his service greatly depends. Well, according to our own research released this week (to which Rose was kind enough to refer in his speech), 10% of European homes are accessing video content via the internet on their TV screens. But only 3% are using a connected TV: the remainder are using games consoles, PCs via HDMI and various other solutions.

This is sure to change as this emerging market rapidly evolves; but it may be a stretch to assume, as Zeebox appears to, that connected TV users are actually connecting their TV set, strange as that may seem. So Zeebox could end up playing a key role in the all-important customer education process which needs to take place before its full market potential can be reached.

David Mercer

Client Reading: Multiscreen Connected TV: Assessing Device Usage and Ownership

As the media industry gears up for another long weekend of back-to-back trade meetings at Amsterdam's IBC, a number of vendors have held analyst pre-briefings, perhaps recognising the challenge of finding time and any space, never mind a quiet space, to discuss things during the show itself.

Last week Netgem, the France-based IPTV set-top box developer, introduced its key theme for this year’s event, and managed to put yet another gloss on the buzzword of the moment, the ubiquitous “cloud”. I thought we had heard most of the possible explanations for what this cloud thing really is, and they have all revolved around some element of online access to remote servers in datacenters. The “cloud” is, very loosely, anything “out there”, ie remote from the individual user and his devices.

Netgem has now taken the concept a step further by bringing the cloud home. Instead of users storing content and accessing services and apps on servers in some distant, unknown location, Netgem proposes that network operators deploy home media servers as the “central points of the cloud”.

Netgem’s solution, nCloud, incorporates three key elements: the home media server, a software platform, and social TV applications.The nCloud media server takes a modular approach and could, depending on operator requirements, incorporate a Blu-ray Disc Live player, video conferencing devices (camera, microphone), NAS (network-attached storage), networked games and the access modem/gateway. The software platform comprises content from live television broadcasts, on-demand sources and personal content libraries.

Connected devices, including smartphones, tablets and PCs, would access content and apps, whatever the source, via the home media server, meaning that there is no need for the network operator to budget for datacenters. I was able to use an iPad to watch live broadcast TV received by the nCloud home media server and streamed directly to the tablet. Netgem calculates that operators will save money over time by deploying more advanced media server boxes in homes instead of moving their systems towards the “cloud” model.

Netgem admits that the media server will require a “big chip”, but estimates that the media server might be deployed at a premium of only 20% compared to an existing set-top box. Netgem works with both Broadcom and Intel, although it accepts that some service provider customers are still not confident with the Intel solution.

The whole thin v. thick, client v. server debate has energised the IT industry for as long as anyone can remember. It’s now enveloping the television and media segments, and there’s no question that service providers are seriously considering the long-term feasibility of “cloud” or server approaches replacing their traditional home-installed hardware-based models.

The widespread availability of fast, reliable broadband connections and connected devices is the catalyst for this potential living room revolution. But just because content can be stored anywhere doesn’t mean it necessarily should be. For a start it’s an issue of great concern to content owners themselves (and their lawyers). Content business models have been built for many years (without much reason for question or debate) on exactly where a particular “piece of content” is stored and who can “access” it. Those business models are being disrupted by concepts like cloud and connected devices.

There is also a shift in the economic debate for operators: they have wrestled for a decade or more with the relative viability or otherwise of “VOD” (ie television and movies in the cloud...) and DVRs (ie television stored in the home). In terms of market penetration, usage and media consumption impact there is no question that DVRs have had the greater impact to date.

Netgem’s home-cloud approach reignites the debate about the role of the set-top box as a key component in the connected home. In the end operators will make decisions based on their own economics as to whether a “thick client” has any role in the world of cloud content and services. Those decisions are likely to vary based on individual circumstances and local market environments but we see no sign yet of any overriding trend in one direction or another.

However the future of content storage and access pans out, Netgem’s move makes the whole cloud debate just a little but more, er, cloudy.

David Mercer

Client Reading: 

Why Connected TV will completely reshape the television industry in the next 10 years

The video recording of our recent Analyst Breakfast presentations at the Connected TV Summit in London is now available at the Videonet website.

Our team discusses some of the key findings of our research with early connected TV adopters, their usage of multiple devices for watching TV, and the impact this is having on managed pay TV services. We also explore how connected television behaviour varies by market segment. We welcome any feedback on the presentation content.

David Mercer

Kent Displays is not a name which will immediately bring recognition to consumer electronics industry veterans, but it’s one to watch out for. The company, based in Kent, Ohio, makes a unique and patented variant of LCD displays, Reflex™, and after many years of trying different professional applications finally came out with its consumer-oriented Boogie Board towards the end of 2010. According to CEO Albert Green, the company’s initial sales projections of “a few thousand” were vastly exceeded, with several hundred thousand sold in the run up to Christmas. Boogie Boards were available at $39.99 in Brookstone stores if you were lucky enough to find one. Sales will exceed one million this year. What are they? Basically they are small, very light, notepads, and require no power to retain the image since they use reflected light. The image can be erased instantly and this function requires a small 3V watch battery. The writing experience truly is very similar to paper, in fact in many ways it is much better. When the company adds local storage in future iterations, this will become a powerful, simple, low cost and easy-to-use notepad which could synch directly to a PC or smart device for further processing. I can’t wait to get my hands on one before next year’s CES. David Mercer

We don’t do this very often folks, but as a seasonal gift we have made our 2011 Digital Home Predictions report available to everyone, whether a Strategy Analytics client or not. You can download the full report here. A lot of the talk at the moment is about Google’s troubles with its TV offer: there will be little to see at CES after all, much to the annoyance of Google’s many partners no doubt. But this setback should not be seen as a a sign of general malaise in the connected TV industry: Apple has just reported that its TV solution is finally gaining some traction, and we expect continued progress from other key players in the rollout of internet TV to the big screen during 2011. We may even see Facebook moving into this space. Headline number of the year will be tablet revenues, which we predict will exceed netbooks. We also think Apple needs to revamp iTunes to take account of the connected device era, and Nintendo may have to take the plunge and launch the successor to the Wii. We’ll see further innovations in the TV control arena, with touchscreens, phone apps and motion control all featuring more widely. But 3DTV is likely to see only slow progress: sure, people will be buying 3D-enabled sets, but less than 20% will be watching 3D content on them. And one more stat to whet your appetite: more than one billion people worldwide will be using social networks for the first time during 2011. And since you are one of them, please go ahead and read the full report, and any comments and feedback are always appreciated. Best wishes for a peaceful holiday season. David Mercer Client Reading: Profiling the Connected Media Consumer - UK