Apple And Google Set To Capitalize (And Compete) On Internet TV

Piper Jaffray/set top-internet tv

Connected TVs and set-top devices enabling consumers to view video from across the Internet on TVs could ultimately drive online video ads and marketing content budgets. The online video ad segment should grow at a 39% compounded annual growth rate (CAGR) during the next five years, becoming a more than $5 billion market by 2014, estimates analyst firm Piper Jaffray, which released a series of reports Monday related to IPTV.

The slow shift of consumers spending more time with online video has already begun. The report explains some private video advertising networks admit to securing at least seven-figure budgets from major TV advertisers. Ad networks like Tremor, and those producing proprietary content like Adconion or BBE, could benefit from the transition. The bottom line, according to Piper Jaffray analysts, points to numerous Internet companies like Apple, Google and Yahoo, as well as Rovi, also capitalizing on this move.

Expect Google TV to comprise about 15% of the connected TVs by 2013, rising to 18% by 2014, according to Piper Jaffray. Intel's CE4100 SoC and Google's Android operating system is the technology platform that Sony and Logitech will build into products and release in the fall. Other set-top boxes, media players and TV makers have Google TV products slated for the first quarter in 2011.

Google's share of connected TV devices will contribute to about 32 million units in 2010, reaching 180 million units in four years, but Piper Jaffray analyst believe the Mountain View, Calif., tech company will have competition from Cupertino, Calif.-based Apple.

Apple tried to launch Apple TV in March 2007, but the box failed to catch on. A Piper Jaffray white paper describes a data center in Maiden, NC that the company's analysts believe could serve as the main control room for a cloud-based service for iTunes video. A growing family of connected Apple devices it makes sense Apple would deliver a cloud-based media service to leverage the lineup of connected devices, from iPhone to iPad to iPod Touch to Apple TV to Macs.

As part of this move, analysts at Piper Jaffray expect Apple to update Apple TV with limited storage, lower price, and focus on accessing content from the Internet and on a local network. It then becomes a stepping-stone to an all-in-one connected television. The move could position Apple to enter the television market with a connected-HDTV in the next two to four years, along with full content services.

Piper Jaffray estimates of the 220 million flat panel TVs that will sell in 2012, about 65%, or 143 million units, will become Internet-connected. Of those, Apple could sell 1.4 million units, contributing 3% to revenue in 2012.

The white paper hypothesizes about solutions to Apple CEO Steve Jobs' challenges related to Apple TV. Create an all-in-one, connected TV that does not require an extra box, for starters. Then launch an Internet-based iTunes TV Pass at $50-$90 per month. These products could replace a consumer's monthly $85 cable bill and offer access to a variety of select shows on premium channels. Additionally, this hurdle could be solved with the addition of an App Store for the TV, offering apps like Hulu Plus available today for consumers with an iPhone or an iPad, and TV content through Hulu for $10 per month.

The ad-based Internet video will likely become the choice model to generate revenue because consumers view it as being close to the traditional TV viewing experience, according to the report. Piper Jaffray analysts expect ad -based services will capture margins between 20% and 25%. Hulu, for example, commands a significant premium cost per thousand ad views (CPM) vs. traditional broadcast TV. While these rates vary, depending on content and time of broadcast, the analysts firm estimates the average broadcast TV CPM is approximately $15, while Hulu's average CPM is more than $25.

Recently launched Hulu Plus, a $9.99 per month subscription service for additional ad-based content on Hulu, represents a hybrid subscription or ad-based model that could also provide on-the-go mobile or TV-based access to online video content.

Similar to Piper Jaffray, analyst at Parks Associates believe advertising, including delivery and analytics, provides Google with enormous potential. But in a white paper released in June, Park Associates analysts point to troubled television manufacturers trying to determine how big their share of potential revenue for online content will become.

To date, the business models between television manufacturers and content providers or aggregators have been revenue sharing based on online video orders. As a result, the TV manufacturer may get a few pennies per video on demand orders. Online video revenues on connected CE devices other than the game console could reach $180 million in 2010, reaching $800 million by 2014.

Other concerns Park Associates highlights includes the ability to search and discover, and how much high-quality content Google can actually contribute through YouTube.


1 comment about "Apple And Google Set To Capitalize (And Compete) On Internet TV".
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  1. Mark Burrell from Tongal, August 17, 2010 at 12:31 p.m.

    LOVE it!

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