Is the Smart TV Honeymoon Already Over?

It seemed that, just months ago, our newfound love affair with connected TVs was in full swing. All indications suggested consumers were ready to embrace these new gadgets for their smarts, connections and being handy around the house.

But that was before two pieces of news gave us cause to question whether our new living room mates are who we thought they were.

The first story was an apparent indication by Google that the company may have released half-baked software into the market: Google is now telling hardware partners to pull back on big CES plans for devices featuring Google TV. Then there was news that researchers discovered that Internet connected TVs were vulnerable to potential security risks — in a test with a smart TV from what is apparently Panasonic, the researchers were able to intercept credit card information.

Both of these are reason for concern for those invested in the belief that online video platforms are ready to make a serious dent in the traditional pay-TV model. Let’s look at each incident more closely for what their implications really mean.

Google TV Retreat

The Google TV pullback is a big deal, mostly because consumer-electronics makers have been burnt before by large software players and disappointing sales for convergence products. Microsoft, for instance, is famous for its half-hearted and erratic behavior around connected device software platforms. To not follow in the same footsteps, Google needs to be careful not to gain a reputation for disrupting large-scale product ramp-ups.

The early indications out of the hardware partner camp is that device makers will likely press on with or without Google. Internally, however, there is likely some annoyance — and possibly some very frank conversations — with Google about how CE manufacturers need to be able to rely on their partners, particularly as they head into product launch season.

Smart-TV Security Vulnerability

Perhaps the bigger concern for the smart TV space is news that the platforms could be vulnerable to security threats. While anyone familiar networks and the Internet may find this unsurprising, it’s important to remember that pay-TV hardware is built around robust security and encryption technology that has been decades in the making. The mere whiff of potential security issues for these new breeds of smart-TVs could give both content providers and consumers concern about their privacy as well as payment information — and hinder the market’s potential in the process.

The Bottom Line

Given the sheer momentum of OTT and the interest of CE manufacturers, chances are Google will be forgiven for its recent unsteadiness. CE manufacturers like Sony and Sharp are notoriously software-challenged, and they know that using Google’s software could be necessary in the face of threats from Apple, Roku, Microsoft and Boxee.

The security issue is one that, while likely not creating too much concern today, should be addressed in a broad way by the industry. Consumers are just now beginning to dip their toe in the smart tv waters; the last thing the industry needs to derail a nascent but fast-growing market is a PR issue on security. This is particularly true if service providers take a political-party approach and start making a mountain of a molehill as they look to combat threats to their entrenched video business franchises.

Question of the week

Is the television industry really ready to move towards a connected TV marketplace?
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Michael Wolf

Chief Analyst NextMarket Insights

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3 Comments Subscribers to comment
  1. Is it rude to say moronz? Im not directing at ne1 imparticular. To think that one word matching company of engineers could simply waltz in and duplicate television with a pinch of wgaf metadata is/was ridiculous. What had to be done before any of this was (poorly) implemented was establish limits. Meaning what content could be fully accessed with the endorsement of its owner? Prime time shouldnt have even been a consideration. Forgotten and lower tiered content always appeals to ayounger audience, what Google and everyone else in this field fail to recognize that a delivery/browsing method that can only exist in the connected tv context is the only thing to develop. Do ppl still not heed the true wisdom of the phrase the medium is the msg? Netflix can offer what it does, its still only a primer, only Google is in a position to change the game by creating a new one.

  2. No, not yet. The television network industry doesn’t want a connected TV marketplace but is at least willing to dip their toes in the water so they don’t end up like the newspaper or music business.

    But in general, I believe that non-TV network companies like NetFlix or OTT boxes like Roku or Boxee wholely underestimate the complexity, cost, and associated entrenchment to deliver quality content that last mile to the home. They got cheap rates early on cuz they were the new kids on the block – but their windows are expiring. That’s why Jeff Bewkes can sit back and say about Netflix, “Nope, I don’t think so. Not a threat.” Netflix made their first foray into the big leagues with their $1B programming deal but that’s just the tip of the iceberg. And that can’t be sustained with their current net $8/mo business model.

    My prediction for 2011 is to look for Netflix to start looking more like a cable model: drive distribution with a low price, then start raising rates and adding pricier tiers for the most popular content to offset their programming costs. They need to either put the pedal to the metal and take that big leap to cross the chasm soon … or crash and burn without enough momentum.

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