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Alphabet Remains an Underestimated TV Disruptor

By James Brumley – Aug 13, 2020 at 8:45AM

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Consumers dramatically increased their usage of the company's video-centric platforms during the second quarter.

It comes as no surprise that people watched a lot of streaming video during the second quarter. Lockdown mandates were common, and even though most have been eased or lifted, many consumers are still largely staying home to minimize the risk of COVID-19 exposure.

What is surprising, however, is what people are watching more of and how they're watching it. Alphabet (GOOGL -0.94%) (GOOG -0.85%), parent to Google and therefore parent to Google's YouTube and Chromecast, has seen meaningful growth on the TV front, and in more ways than one. This digital-centric name is an underestimated threat to conventional cable powerhouses like Comcast and AT&T, for a reason that remains mostly ignored.

A hand smashes a television set with a hammer.

Image source: Getty Images.

Improving engagement where it counts

Digital television is revolutionizing the industry. In the same way connected TVs displaced unconnected (to the web) ones, smart TVs are now displacing merely connected television sets. Conviva's State of Streaming market report for the second quarter of this year indicates a 239% year-over-year increase in total time spent watching such screens. That big growth was facilitated by a broader lift in total TV time for the quarter in question. Quarantining meant a 63% increase in the amount of video media streamed during the three-month stretch; a lack of sports likely boosted that growth.

The rising tide isn't lifting all boats equally, however. Alphabet's YouTube is winning more time on actual television sets, graduating from computers and smartphones. Conviva's data suggests 27% of YouTube's total hours aired were watched on an actual television set, up from only 16% in the same quarter a year earlier.

It's surprising growth from a platform with roots in user-supplied, short-form video -- not exactly the stuff that keeps people parked in front of a TV in their living room. That progress may, in part, reflect that YouTube's addition of longer-form media included transaction video-on-demand. That is, consumers can now buy individual shows and movies without being a subscriber of Alphabet's streaming cable television product called YouTube TV.

Reaching deeper

Alphabet isn't just making progress in the war for your attention while sitting in your living room. Users of the company's TV hardware are increasing their usage of it as well. Its Chromecast devices averaged 34.1 minutes of total watch-time whenever they were used during Q2, according to the Conviva report. That's better than some pretty tough competition. Roku owners only watched 28.8 minutes worth of streaming content per session last quarter, while owners of Apple's (AAPL 0.65%) set-top streaming box only watched 23.7 minutes per play. Moreover, Chromecast was the only major streaming device brand to improve its minutes-per-play metric during the quarter ending in June.

Google's television progress is measurable outside of the hardware market, too. The company reported on Monday there are now 80% more Android TV devices being used every month than there were a year ago. That growth has coincided with growth in the number of Google Play apps that now work on Android TV-powered devices; there are now about 7,000 such apps.

Neither the higher utilization of Chromecasts or expanded usage of Android TV (Android TV is expected to power future Chromecasts, by the way) directly adds revenue to the top line or income to the bottom line. But it still matters. Hardware and software market share help position YouTube as something of a gatekeeper, though, which in turn helps the company steer consumers toward the company's own products and services like YouTube TV.

Connecting the dots

It's curious. The world has sprouted several viable alternatives to cable TV, like Disney+ from Walt Disney, and Netflix. YouTube wasn't included in that mix because its monetization model was so distinctly different. Netflix and Disney+ are subscription-based, whereas YouTube is ad-supported. The two models weren't even initially seen as opposition.

They should have been, though, now that YouTube TV has taken shape as another alternative to conventional cable.

See, Alphabet has a sizable advantage when it comes to converting YouTube fans into paying YouTube TV customers. That's its large army of Chromecast owners now using their device to a greater degree, the tens of millions of Android TV users that have installed the app on various devices at least 50 million times, and more than 2 billion regular monthly YouTube video viewers. Nevermind the swath of YouTube fans that plug into the platform's videos without installing a YouTube app, just because they don't need to. There's no other name out there as well-positioned as a media and a medium.

Alphabet probably won't be able to convert most of those casual connections into YouTube TV customers. In fact, the company has proven somewhat disappointing in that regard, telling investors it only had over 2 million cable fans as of the end of last year. MoffettNathanson puts the figure closer to 2.3 million, which is still a lackluster fraction of video fans already packed into Google's digital ecosystem. For perspective, Comcast boasted around 20 million cable customers as of the end of last quarter. YouTube TV's recent price hike seems as if it could slow down its nascent growth effort before it even has a chance to speed up; the service now costs an awful lot like more conventional, overpriced cable.

That's a completely addressable challenge, though.

Bottom line? Alphabet should get better at converting enough of these regular platform users into cable TV customers in the future, especially if it re-embraces the idea of skinny bundles. It's clearly gotten better at keeping consumers connected to its hardware and software platforms, including in their living rooms.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. James Brumley owns shares of Alphabet (A shares) and AT&T. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, Netflix, Roku, and Walt Disney. The Motley Fool recommends Comcast and recommends the following options: long January 2021 $60 calls on Walt Disney and short October 2020 $125 calls on Walt Disney. The Motley Fool has a disclosure policy.

Stocks Mentioned

Alphabet Stock Quote
$94.05 (-0.94%) $0.89
Alphabet Stock Quote
$94.34 (-0.85%) $0.81
Apple Stock Quote
$141.85 (0.65%) $0.91

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