Google TV, Price Cuts, and Slow Retail Sales; What's the Future Look Like?

Sony (NYSE: SNE  ) this weekend announced huge (up to 25 percent) price cuts on its new Google TV product line, an unprecedented step for the CE manufacturer. Google (Nasdaq: GOOG  ) also is having trouble getting premium content from any of the broadcasters it's talked to, although negotiations are ongoing. The result: A product that's more expensive than others on the market, and with less content.

FierceOnlineVideo talked with four analysts -- Gary Schultz, president and founder of MRG Research; Colin Dixon, senior analyst, The Diffusion Group; Kurt Scherf, VP and principal analyst, Parks Associates; and Jia Wu, analyst, Strategy Analytics -- who follow Google TV, and the online video industry, about what has been, so far, a less-than-spectacular rollout of Google TV. The consensus? It's still basically in beta, and Google has the smarts, and the deep pockets, to weather this first holiday season storm.

FierceOnlineVideo: What's your take on Google TV?

Gary Schultz: I think Google TV has a long way to go to penetrate the TV market, because Widgets and Internet TV don't make a consistently satisfying "lean back" experience -- especially with audiences who want live (linear) video channels.

Colin Dixon: It's just not complete yet. And, it's too expensive. No matter how you buy it, you pay too big a premium, from 10-15 percent on a Blu-ray player and a TV that supports it, and the company can't cleanly articulate the value proposition to most Americans.

Kurt Scherf: It asks a lot from the end user in terms of the ways in which we are supposed to interact with our TVs. I'm just not convinced that Google searches are the way in which most of us want to experience television, choosing instead 1) search features that rely still on simple "up/down/left/right" commands with a remote controller; and 2) more "push" recommendations about programming, video, and entertainment instead of an active keyboard-like search. After reviewing the product for a few hours, I was literally exhausted by the keyboard strokes and the back-and-forth required. I think that the integrated online/broadcast/pay-TV convergence is going to be much more subtle, with programming choices and recommendations embedded into an existing guide/user interface that doesn't require the user to pull up a search box every time.

Also, having just gotten an iPhone 4 within the past few weeks (my first true smartphone), I wonder why the Internet searching and content finding wouldn't be done on a separate device like the smartphone/tablet computer anyway? First, it's much faster. Second, I don't incur the wrath of the family by having my searches and Web experiences on the same TV screen with the program they are trying to watch. I did this yesterday while we were watching an NFL game -- I split the screen so I could track my fantasy football score. I'd rather have my iPhone fantasy football tracker app open and not disturb my family.

Jia Wu: I think Google TV is a terrific product from the consumers' perspective. But there are clearly significant challenges for it to fit in the TV ecosystem.

FierceOnlineVideo: As far as content, Google has been stymied by broadcasters who, almost across the board, have blocked their programming from appearing on Google TV. Are the studios afraid of Google; or is the company simply too much of an outsider?

Schultz: I think studios don't really like Google or trust them. Google is not a content company--it is a very good search technology company that yields amazingly fast results in a growing number of applications. Eric Schmidt (a brilliant technology person) has very few ties with the studios, despite his growing influence in politics. While UGC (amateur) producers all love YouTube for displaying their videos free, they don't have the resources to develop content that people will pay for.

Contrast that with Steve Jobs, who is a brilliant technologist and content person, who founded and ran Pixar and developed some of the most successful animation movies in media history. Also, his development of iTunes has created a business model for both video- and audio-content distribution that the studios can support and trust worldwide; it also doesn't hurt that he's one of the biggest shareholders of Disney, and that the creative community has been one of the strongest users of the Mac platform for well over a decade. That's what Google TV has to compete with.

Dixon: "I think that (Hollywood) initially misunderstood what Google was. They swaggered into town and said, essentially, 'We're Google, this is what we're doing; you can get onboard or be left behind.' Obviously, they miscalculated.

(CE's like) Vizio, Samsung, LG, maybe others are likely to announce at CES. Content providers will come if the platform is successful ... it's the same model Google has followed with the cell phone. Google won't walk away from Google TV; it completes the picture. They want to be everywhere the Internet is.

Scherf: Google makes its money monetizing search, pure and simple. The studios don't trust Google because they have a well-established advertising model, and there has been no proof that what Google is doing can increase revenues and profits for EVERYONE, not just Google. And, what the industry is learning is that the standard search-based advertising that has made Google rich doesn't work the same way on a video screen. You still need video-based advertisements. So, there is no evidence that what Google brings to the table improves interactive video advertising.

Wu: From content owners' standpoint, they only look for the best distribution channels for selling their content and they've been making tons of money through the traditional pay TV model. Google TV might be successful in the future, but it has not established a considerable user base and the amount of revenue it could bring to studios is unclear.

FierceOnlineVideo: Is there an issue with Google's business plan? Is it simply that Google didn't have a solid model for Google TV (or perhaps, it just didn't jibe with theirs) when it went to Hollywood looking for content?

Schultz: Google really hasn't developed a solid business plan that differentiates them. Its advertising approach is probably based on the AdWords approach, which is based on word search, making Google TV a non starter as a video advertising model.

Even Hulu is still struggling with its TV advertising approach.

Wu: Google is known for disrupting old industries by bringing new, open and usually free business models. The threat is it's pushing to cannibalize the current TV business. That's why a lot of TV networks started blocking Google TV devices recently.

FierceOnlineVideo: Are the recent price cuts the death knell, or just a warning shot that Google TV needs to step it up?

Schultz: I believe this is just the first. Again, AppleTV now lowered its price to $99 for a similar box, so Google will probably need to meet that price at least over the holidays. Also note that TiVo and Roku both lowered their (STB) hardware prices, making it very difficult to charge more than $100.

It's interesting that no one is impressed about Google TV at this point (including me). Yet it's interesting that only a few months ago, Apple TV/iTunes was seen as a missed opportunity for Apple to make it into the streaming video business. Now, after a second try, Apple TV/iTunes is being seen as a model, given it's new $99 box. (The iPad has helped that, of course.)

Maybe Google TV will get it right on the second or third try. They need big-time help on their negotiations with the media companies in Hollywood, New York, London, et al.

Scherf: I actually like the idea of having the Google TV embedded into a device that I'm likely to buy anyway, which is a new Blu-ray player to replace my existing DVD player. It's not going to force me to find another spot inside my entertainment console for yet one more "black box," and the configuration should be simple -- simply unhook the existing DVD player and plug everything straight into the Blu-ray player. The challenge for this model is simply that Blu-ray players themselves are so darn inexpensive. Sony doesn't have a prayer of selling many Google-capable Blu-ray players at $399 or even $299 when standard BD players are going for under $100. Even connected Blu-ray players providing access to Netflix and other apps (even Sony's own Netflix-enabled BD player) are sub-$150, and even sub-$100!

Wu: The recent price cut could be due to the program blocking by some networks as well as the competition from Apple TV in spite of the differences of the two devices. If Apple is only charging $99 for its TV box, how much premium can Google charge over Apple?

Overall, I believe the trend that all TV programs will be transmitted over IP is unstoppable, but the business model will be quite different from the free models that Google is used to in the Internet business. Google needs to figure out how to generate big payoffs to studios, as unlike online news, producing professional video content is very resource consuming. As a consumer, I still love the concept of Google TV.

This article originally published here. Get your online video industry briefing here.

Walt Disney and Google are Motley Fool Inside Value picks. Google is a Motley Fool Rule Breakers recommendation. Apple, Walt Disney, and Netflix are Motley Fool Stock Advisor picks. The Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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