Apple and Google TV upset traditional television

Amid much fanfare Apple announced the launch of its revamped Apple TV, a small hockey buck like device that offers features such as TV rentals from ABC and Fox for 99-cents and Netflix streaming content.

Also there are unconfirmed reports of Google negotiating with broadcasting houses and Hollywood studios to avail content for its upcoming Google TV.

Together these devices reflect the breaking of the traditional television value chain. The primary reason of the breakage can be attributed to innovation in television services that is causing a convergence of TV and internet. The evolving services are built on new complex distribution technologies which have given birth to a new set of players like Google and Apple.

NEW TRENDS

The television industry is getting redefined on three fronts -- change in consumption trends, change in delivery of content and change in revenue model.

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Consumer consumption patterns are punctuated with a shift towards more personal and flexible time-based viewing, users porting content across various devices and the content combination viewed includes broadcasted, web-based and personal content.

On the distribution front, a host of new devices like smartphones, iPads, Blue-ray and Xbox are causing the content to be diversified to suit these devices. New image distribution solutions are opening up many of these avenues which were earlier restricted. An increase in the number of digital TV usage is also a major driver of change.

According to World Television Markets households using digital TV increased, in 2009, to 533.4 million, an annual increase of 18.6 percent. North America, where terrestrial analogue broadcasting ended in 2009, is the leading region for digital TV with 83.5 percent of TV households. 

This has resulted in innovation of services that has changed the economics of the game.

There is a surge in refining the quality of online video services, hence Google's and Apple's attempts to pool in the best broadcasters and studios. Also there is an innovation at the cataloguing side like Social video services offered by Daily Motion. And the distribution of online videos has been further augmented by players like Netflix and Hulu.

INNOVATIONS

Firstly, the web TV can be taken to the TV sets inside homes. For instance, Google TV's attempt is to bridge this gap by offering content search both over the TV and web. In this area, developments are taking place at the service operators level. The new devices like set-boxes, blu-ray and TV which have embedded hardware to access the web cater this need.

Secondly, another segment that is reshaping the TV is the porting of online social networks-based services to TV. Areas where it is already implemented are social network-based recommendations or ratings built for videos-on-demand, as used by Blockbuster and Netflix. And integrating websites like Facebook and Twitter with TV-based programs and online content-like services offered by Hulu.

Lastly, the innovation of a common interface for all devices that allow sourcing content from the web, TV channels, video on demand, personal and professional content stored in hard drives. Devices could be smartphones, tablets, PCs, Xbox, Blu- ray. And we already have Apple TV that enables streaming of content from these devices.

REVENUE MODEL

However, the success of this new value chain depends on a viable revenue model. As reflected by recent resistance showed by TV broadcasters towards Google TV fearing cannibalization of their content by free online content. The primary change will be the area of ad-revenue generated through more personalized advertising and video ads.

IDATE revealed in 2009 that the television showed a decline in advertising revenue of 9.1 percent.  Despite this, the importance of television in the advertising market (all media combined) remained stable at 42.2 percent. In contrast, the Internet continued to attract increasing amounts of advertising investment with an increase in spending at 13 percent compared to 11 percent in 2008.

It's the lack of a sustainable revenue model that is keeping the traditional TV alive but with new formats like Apple TV rentals, Videos-on-Demand and subscription models, the digital online segment is gaining some traction. But fears, that TV and studio content will meet the same fate as the music industry, are keeping the industry in wraps. Till a new revenue model emerges, new partnerships across media houses and technology companies and a flurry of new Apple TV-like devices keep making waves.