Market Insight

Google returns for round 3: Android TV makes its debut

July 17, 2014  | Subscribers Only

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With Android TV, Google is entering the OTT video market at the operating system level for the third time. While its previous two efforts revolved around a separate platform, Android TV represents the crystallization of a single, unified Android operating system – Android L – that no longer cleaves across separate hardware platforms. Android TV can be utilized by OEMs for set-top boxes, OTT/DMA boxes, and Smart TVs alike, offering access to audio, video, and gaming content.

Devices running Android TV will debut beginning at the end of 2014; TP Vision / Philips, Sony, and Sharp will release Smart TVs running the OS, while Asus and Razer will release streaming and gaming oriented set-top boxes respectively. All three TV manufacturers have committed their full Smart TV product lineup to Android TV, in contrast to the smattering of Google TV models seen in the past. Google is currently working with both Intel and Marvell on silicon-level support for the initiative, and has a reference set-top box platform available for hardware manufacturers.

Understanding Android TV’s uniqueness

Android TV marks Google’s best attempt to date at breaking into the living room via the TV. With Android TV, the company has addressed a number of issues that proved challenging for Google TV, and for what would’ve been the Nexus Q.

First, Android TV brings a more consumer-friendly, lean-back interface and user experience. Two, we see evidence of deeper product-line commitment from participating TV OEMs than we have in the past. Three, Google is leveraging its existing strengths in search, incorporating a broader set of capabilities, supporting more complex syntax in its voice search. Four, Google is locating Android TV within a broader ecosystem of Android hardware, as part of a wider vision for the Android-driven connected home. Finally, Google is moving away from distilled, hardware-specific forks of its Android operating system, and is attempting to unify the development environment that underlies an increasingly diverse range of Android-running devices and forms.

User interfaces, manufacturer adoption, and competition

On the UI and UX front, Google is continuing its tradition of offering access to content from both third party apps and the Google Play ecosystem. However, Android TV’s most significant change from previous efforts is in a more polished visual interface, and experience. In addition, Android TV features cross-source content search that incorporates Google voice search to cull results from both local apps and cloud based sources. It also utilizes all of the contextual capabilities of Google’s core voice search functionality in order to decipher more complicated and specific search queries.

Notwithstanding Android TV’s polish and sophistication, a major hurdle to adoption always revolves around the integration that is required to port Android TV to an actual television set. Google is addressing this issue head-on.

For TV, set-top box, and gaming micro-console OEMs, Android TV’s most tangible benefit is the elimination of much of the work that manufacturers previously had to undertake on their own in order to bring Android to the TV. Driver support for television-related hardware – such as tuners – and support for remote controls were all hassles that companies were left to work out alone.

Android TV not only eliminates these pain points for TV manufacturers, and provides a simplified integration path, but adds the marketable benefit of off-the-shelf integration with other devices running the world’s most popular mobile operating system. As the ecosystem accessible from an Android TV grows from mobile devices to wearables, and eventually to devices that will form part of Google’s smart home strategy, the Android TV proposition will become substantially more attractive as an all-encompassing concept.

With regards to competition in the Smart TV software space, Android TV puts Roku TV on the bubble by offering apps, smart TV-friendly driver support, a compelling UX, native integration with the Android device ecosystem, and Google Play content to manufacturers in a considerably more attractive proposition than that formerly offered by Google TV. For 2nd tier TV OEMs who possess neither the content agreements nor developer resources to field a well-sorted, well-stocked Smart TV experience, Roku TV has traditionally held appeal.  Android TV threatens to erode Roku TV’s appeal, should their respective integration costs prove sufficiently similar.

With regards to competition in the OTT/DMA box space – such as Apple TV, Roku, WD TV Live, and Amazon Fire TV - Android TV opens up a pool of potential competition by supplying lower-priced manufacturers with a finished platform. For 2nd-tier manufacturers of standalone, Android-based OTT set-top boxes – companies that traditionally perform only the most basic of customizations to the base Android operating system to make it operable on a low cost OTT device – these companies are now able to leverage Google’s efforts to create a product that is ready-made for OTT hardware. These manufacturers will be able to field a product with a relatively mature and polished experience, with a strong app and content ecosystem, and at minimal software development cost relative to Google TV.

There is a chance that Android TV will be met by the same lackluster response from both manufacturers and consumers that doomed its predecessors over the long run. There is also the near-certain likelihood that larger manufacturers, such as Samsung, will continue to develop proprietary platforms in order to secure differentiation. Notwithstanding this, Google’s maturation, and the broadening of the Android TV concept from its conceptual origins has already generated strong ecosystem commitment from hardware partners. It is more than likely that the company will finally succeed in securing a foothold – one that remains planted – in consumer living rooms in the near future.

Android TV and Chromecast – relative positioning

Functionally, there is effectively nothing that Google’s Chromecast brings to television sets that standalone, Android TV boxes cannot. At its essence, Chromecast is a method for achieving two things in a small, elegant package – bringing a full browser to the TV set; shifting video experiences that would otherwise take place on an Android device onto a TV’s larger screen. Chromecast lacks its own interface, indeed doesn’t even need an interface, and allows users to port mobile-driven ‘Smarts’ to an ordinary TV set. Android TV boxes replicate Chromecast’s ability to ‘cast’ media without issue.

The fact that Chromecast’s features are entirely subsumed within Android TV’s feature-set is not, in itself, an indication that Google is looking to prey on its earlier darling. While Android TV’s pricing has not yet been announced, it is unlikely to be much below USD 49 – the Roku 1’s starting price – and at most, is unlikely to nudge much above USD 99 – the Apple TV’s and Roku 3’s price.

At USD 35, Chromecast’s price carries two basic implications. First, the two products – Android TV boxes; Chromecast – are unlikely to be treated as strict substitutes for one another within a given household. Chromecast represents a very modest, marginal addition to a household’s entertainment budget; individuals could conceivably purchase both, and rely on the Chromecast to bring smarts to secondary or tertiary sets in the home. More importantly, Chromecast’s price and feature-set almost assures that the two devices, in actual fact, appeal to different households. Chromecast appeals to users looking for little more than a solution for translating mobile-driven consumption onto a TV; Android TV, by contrast, appeals to users who are interested in a full Smart TV experience, who value navigability and search, who value an interface that is developed specifically for a television, and who are willing to pay more for all of this.

Android TV in the wider OTT and pay TV media landscape

Android TV’s impact on Google’s content services will depend heavily on hardware uptake, but with sufficient support, Android TV has the potential to significantly improve the consumption of paid-for Google Play film and TV content. Currently, Google Play under-indexes on paid-for film and TV transactions, relative to iTunes. This relates partly to the lower average device cost of Android products, and to the lower-spend user demographics which are associated with these products, but also to the lack of options for viewing Google Play content on the main TV set.

Apple TV owners over-index significantly on iTunes film and TV rentals and purchases, even across the wider iTunes user-base. This ‘DMA effect’ has yet to carry over to the Google Play ecosystem, however. In order to view a Google Play-bought film on the TV, ownership of a Chromecast (and TV with HDMI port), a PC-linked directly to a TV screen, or ownership of a prior Google TV product is currently required; with the exception of the Chromecast – the device is generating strong, early momentum, even if its total installed base remains small – all current methods for porting Google Play media to the TV are either cumbersome, or have not caught on. Consequently, widespread adoption of Android TV could have a transformative effect on purchase and rental rates of film and TV shows via Google Play.

More generally, within the arena of paid-for content, the elephant in the room is clearly the role of Android, and Android TV, within the traditional pay TV ecosystem. As an operating system (OS), the appeal of Android in the pay space is largely fourfold – Android’s licensing model renders it economical to deploy; Android provides a familiar, standardized software layer upon which an EPG application can be rapidly deployed; Android provides a powerful yet simple path to launching connected set-top services; Android benefits from a well-established development community.

To date, virtually every pay TV Android deployment has taken place in Japan or Korea, and has tended to occur on the IPTV platform. Two deployments in Western Europe – one deployed; one about to debut – offer useful insight into the shape that Android may take as it continues to propagate across the pay TV market.

In April 2014, Swisscom launched an Android-based set-top box to underpin a major refresh of its flagship, Swisscom TV IPTV service. In France, SFR launched an Android set-top box in late 2013, while Bouygues Telecom has committed to launching an Android-based successor to its Bbox Sensation in October 2014.

These deployments are very different in spirit. SFR is using Android specifically to provide access to the full-blown Google Play application store on its set-top boxes; likewise, Bouygues will be using Android to port YouTube, the Chrome browser, and the Google Play Store to its new fleet of boxes. Swisscom, by contrast, has taken another approach; while select Google-backed applications – such as YouTube – are now accessible on the TV, the only true application store that Swisscom has implemented on the box belongs to a different party. Swisscom is effectively using Android to bring the Opera TV Store, and the Android-compatible Opera browser, to its boxes.

These implementations are a microcosm for the challenges and conflicting incentives that Android, and Android TV itself, introduce in the pay TV segment. On the one hand, an Android TV box provides tremendous value in the form of a broad, compelling application environment. On the other hand, much like pay TV’s uncertain, largely-isolated embrace of Netflix, Android TV provides unbridled access to alternative application stores, alternative content applications, and at the absolute worst, could provide access to another operator’s standalone, Android-based OTT service.

In the pay TV space, these risks would typically be mitigated by allowing manufacturer-specific flavors of Android TV to appear on the market. Customization would allow the Android proposition to translate more easily into an operator context, by returning a modicum of control over user-experience and 3rd party content availability to operators. Google, however, has clearly signalled its intent to retain full control over the Android TV experience; while some re-branding, as well as the addition of services to the platform will be permitted, neither manufacturers nor operators will be able to modify the fundamental Android TV experience, or select a subset of the services that are accessible from the platform.

While Android TV is still likely to interest pay TV operators, the platform’s inflexibility will almost certainly prove a major barrier to its wider adoption in this segment of the market.

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