Apple, Hulu and Google are intensifying the race for a share of the $65 billion in broadcast TV advertising gradually shifting to online and mobile. Their success depends on grasping consumers' changing digital behaviors and attitudes toward video.
So far, they are missing the mark, and television is struggling to find its way into the digital age.
Hulu finally is rolling out its new $10 monthly subscription service, Hulu Plus, of select TV fare complete with commercials to a wide array of mobile devices, including Apple's iPads and iPhones. Hulu is delivering a double whammy to the faithful, who are unable to skip or eliminate commercials, despite being able to receive programming on various mediums.
For its part, Apple has been negotiating with the networks (including Hulu co-owners NBC, ABC and Fox) for a revenue-sharing arrangement to add programming in its own reported $30 monthly subscription TV service though its iTunes store.
Apple just launched iAds, an in-house advertising sales and management service to shepherd blue-chip TV advertisers. Apple only launched with two of the many inaugural advertisers providing an initial $60 million in iAds business, due to Apple's own ad production lag.
Apple is hammering away at an improved Apple TV interface device that would incorporate the new iOS operating system, providing the same powers of its new iPad and iPhone 4. Apple CEO Steve Jobs curiously refers to Apple TV as "a hobby," the least successful of the company's endeavors. Piper Jaffray analyst Gene Munster says with the right kinds of Mac mini HDTV ports and an open system or Netflix, ABC-TV player, Hulu and other content provider apps will position Apple to enter the connected TV business within two to four years.
Google also is joining the hunt with an Android operating system and Chrome browser-based in-home video hub backed by chip maker Intel, Logitech and Sony. It proposes a complete integration of TV and Web that provides consumers with familiar interactive tools to access and command all kinds of video -- from video conferencing and personal video to movies and television programs.
Google has several important edges. It owns its own network, YouTube, commanding 43% of online videos viewed, or 30 billion monthly videos, and far outdistances second-place Hulu with 3.2% of online video viewing, or 978 million monthly videos.
Google also dominates online search advertising, but has failed to inspire many TV broadcasters to rely on its new AdWords to increase their sales. Google, like Apple and Hulu, is motivated by money: attracting advertising and marketing dollars from television and other video-based businesses in exchange for interactive connections to multiple screens and target consumers.
But it the search giant hasn't yet figured out how to facilitate traditional TV content, advertising and platforms, even as they are being folded into a larger mobile, interactive video business. That means some portion of $65 billion in broadcast TV advertising revenues, and another $27 billion in ad revenues generated from cable networks his year, according to PricewaterhouseCoopers, is up for grabs as viewers and advertisers gravitate online and to mobile connected devices.
With online television advertising barely doubling to $3.5 billion and mobile television advertising tripling to $1.2 billion by 2014, content producers and distributors will siphon dollars from larger existing pools, such as television.
Within four years, broadcast TV advertising will top out at $76 billion and multichannel advertising at $34 billion, according to PwC. By then, some of this so-called pure TV spending will be dispersed among converged connected video hubs linked by social networking and e-commerce that will become the norm. The explosion of Internet access devices will result in universal converged pocket computers functioning as phone, media player, navigation device, digital still and video camera, and gaming console, Bernstein Research says.
By some measures, mobile phone scale is already on par with television. With about 233 mobile phone users in the U.S. and 2.5 people per home, there are some 93 million mobile phone households compared with 115 million TV households, JP Morgan reports.
But even Wall Street is wrestling with the notion of converged video devices.
Some analysts say Hulu Plus represents the first significant competitive challenge to movie-dominant Netflix, even though the new Hulu service offers relatively few films. Others say Hulu Plus is a direct threat to DVDs -- a finite replay platform being eclipsed by instant streaming and downloads. Still others insist Hulu Plus has the potential to compromise TV-tethered cable even as it struggles with OOH initiatives, such as TV Everywhere.
They all are correct. As broadband and streaming video outside the home becomes more mainstream, the lines of distinction are disappearing.
One-third of adult Internet users view full-length TV shows online monthly, according to eMarketer. Viewers ages 18 to 24 are more likely to watch TV away from the home 25% of their day, according to Nielsen.
Even OOH video has reached critical mass, according to Arbitron. Digital video in grocery stores, shopping malls, medical offices and other public venues engage and influence more U.S .consumers monthly (70%) than streaming online video (43%) or Facebook (41%).
Whatever player succeeds in redefining television and video in universal mobile interactive terms wins. All that matters to individual consumers is connecting with the entertainment, communications, goods and services that are relevant to them. It is the complete antithesis to television's mass-marketing message when it was the universal medium.