Televisions are the new smartphones

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Eric Elia on February 22, 2011

106 million Internet-ready TVs will be sold (and connected) in 2012.

That statistic, from Piper Jaffray’s Gene Munster, quoted in Barron’s earlier this month, still blows my mind. The article was bullish on Apple’s financial prospects should it enter the proper TV business and sell an estimated 1.4mm units. But Apple’s shadow hides the bigger story in that article.

Consumer electronics companies, such as our partner LG, are creating the largest global distribution network into the living room. Smart TV, as LG calls their platform, is to the TVs of yore like smartphones are to feature phones. As a result, consumers will have a wider variety of programming available to their TVs. Video programmers of all sizes will have an addressable audience of millions of more viewers.  

LG SmartTV
LG SmartTV photo from LG Electronics PR, January 2011

Together, the Connected TV footprint (including Internet-connected Blu-ray players and televisions) will be larger than any over-the-top (OTT) platform (measured alone or in aggregate with all OTT systems) and a few times larger than the footprint of the largest cable or satellite operators in the world. Let’s spell it out a bit.

  • OTT – Boxee and Roku, the two best open OTT platforms imho, will probably each have over a million units in the market. Boxee software will run on a few different hardware platforms by then. They seem to have some great traction. Google TV wasn’t successful in its first incarnation. But let’s give them a mulligan and assume the next version will be better (or just buy Boxee, guys). And let’s assume Apple TV gets opened up for third-party apps. So overall maybe we get to 5-10mm total OTT boxes shipped by end of 2012. That’s being generous.
  • Cable and Satellite – These systems are geographically restricted and peak at a maximum of about 20-25mm in the US, for the 2 largest operators.
  • OTT Video Service Providers - Netflix has passed 20mm subscribers in the US (nipping at the heels of Comcast) and Amazon.com is getting aggressive with the recent acquisition of the UK's Lovefilm, and the announcement of free video delivery for members of its Prime program (thanks, btw). These services don't compete with the consumer electronics companies. Instead, our research shows that "tent pole" catch-up TV services such as the BBC iPlayer and new video subscription offerings like Netflix and Amazon.com actually drive people to take advantage of the interactive features of Connected TVs. 
  • Gaming – This audience is significant. 12.5 million or so Xbox Live Gold subscribers using that platform for things other than gaming. Let’s be generous (and lazy) and triple that number for PS3 and Wii. A total addressable audience of about 37 million connected gaming devices. Round up and say 50 million to account for another year or so of sales and adoption. Strictly a back of the envelope calculation on my part. It’s sizeable but much smaller than the Connected TV opportunity.

For content programmers, this means a world that will continue to be fragmented by platform, as well as runtime, codecs and DRM technologies. There will be work involved with every new opportunity. I advise our clients to focus on the largest platforms that are most compatible with their existing technology investment, in particular existing methods for monetizing and measuring their content. This puts Connected TV at the top of the list. 

Looking at this from the consumer perspective, Connected TV stands out for reasons other than just the scale of the audience. First, it is notoriously difficult to get people to install new hardware in their living rooms. TVs are often mounted on the walls – the inputs and cabling sometimes difficult to get to. Second, the value proposition for a specialized new box in the home entertainment system has to be extreme to get a buyer to make a change. Tivo, maybe the best word of mouth consumer electronics product in history, capped out at about 3mm subscribers. Living room inertia is tough to beat.

It’s that potential that should be very exciting for content programmers.

Eric Elia
VP, TV Solutions
@ericelia

 

 

Tags smart tv, ott, lg, connected tv

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Comments

Chris (not verified) on April 13, 2011
Wow, came to this post and run into Dan R, the guy everywhere! Hi, either of you know the % of newly manufactured TV's that are web enabled and hitting US shelves, now and in the future? Thanks!
Eric Elia on March 29, 2011
Shannon, Brightcove is working to make this more turnkey for its users. The first announcement is the LG initiative. We like the platform and think it will be a great fit. The market is pretty dynamic but we expect a combination of HTML5 and Flash solutions to support most of the new platforms. We intend to discuss this in greater detail at our PLAY user conference in May, and soon after. Thanks, Eric
Shannon (not verified) on March 9, 2011
Is there any news on how Brightcove intends to leverage this opportunity for it's users? What sought of tools are we likely to be provided with? E.g. Will you create a generic TV based app that can deliver our videos straight to the TV platform? Or something else?
Eric Elia on February 28, 2011
Dan, These forward-looking estimates are always a shot in the near-dark. Subject to disruption and an ever-changing market. Looks like we both agree that there is a material increase in addressable audience with regards to connected TV. There is a sizeable market emerging with connected TV, no matter which numbers you look at. And for the record, Munster's estimates (http://blogs.barrons.com/techtraderdaily/2011/02/03/apple-television-set-piper-says-yes-a-window-into-software/) were 220mm units sold in 2012 with 106mm to be Internet-connected (not connectable). Clearly that audience is global, and fragmented across platforms. For the major players, like LG, those are significant numbers. More importantly, we have heard from existing Brightcove customers who have launched on some of these platforms that they have seen a traffic boost above 5%. So whatever the units shipped, the most important number - increase in monetizable audience - is material for publishers. Thanks for taking the time to comment. Should be a fun year! Eric
Dan Rayburn (not verified) on February 23, 2011
Hi Eric, while I agree with you that broadband enabled TVs will make a major impact on the industry years from now, some of the numbers you give out need to be explained a bit more. - Gene Munster is estimating that 106M broadband enabled TVs will be sold in 2012. He's not suggesting that all of those will be "connected" as you write. It should also be noted that his projections don't line up with any other analyst in the market, that I can find. iSuppli predicts almost 23M sets by 2013, TDG predicts 43M by 2014, DisplaySearch predicts 31M by 2013, Samsung predicts 20M by 2012. So Gene's number is nearly 5x what the other firms are predicting. - While we can all guess and debate on the number of units that will be sold, the only number that truly matters is adoption. Nearly every analyst who covers the TV market will tell you that they expect a less than 50% penetration rate of broadband enabled TVs. So even if 25M are sold by 2012, only half of them will actually be connected. That's the real potential market size. - As of December 2010, Roku had already sold 1M units. - You mention cable and satellite, but those are networks, not devices. So not sure how that ties into the discussion about connected devices. Maybe you are referring to the set-top-boxes those systems use? - Gaming. These numbers are way off. As of Nov. 2010, Microsoft had sold 21.9M Xbox 360 consoles in North America. As of Sept. 2010, Sony had sold 16.6M PS3 systems in North America. And while Nintendo has sold far more than both of them, 85% of Wii's are not connected to the Internet. Again, we have to look at the rate of usage, not simply how many devices have been sold. Also, I think it is important to point out that many times, the numbers that are given out on how many devices have been sold are global numbers, yet most of these video content platforms are only available in the U.S., so those numbers are actually a lot smaller when it comes to the real addressable market. I do agree that connected TVs will make a major impact on the market years down the road, but I think it is really important we set the right expectations on what the real adoption rate and market opportunity is. Thanks --Dan