Tech Titans' New Battlefield: Your Living Room
"We will work with content providers, but it is very unlikely that we will get into actual content production," Google CEO Schmidt told reporters after a speech to the IFA consumer electronics expo in Berlin on Sept. 7, according to comments cited by Reuters. The news service estimates the global TV ad market's potential at $180 billion.
"Once you have Google television, you're going to be very busy," Schmidt said in his speech, according to a Wired.com dispatch from Berlin. "It's going to ruin your evening." Samsung is reportedly considering incorporating Google TV into its popular flat-screen displays.
At the same time, both Amazon (AMZN), which recently announced its own home-streaming service, and Netflix (NFLX), which has been streaming movies for some time, are girding for the new competition. And the major telecom and cable companies are currently hashing out the rules by which the new digital living room -- whatever it looks like -- will be governed.
Cable Will Go the Way of Broadcasters
So where does that leave the cable giants like Comcast (CMCSA) and Time Warner Cable (TWX)? Threatened, according to TV industry analyst Andrew Tyndall.
"The battle for the next generation of the living room has already been lost by the broadcasters, which were killed by cable," Tyndall tells DailyFinance. "In the next 10 years, the vulnerable sector is going to be cable. The question is: Are the cable channels going to be able to keep their businesses afloat, or will the disintermediation that has already happened in other industries sidestep the cable channels and completely crucify their business models?"
Who's the winner in this epic battle? You. "It's the consumer that's well positioned here," Tyndall says. "These new developments are going to cut margins, meaning that people are going to be able to get their video cheaper. The same thing happened in the music industry. Globally, the music industry lost, but the music consumer won."
Among the challengers, Apple is clearly aiming to disrupt the TV market. Just look at its track record: Apple practically revolutionized the PC, music and mobile-phone markets. "That was my first thought when Apple unveiled the iPad," Tyndall says. "They want you to have a TV with their content in each room of your house."
Apple as the Next Cable Giant
For now, of course, Apple and Google need the broadband providers to deliver their content. But among the new breed of broadband providers -- meaning Apple, Google, Amazon and Netflix -- Steve Jobs has a clear opportunity if he can make the new Apple TV product more successful than the first version, which flopped.
Gleacher & Co. analyst Brian Marshall agrees that Apple is leading the pack -- for now. "Everything is maturing, and the battle for content distribution is just going to increase over time," Marshall tells DailyFinance. He covers Apple and likes the company's prospects in this battle. "I think Apple is going to be pretty well-positioned going forward."
Marshall predicts that in one year, Apple will have over 200 million devices running its iOS mobile operating system. "I almost think of them going forward as a giant cable company with 200 million subscribers. I think Apple's power in terms of distributing applications and content is going to be pretty amazing a year from now."
"They have the best products, the best ecosystem, the best app designers and momentum that's going to be very, very difficult to stop," says Marshall. This a new model for Apple TV, Marshall notes. Whereas the previous device stored content on the unit, now users will stream content from "the cloud" with movies and TV shows actually stored on remote servers. Thank you broadband.
Speaking of the cloud, Tyndall is enthusiastic about Netflix, which he says has the potential to become "the HBO of the next generation." He singled out Netflix's offering as "impressive."
Still Work to Do
In the new Apple TV model, the company will be renting TV shows and movies for 99 cents and $4.99, respectively. Apple gets 30% of that, Marshall says, and 70% goes to the studios. Already, Fox (NWS) and ABC (DIS) are offering content via Apple TV. On its iAds mobile marketing platform, Apple takes a 40% cut.
"Five years ago, Steve Jobs referred to Sony as a competitor, and obviously now he would not because [Sony] failed to realize the significance of software and how it creates stickiness," Marshall says. He thinks Apple TV is going to be the company's "next killer product, a couple years down the road, when there is a screen on the back of it," and it's mobile and connects to wireless networks.
And when it comes to home entertainment, Marshall thinks Apple still has work to do. "What I really want to see is Apple seamlessly integrate the home office with the living room," Marshall says.
Meanwhile, Google and Apple are preparing to do battle on a different but related front: music. Google is in talks with the major record labels about a streaming music service it hopes will compete with Apple's iTunes, the online music leader with 70% of the legal Web music market.
"It's Just Broadband to the House"
In the end, according to Tyndall, the big battle will occur not between Google or Apple or Hulu, but between those services and the incumbent broadband providers like Comcast, Verizon (VZ) and Time Warner Cable.
"The cable operators, and broadband providers generally speaking, can charge a premium for cable channels because people still expect to get their video from TV stations," says Tyndall. "Once you get your video from the Internet rather than TV channels, then the cable operators' pricing power disappears. It's just broadband to your house."
As Google, Apple and others make splashy moves on the consumer front, broadband and media companies are fighting a largely behind-the-scenes battle in D.C. over the rules that will determine how content arrives at the home. The battle for your living room is just getting fired up, so grab a bevvy, take a seat and settle in: This could get entertaining.