Connected TV was certainly one of the hottest topics at CTAM’s most recent EuroSummit in Budapest, where cable operators discussed their plans and the threat of "cord cutting" created by over-the-top (OTT) delivery to TV sets. Other recent industry events, such as IBC and MIPCOM, have been no different with this being one of the most talked about subjects. And for us here at 3Vision, it seems that Connected TV has crept up in almost every meeting held recently – leading us to put together our thoughts and comments on this space for this month’s newsletter.

Consumers are now able to choose from an increasing array of devices that enable them to watch internet video on the living room TV set. As well as dedicated TV sets from manufacturers such as Samsung, Philips and Sony, there are hybrid set-top boxes and devices including Blu-Ray players and videogames consoles that can be used to display Internet-delivered content on the TV. On top of this, there are other services such as Rovi’s (formerly Macrovision) TotalGuide EPG that brings together connected TV apps with a next generation 14 day listing and personalisation features. Their idea is to offer this EPG technology (along with all the integrated apps) to CE manufacturers so they so don’t have the hassle of building one themselves and convincing dozens of content providers to build apps that integrate with their EPG. And on top of this, content providers have the benefit of creating one app for Rovi that could potentially integrate with a number of CE manufacturers’ TV sets.

We are well into the "hype" phase for Connected TV as a wide variety of players bring products to market and operators across the value chain get involved - but disappointment and failure for some players will inevitably follow as more realistic assessments of the potential for Connected TV (and the likely pace of its adoption) becomes clearer.

On top of the increasing array of Connected TV sets from individual CE manufacturers, the long-awaited Google TV has launched, Virgin Media is soon to launch its Tivo-based “connected” set-top box, and fellow cable operator Liberty Global will deploy its Horizon “home gateway” in the first half of 2011. In the UK, equipment for the BBC-led YouView (formerly Project Canvas) – much heralded by the free-TV broadcasters – is also likely to go on sale in 2011. It is certainly clear that will be no shortage of product launches over the next few months to fuel the hype.

It is too early to predict individual winners – for instance, whether Google search will prove as successful on the TV set as it has on the PC or whether YouView will really become a next-generation Freeview for UK digital-terrestrial viewers – but Connected TV will make significant advances in the next few years. This means that positioning your business to gain from this opportunity is becoming ever more important.

As with any fledgling technology, predictions vary. But industry forecasts suggesting that by 2015 most broadband homes will have a device that enables online video to be displayed on TV sets seem reasonable to accept. However, getting the devices into the home is only the first step – for connected TV to make significant progress (and potentially become more threatening to the status quo) actual viewing will need to:

• Build on the experimental and "functional" catch-up TV viewing that dominates online video now, and increase the more general "lean back" entertainment viewing and browsing that is more characteristic of watching a TV rather than a PC screen.
• Increase the amount and percentage of longer-form videos on offer.
• Significantly improve user interfaces (UIs) and functionality (including search) to allow better interactive overlaid applications, multitasked viewing and user-generated material.

So, as the video delivered online to the TV set starts to follow a more mainstream mindset, it will be of higher value and potentially start to have an impact on traditional viewing.

Impact will vary

As Connected TV usage and awareness grows beyond the early adopters to the mass market it will without a doubt have an impact on all players in the television and online video sector, but the impact will vary.

Pay TV platforms are worried about the potential effect that Connected TV might have on both their core subscription businesses and their on-demand services, but they are also seeing an opportunity as well as the threat. They have the ability to embrace the opportunity and complement their current services by offering additional content delivered over the Internet, which would increase value and potentially extend reach. As is the case with BSkyB, by using connected devices such as the Microsoft Xbox games console, the iPad and Fetch TV as additional means to distributing its Sky Player online-TV service. And in addition to their Sky Player service, Sky has just launched Sky Anytime Plus - the first product to exploit the Ethernet connection in Sky Plus HD set-top boxes, but only to deliver its own VOD service (over its own Sky Broadband network).

Cable operators including Virgin Media and Liberty Global are also set to launch connected set-top boxes that are designed to offer access to broadcast, on-demand and OTT programmes via a single UI with intelligent search tools that provide "seamless" access to content, whatever its source.

Mike Fries, Liberty Global president and CEO, is explicit in describing the potential power of such a proposition, telling the CTAM EuroSummit that "there would be no need for customers to take apps from their connected TVs when they were right there on the cable platform.” Fries is implying that Pay TV platforms are in a position to provide a "one-stop shop" so that even subscribers who have bought Connected TV sets will never use the devices to connect to OTT video or other applications because it is makes more sense to do so via the cable set-top box with a UI that integrates content from different sources.

Channel broadcasters can also use Connected TV to expand their distribution and viewership – and we are beginning to see activity from the UK’s various public broadcasters entering this space (for example the BBC’s iPlayer is now available on various games consoles). Such free-to-air TV providers, in particular where there is a strong free-TV proposition (such as Freeview in the UK), have an opportunity to use connected TV to protect their businesses. The proposed YouView venture, which combines the UK's free-to-air terrestrial broadcasters with two of the country's biggest ISPs, offers the broadcasters the chance to increase their relevance and deepen their relationship with viewers by offering VOD services as well as their linear channels via the new hybrid STBs and integrated digital TV sets.

However Pay TV broadcasters may not be as successful in creating their own branded Connected TV service that consists solely of their own programming. Instead, we believe that for them to truly succeed, they will need to be part of a larger connected TV offer; as is the case in the UK where many of the Pay TV broadcasters (e.g. Discovery) are part of the Sky Anytime service (both linear and on demand) but have yet to have focused on their own service.

The stronger, well focused and more established OTT players – such as Hulu and Netflix in the US, and Lovefilm in the UK – should be able to benefit considerably from Connected TV and other devices as a way of getting themselves into viewers’ living rooms and the main TV set. However, we expect that the smaller and new OTT video players will face bigger challenges – as was the case with Joost and its online TV service.  But that’s not to say that they don’t have a chance of succeeding…they do – so long as get the user experience right and make the content proposition relevant to their target audience.

Delivering the goods

Connected TV presents opportunities and threats for all types of media players - but existing television platforms (both Pay and free-to-air) are in a strong position to exploit its potential. The most successful products and services will be those that best combine technology, content and the usability and design of the UI. For content providers, it will be crucial to ensure that their services are available on the full range of connected devices – such as CE manufacturers' TV sets, Blu-ray players and games consoles as well as hybrid set-top boxes. But this raises yet another challenge, as decisions need to be made about how to dedicate limited resources to integrating and working with the vast number of different devices on the market.

Established Pay TV platforms, free-to-air broadcasters and content owners, together with new players in the sector, all have potential opportunities to exploit in the new world of Connected TV as well as dealing with the threats. A key question will be whether subscribers of Pay TV platforms that provide hybrid set-top boxes will also use other connected devices over which the operator has no control.

The existing content powerhouses  – Pay TV platform such as BSkyB and studio-backed content services such as Hulu – are the ones that are most likely to succeed with Connected TV products and services. There will be room too for new players – YouView, for example – but, as has already happened with online video services, the initial surge of activity in the emerging Connected TV sector is likely to be followed by a shake-out as the weaker players hit the wall.

November 25th 2010