Quick Thoughts: An Over the Top Christmas


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–          AMZN will deliver a set-top-box for the Holidays, leveraging 10M+ Prime customers, a slick interface and content from other on-line partners

–          AAPL updated its TV software, added content, and is expected to offer new hardware with a faster processor and more memory soon.

–          GOOG’s $35 ChromeCast is AMZN’s top selling electronics product, Roku updated its line-up, Samsung bought Boxee, and INTC is indefinitely delayed.

–          MSFT’s Xbox One will make an aggressive play for the living room starting in November, while Sony will tout the new PS4’s gamer cred in response.

The electronics that American families have in their living rooms is a big factor in the entertainment services that they consume. (See “The War on TV: The Attack of the Boxes”) As long as the cable set-top-box remained the default connection on the TV, safely ensconced in Input 1, watching Internet delivered services like Netflix required an extra step and an extra remote, just enough to make the average couch potato say “Screw it, I can watch a “Big Bang Theory” rerun on TBS”. However, a new wave of TV boxes is looking to jump in front of the cable box, and make it a LOT easier to swap between live TV and streaming programming. A number of these boxes are expected to make it to store shelves before year end.

In July, Google caught the pundits and analysts flatfooted with its introduction of Chromecast, a $35 HDMI dongle that lets its users launch on-line streaming services on their TVs from their smartphones or tablets. Dead simple to set up and use, it has been Amazon’s top-selling electronics product since its launch. Recently, Hulu Plus joined Netflix and YouTube in delivering programming to Chromecast directly – other video can be streamed from an open Chrome browser tab. Price and simplicity could make Chromecast a very popular stocking stuffer for grown-ups this year.

Meanwhile, Amazon is readying its own living room solution according to credible leaks. Prime video has been a modest success. Seemingly tacked on as a throw-in to Amazon’s $79 free shipping deal at the start, most observers now peg the number of Prime video subscribers at more than 10M, an excellent start but still far behind rival Netflix and its 29M US subs. A big obstacle has been Amazon’s relative inability to rise above the noise amongst the many services available through living room box vendors, and in particular, the Xbox and Playstation game consoles. With the Kindle Fire tablet, now on its third iteration, Amazon has demonstrated its willingness to sell electronics at cost to get its electronic content businesses front and center before consumers. Given its track record, a new set-top box from Amazon will a) be cheap, b) run a highly customized version of Android, c) shamelessly push Amazon content, and d) be marketed relentlessly on Amazon’s web site. With rumors that Amazon is actually reaching out to content rivals to place their services on its box and tie ins to the popular Kindle line, there appears to be a good chance that the resulting product will be an attractive solution for many consumers. In any case, God knows they won’t be able to avoid advertisements for it as they browse for Holiday presents on Amazon.com.

Apple is still in hobby mode with its TV product. It has been busy signing deals to support the cable industry’s TV Everywhere approach – ESPN, HBO and CW Network content will now be available on Apple TV for households with a paid multichannel service subscription. A recent software upgrade, updating devices for iRadio and increased iCloud integration, bricked a not insignificant number of devices and had to be temporarily pulled. After a bug patching fire drill, the software is once again available for download, just in time for the expected announcement of a hardware update. The new version of the box will supposedly offer a beefed up processor and additional memory to smooth performance of the service. None of this is particularly disruptive, but I can’t discount Apple’s TV aspirations. Other than Sony, Microsoft, and Nintendo’s game consoles, Apple TV is the most popular U.S. alternative set-top solution. Moreover, the company recently hired cable industry veteran and former CableLabs vice president of technology Jean-François Mulé. This seems to suggest that Apple will look to partner with cable operators rather than compete with them.

Intel is nothing if not audacious in its TV aspirations. Starting with no position in the consumer electronics market and no relationships with programming networks, it set out to offer a multichannel TV service over the internet. Not surprisingly, Intel has found it difficult to sign enough content deals to make a go of it. Moreover, unless Net Neutrality becomes the law of the land, Intel will also find it next to impossible to establish connections into the broadband networks owned by cable operators and telephone companies big enough to support a comprehensive streaming alternative to a traditional multichannel subscription. This was always going to be an uphill battle and it is no surprise that the OnCue service launch has been delayed indefinitely.

Meanwhile, Roku has brought out enhanced versions of its alt set-tops, upping its appeal to millennials with hip styling and unusual design features like a headset jack in the remote control and dedicated buttons for Netflix, Amazon and M-Go video services. The software is slick, the content selection is the widest, and price is right – $49 for the entry level version, up to $79 for the top-of-the-line. One time rival Boxee, which had pioneered cloud-based DVR functionality, sold itself to Samsung, which has launched so many different smart TV initiatives over the years that it is difficult to guess at its intentions.

Finally, the big game consoles, which have been by large measure the most popular means of accessing online video from the TV, are coming with major system redesigns. Both Sony and Microsoft announced new platforms in May, with Sony tightly focusing on the interests of hard core gamers and Microsoft taking a broader view. Microsoft’s Xbox One is designed to front the cable box on Input 1, offering a sophisticated gesture and voice enhanced user interface to simultaneously parse content options from the console, online and multichannel service. Microsoft also announced an ambitious plan for its own exclusive content, revealing a deal with Steven Spielberg for a live action Halo series, and an arrangement with the NFL for in-game second screen data. Sony was less ambitious, and used its focus to make points with gamers with liberal policies on second hand games. Microsoft turned around and matched Sony, but the PR damage was already done. Most analysts expect the PS4 to outsell the Xbox One, if for no reason other than that it is $100 cheaper in its base configuration. Still, the Xbox One may still have a profound impact on the video viewing habits of the many households that buy one this Christmas season.

For our full research notes, please visit our published research site.

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