Future TV – Integrate or die.

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Over the top offerings will need to be integrated or they will perish.

  • TV over the internet is still a tiny fraction of the market (5% of US – see here for details) but it is the future and so everyone is starting to get their ducks in a row for when it finally takes off.
  • This nascent market is dominated by Apple which has shipped 13m (71% share) Apple TV devices to date and Roku (27% share) which claims to have shipped 5m.
  • Boxee is discontinued and will soon vanish.
  • Critically this analysis ignores the console vendors Microsoft with Xbox and Sony with PlayStation and it also ignores the TV vendors who are imbedding this functionality into their sets.
  • Volumes of consoles and TVs dwarf shipments of streaming dedicated devices and I suspect that this is where the market will go.
  • Less clutter, less wiring, easy install and set up are what the users want and hence a dedicated streaming box looks to be just a stop gap.
  • This is a major reason why Apple is toying with the idea of producing a TV set of its own with the Apple TV functionality embedded.
  • This also means that Roku needs to get itself imbedded into or sell itself to one of the major TV players or face being integrated out of business.
  • The market for TVs is slow but it is also rapidly concentrating towards the two Korean players.
  • No one else has the scale in panel manufacturing to match them in what has become a commoditised market.
  • Even with its 10G line, Sharp has floundered due to its inefficiency and high cost base.
  • For Roku, the first port of call must be Korea.
  • LGE and Samsung are fighting commoditisation by increasing the software and functionality of their televisions and the last thing they want is a great device turning their screens into dumb displays.
  • The content suppliers (Netflix etc.) are incentivised to make their content available on all platforms meaning that Roku will end up with very little with which to differentiate.
  • Furthermore, if the functionality is in the TV by default, why would a user spend money on another box he doesn’t need.
  • Apple TV has a bit more going for it thanks to iTunes and the existing Apple ecosystem, but it will also need to be integrated into the TV in some way.
  • Both Xbox and PlayStation have a reason to be underneath the TV (games) and I suspect that this will secure them a place in the world of delivering TV over the Internet.
  • This is going to be a while coming as Broadcast will resist for as long as it can, but even I have been surprised by the speed that this is gathering pace.

RICHARD WINDSOR

Richard is founder, owner of research company, Radio Free Mobile. He has 16 years of experience working in sell side equity research. During his 11 year tenure at Nomura Securities, he focused on the equity coverage of the Global Technology sector.

Blog Comments

“Critically this analysis ignores […] the TV vendors who are imbedding this functionality into their sets.”
“Furthermore, if the functionality is in the TV by default, why would a user spend money on another box he doesn’t need.”

It is a rhetorical question, but here is my answer nonetheless. I have a Panasonic Blu-Ray player that supposedly have Netflix streaming as one of its many streaming “channels”. Many of the channels never shed their “coming soon” labels. (Overpromise/underdeliver? Check. Failure to gain trust of customers? Check.) Looking up the weather forecast is frustratingly slow. Netflix streams are a stop and go experience, prone to crashes and reloading messages. We eventually started using it as just a dumb player. If we want to stream something to the TV, I just connect my laptop to it. This player was a well reviewed model by professionally geeky reviewers online. Curiously, none ever felt the need to mention the shortcomings of the user experience even though Netflix was noted a nice feature. (Marketing by feature matrix? Check. Failure to understand the importance of user experience despite watching Apple break profit records? Check. )

My experience is not the exception. I have other friends with these supposedly smart TVs, but many ended up buying an AppleTV or using gaming consoles. No wonder analysts are not counting these supposedly smart players in the market share calculations.

In light of that experience, I know why a user would spend money on a box that he doesn’t need *on paper*. Roku can easily differentiate itself when the competition is Panasonic and its ilk.

I totally agree…a user experience such as that is incredibly poor. I would hazard a guess that this has everything to do with Panasonic having no clue about integrating other software into their device and nothing to do with the notion of it being integrated. A proper installation would be able to be upgraded anyway as Samsung will do….

Sure, a well integrated user friendly smart TV or player is certainly possible and probably more attractive to customers. Yet, a TV can easily last 10 years, but the hardware running the smart portions will probably out of date long before then, unable to support some as yet uninvented cool new features. Consumer electronics companies don’t have the long term support and upgrades cultures preferring to be done with the customer once the gadget leaves the store, I am not sure many will be able to make the switch in company culture. After a couple of years customers may still end up buying the new “super Roku” or “AppleTV awesome edition”. 🙂

Yes that possible…what I am seeing though is a trend by some to have the smarts removable via a back plate. That way one can buy upgrades for the TV as the old bit becomes obsolete. You have a proprietary interface inside the hood to prevent immitations and becoming a commodity TV. I think though that with software becoming more an more important and hardware pretty much good enough this will be less of an issue going forward