TV evolution: The war for the start screen

1 Dec

TV evolution: The war for the start screen

In the 1980′s, about the time Ferris Bueller took his famous day off, a war was first waged that has resurfaced in new forms ever since. No blood has been shed, but billions have been spent by factions vying for one prize: to be the first thing people see when they fire up their PCs, smartphones and tablets.

Now that war has reached TVs. Media fragmentation and the growth of cord cutters, cord shavers and younger “cord nevers” are making TV one of the most hotly contested theaters of The War for the Start Screen. The victors will be those that “own” the viewing experience from the moment the power button is switched on. Their spoils will be riches from the ad revenues, subscriptions and transactions flowing from viewer “ownership.”

The stakes are high, and there will be blood. Control of the screen is a sophisticated play requiring good timing, deep pockets, the right content and the ability to deliver the best viewing experience. At stake is a whopping share of the $150+ billion-a-year broadcast TV industry.

Competitors for the TV start screen include content providers, TV manufacturers, device manufacturers, and of course the big guns, the service providers. (Admittedly there are dozens of other vying for control, but in the interest of space, let’s focus on the categorical front-runners in the U.S.).

But, what weapons does each contender have in his arsenal, and how will each fare in the battle?

Content only providers like Netflix, Hulu, Amazon and YouTube are noteworthy players in this war. They can either battle in the connected/smart TV realm (which could benefit from a friendlier user interface) or bypass the TV as the starting point, and use second screen apps on smartphones, tablets, and laptops to make these devices the real start screen.

That’s where they have more control and ability to engage and retain the viewer. But they’re not the only ones with that ammunition, as MSOs and networks can take the same route, as many already have.

These content providers are also significant for the mark they’ve made with original programming (such as House of Cards, Battleground) and original channels (AwesomenessTV). But despite all their appeal to viewers, it’s questionable if these players can sustain original content production and remain profitable with their current subscriber models. (Google recently announced it will be increasing its paid channel pilot program to include more content creators.)

Hardware manufacturers like Samsung, LG, Vizio and others currently control the start screen, so it’s theirs to lose. While they had largely ceded control to service providers whose set-top boxes and satellite dishes take immediate control of navigation, they’ve been given another chance in the connected world.

As the battle wears on, these manufacturers are racing to pump up Smart TV content with games, advertising, software and other features. But despite these efforts, the US will soon be lagging behind other markets in Smart TV sales.

Some observers, like Jia Wu, director for connected home devices at Strategy Analytics, attribute the slowing sales to platform choices made by certain US manufacturers. “Samsung, LG, Sony and Panasonic will continue to compete in the US and European Smart TV market with products based on their own platforms or third-party platforms such as Google TV. Chinese TV manufacturers like Hisense, TCL and Skyworth are embracing Android, which already offers a plethora of apps and content.”

In addition to the content challenge, the typical 5- to 7-year purchase cycle for a TV puts manufacturers continually behind the curve on delivering new “f-factors” (fun, features and functionality). TV makers could gain more of an edge in the war by delivering their own low-cost mini-hardware upgrades in the open market – perhaps in the form of low-cost dongles or plug-and-play devices that break out of the traditional purchase cycle and give new functionality to aging TVs.

Device manufacturers, Apple with AppleTV, Roku, Boxee, and Google with Chromecast are a mixed lot. While they don’t own the start screen yet, this group is more nimble and diverse than the larger hardware guys, so they have a good shot. However, some of these devices need to address ease-of-use issues before they can reach critical mass. And, to survive the long-term battle, all device manufacturers need a recurring revenue stream to make up for the typically low margins in device sales.

Among this group, Apple and Google are well positioned for success because of their ability to treat devices as loss leaders while building the mass market acceptance needed to win service fees and transactions at a massive scale. Chromecast gives Google (which can certainly weather a loss leader) a low-cost device to not only simplify web video access, but to boost YouTube viewership and revenue as well.

Meanwhile, we should keep a very close eye on gaming consoles, especially Microsoft’s Xbox. Gaming console makers have demonstrated their ability to become the centerpiece of the home entertainment system, and with even more media-centric features in the newest versions, they pose a considerable threat.

Historically, multi-system operator (MSO) and multichannel video programming distributors(MVPD) such as Comcast, DirecTV, Verizon and others have owned the start screen and the TV viewing experience. These players currently have a distinct advantage over others because they are flush with subscriber fees and aren’t shackled by major manufacturing costs. They also have the advantage of being able to deliver content to multiple devices.

Over time, this group may not even use the traditional set-top hardware and could deliver the entire experience on a lower-cost device/dongle or directly over broadband (typically owned by MSOs). While we continue to hear pro cord-cutting arguments, the truth is that a la carte TV would be more expensive than most Pay TV. (Read Ben Thompson’s StraTechery column for more on that.)  The question for this group is: can they innovate quickly enough to build a compelling value prop for cord-cutting advocates and other consumers?

Tablets and smartphones are making a grab for the start screen as more people put laptops and notebooks aside. In fact, video viewing increased by 41% on phones and 59% on tablets during the first half of 2013. Many viewers use tablets and smartphones as their start screen before they even look to the TV, relying on web-based aggregators or network-owned apps for easier-to-navigate content discovery. As such, these devices favor aggregators and content owners and could potentially displace cable boxes and other OTT devices.

And the victor is??? There are still battles to be fought in the war for the start screen, chief among them the struggles to deliver content to fragmented devices, simplify user interfaces, and improve search and discovery tools. In the end, control of the start screen will come down to who can connect consumers to the most value and the best experiences – so while the battle may be ugly, consumers will ultimately benefit.

And, while it remains to be seen who will persevere in the next phase of the war for the start screen, history makes one thing quite clear: the ability to capture a viewer’s rapt attention the moment the screen flickers on is a war worth waging.




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