The Implications of a Fragmented Smart TV Market

The first week of 2011 isn’t even in the books and already we have a new Smart TV platform.

Maybe this is not too surprising, given that it’s CES week, but LG’s entrance to the space makes, by my count, close to 10 Smart TV/Connected TV app platforms vying for the attention of the both consumers and OEMs (this number could go up quickly after CES).

Seeing the news that LG had announced their own Smart TV platform, I couldn’t help but tweet my belief that it would result in more fragmentation for the space, what with LG throwing in with Google TV, Yahoo, Roku, Vudu and Rovi/DivX, among others. However, noted digital home blogger Alexander Grundner of eHomeUpgrade replied to my tweet by essentially asking, “what’s wrong with choices?

That’s a great question: Are lots of platforms — and the inevitable fragmentation of the Smart TV/Connected TV space — a good thing or bad thing (or neither) for a nascent market like smart TVs?

To answer that, let’s look at the implications of smart TV platform fragmentation:

Choice: Good and Bad For New Markets

In general, there are upsides to lots of choice in a new market. Innovators can create interesting and valuable features, while developers aren’t limited to a particular platform. Having multiple options also helps a market avoid what can happen if, in the early stages, there are too few platform choices. Lack of choice creates lack of competitive nurturing, which is what happened with Windows Media Center Extender.

But as we’ve seen in the smartphone space, in a market where there are large amounts of development environments, developers will often throw their resources at the one or two biggest opportunities and likely ignore the rest. The inevitable result of this is the likelihood certain platforms will atrophy and possibly die, leaving disenchanted consumers, as well as TV OEMs, in their wake.

The Eventual Push Towards A Smart TV Lingua Franca

Another result from a fragmented market will be the eventual push towards cross-platform development environments and the eventual victory of HTML5. In some ways, HTML5 is the ultimate cross-platform development environment, as it’s a standards-based web environment that will work, conceivably, on any web-connected screen.

But as we’ve seen with the smartphone market, there’s a long way between here and the HTML5-promised land, and there will be opportunistic companies that will provide cross-platform development tools to work across various smart TV platforms. No doubt smart TVs will soon have their answer to Appcelerator, PhoneGap and Appmobi to facilitate write-once/multiple platform apps for TV.

Fragmentation Results in Consolidation

Lastly, another inevitable result of platform fragmentation for the Smart TV market will be the eventual consolidation of the market. This is just beginning now in the smartphone market, with the acquisition of Palm by HP and the atrophy of Limo, where market forces eventually have their way and make it necessary for all players in the ecosystem to make resource-allocation choices. While consolidation of both companies and standards may be seen as reduction in choice by some, this is often a positive development if, as is the case with Palm, it means more a resource-heavy rejuvenation of a platform.

So, to answer Alexander’s question, choice isn’t a bad thing, especially in an early market. However, more choice means more pain down the road, particularly for those platforms (and their customers) that don’t get traction.

But, in the end, that’s what free markets are all about. The more the merrier, at least for a while.

Question of the week

Do multiple platform choices benefit a still-nascent space like the smart TV market?
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Michael Wolf

Chief Analyst NextMarket Insights

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10 Comments Subscribers to comment
  1. What are the 10 platforms, as I am curious to know if our lists match up with each other.

    1. Good question, David. I’ve had some good Twitter discussions about this. Some believe that platforms need to be in actual deployment, others say it must be a modern platform. Some think it can’t be third party.

      I only have a couple requirements: app dev framework, OTT streaming, interactive services. It also needs to be able to work with TV integration (though I do think these are competitive with OTT app platforms like Boxee).

      So, that in mind:

      -Google TV
      -Windows MCE
      -Vizio (while Vizio has used Yahoo in past, I think they have their own as well)
      -Yahoo Widgets
      -Oregan Networks
      -You could also include Java oriented stacks like BD-live/Tru2way.

      That’s it off top of my head, though I am sure I am missing some. This doesn’t count other app platforms for TV that are currently targeted at non-TV boxes, though could easily be ported to a smart TV (Boxee, DivX, etc)

  2. Michael, if you’re prepared to acknowledge that the mass-market era of video entertainment is behind us, and that targeted offers for increasingly unique market segments is the future, then you have lots of opportunity ahead of you.

    That said, incumbent pay-TV service providers must move beyond their apparent fear of subscriber cannibalization by offering a low-cost purpose-built IP-only video service to the value-conscious consumer segment.

    As it stands today, most service provider do not have a distinct offering to retain a pay-TV subscriber that requests a solution to the high-price all-inclusive channel-centric service bundles. So, they’re reduced to offer short-term price-reduction promotions, or they must process the service disconnect order.

    Moreover, while the early adopters, like me, embraced a Roku STB with Netflix (or similar device), the mainstream user has been less inclined to adopt that alternative to the high-cost legacy pay-TV services. SmartTVs will likely remove the prior adoption barriers for less tech-savvy consumers. Therefore, it would seem foolish for an incumbent pay-TV provider to not address the market fragmentation challenge now.

    FYI, I’ve shared more thoughts about this dilemma here

    cheers, David

    1. @David –

      You bring up very good points. The decline in bundled channel subscribers at higher price points will happen, and most likely OTT providers will eat into those unless carriers can answer back (though I think you saw that they are starting to react, with the news of Samsung/Time Warner deal at CES).

      I think the European model of FTA and OTT (Freeview plus, for example) is a good mix of some basic premium and VOD model for the multichannel operators to maybe emulate with a low-cost core channel w/OTT VOD package.

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