MAGNAGLOBAL has published the latest edition of On-Demand Quarterly, with updated Internet access, DVR and VOD forecasts through 2016. July’s edition of On-Demand Quarterly includes extended commentary on converged Television-broadband devices (referencing platforms such as Google TV, Project Canvas and the HbbTV Project)
They are maintaining current and future estimates of broadband and internet access after a significant upgrade of expectations last quarter. As of the end of Q1 2010, approximately 82.6 million US homes – 70.2% of the total – were online; 91.2% of these homes accessed the internet using broadband services. Their estimates for 2016 remain constant with the forecast published last quarter: they continue to expect 100.2 million households to be online in 2016, of which 99.2 million will have broadband services.
MAGNA’s year-end 2016 forecast for US DVR subscriber households is 55.1 million (44% of TV households), up from 34.5 million (30% of TV households) as of the end of Q4 2009. They note that the aggregated impact of DVRs will likely continue to be outpaced by a rising population and increases in consumption of conventional TV.
By 2016, they expect that true managed services-based Video On Demand in the US will reach 65.4 million households (approximately 53% of television households). This compares with 47.4 million VOD households (41% of total TV households) at the end of Q4 2009.
“Google’s new TV platform is significant, but will not impact the industry for years to come”
The promise of convergence between internet content and television has been discussed for decades. In its idealized form, convergence is perceived by industry participants as a consumer paradise of integrated, interactive, personalized content. In this form it would also be hyper-fragmented and hyper-targeted for media owners and advertisers, which poses both challenges and opportunities for the opportunity (at minimum an opportunity for the enablers of convergence). However, the reality of this vision –let alone a clear assessment of its appeal to consumers and incumbent industry participants –remains many years away despite recent announcements which reflect only incremental advances rather than revolutionary change. Differences in expectations between service providers and consumers (such as whether or not “walled garden” experiences help grow or retard change) will impact the ultimate market for converged media.
In May, Google announced new internet-connected devices for consumers using a software platform called Google TV (distinct from the Google TV Ads product for businesses and agencies and has been available for several years), to be made available later this year. The devices made by companies including Logitech (and software embedded into television sets by companies including Sony) will allow consumers to access online content and applications and view them on conventional television sets. Presumably, consumers will be able access any application or website. More notable than the announcement or the product –many similar platform devices are already available today from Apple, Rokuand others –was the announcement of integration with DISH Network set-top boxes and user interfaces.
The agreement with DISH is the most significant element of the announcement, because it should enable a seamless experience shifting between online content and conventional television. Google TV-DISH integration contrasts with the lackof integration found in most other similar devices and services, which add extra steps to the process of accessing internet-enabled content.
However, even though the agreement with DISH is an important milestone, the implications are limited in the near-term: among DISH’s 14 million current subscribers, only a fraction will upgrade their existing set-top boxes or buy new set-tops in any given year. Thus only a sub-set of subscribers will actually be capable of accessing the Google TV-integrated service, although this will certainly grow over time.
But the subset who could use the service must be further narrowed. Not all subscribers will have sufficiently reliable broadband services (whether fixed or via wi-fi) in proximity to a TV set. Further, among this sub-subset (DISH subscribers with proximate broadband access), those interested in Google TV will incur an additional expense to buy the consumer electronics device loaded with Google TV from a retail distributor. These users would also need space to store an extra box near the TV set and have some comfort with plugging in peripheral devices to a set-top.
So the market potential for users of Google TV and DISH together is limited. But what about Google TV’s prospects with other service providers? DISH is an anomaly among major video distributors in its willingness to work with Google. Video distributors either fear risk of commoditization by allowing another entity to stand between programming and viewers or –we speculate more generally –do not expect commercial benefits from collaboration. Some will offer internet-based applications through their own “walled garden” environments much as Verizon FiOSprovides today. But the closed nature of these services and cable operators’ preferences to maintain control of customer viewing experiences may limit these initiatives.
This leads to a world where most consumers who want to use Google TV will need to use the product in a manner which is not integrated with a primary video service provider. Lack of integration has many implications: changing a TV set’s input source is necessary if the devices and services are not integrated, and requires familiarity with a TV set’s capabilities (beyond “on” and “off”). It also potentially requires the use of multiple remote controls. These factors would likely deter casual browsing between different sources of content for many users. This is important if random browsing –rather than “appointment viewing” –of television content or use of televisions as background/ambience accounts for a disproportionate share of time with TV sets.
Other practical limits apply to internet-connected services not integrated with the Internet Service Provider’s core product. In particular, broadband services provided by cable operators –representing 57.7% of broadband subscribers in the United States –technically share bandwidth between groups of homes unless the cable operator is providing guaranteed Quality of Service (QoS), or packet prioritization (which incurs additional costs). If too many users in a group of homes were to access too many “rich” media applications from the open Internet such as video, network congestion may make it more difficult to reliably access those applications. Although “node-splitting” and “channel bonding” are among the technologies which allow for more bandwidth to be shared among homes, they all require costs for the ISP (which ultimately are passed along to consumers) and can take years to upgrade across an ISP’s infrastructure.
One way around the lack of integration between consumer electronics devices and conventional video services is to make the consumer electronics device the primary set top box, and pair that device with a range of new internet-delivered video services. This is the approach undertaken by video game console manufacturers, who can secure popular programming directly with content producers or content aggregators such as NetFlix.
Game console manufacturers providing broadband-delivered content face similar challenges as other device makers do –namely the lack of guaranteed content delivery during times of high viewership. But households using consoles to access video content are more likely comfortable toggling between input devices and may not be deterred by technical challenges with integrating their devices.
Further, the centrality of the video game console in some homes could allow those devices to be the central platform for browsing and ambient consumption of internet-based content. However, there may be limits to the number of households which will use video game consoles in this manner.
DVR subscriptions continue to grow in the US
•DirecTV now has 8.0 million DVRs by their estimates, as ~70% of new subscribers took either HD and/or DVR boxes during 1Q10. This compares to 7.4 million DVR subscribers at DISH Network. 46.5% of satellite subscribers now have DVRs.
•Meanwhile, Comcast added 353,000 advanced service customers during the quarter. With 9.5 million HD and/or DVR subscribers, Comcast has approximately 5.5 million DVR subscribers –nearly 24% of the company’s total subscriber base.
•Time Warner Cable’s DVR subscriptions increased by 111,000 in Q1 ‘10 (vs. 105,000 in Q4 ‘09 and 57,000 in Q3 ‘09). Total DVR subscribers totaled 4.5 million at quarter’s end, 35.2% of the company’s subscriber base.
•On its most recent earnings conference call, Mediacom management stated that 40% of the company’s digital subscribers have HD and/or DVR boxes, or approximately 22.7% of their total subscriber base. Penetration remains low at predominantly smaller market cable operators; their estimate only 16% of Mediacom’s subscriber base has DVRs as of the end of Q1 ‘10.
Around the world
•The leading market for DVRs –and on-demand content deployments –outside of the United States remains the United Kingdom. In the UK, cable operator Virgin has now signed up 939,900 of their subscribers (25% of total) to their DVR service, V+. By contrast, approximately 70% of subscribers to the UK’s dominant pay TV platform, Sky, have DVRs. Notably, even with rapid growth in DVR penetration, both operators continue to highlight their video-on-demand offerings: Virgin also announced that it delivered an average of 18 views per user per month in the quarter as the company reported 68 million video on demand views to its 3.7 million digital subscribers.
