Connected TV: hits and misses
In 2013, Deloitte predicts that tens of millions of connected TV sets will sell globally, and the installed base of TV sets with integrated connectivity should exceed 100 million1. By the end of the decade, the vast majority of new TV sets sold in developed countries will likely incorporate two-way connectivity2. However, this may be because it will have become nigh impossible to purchase an un-connected TV set, much as it is the case that in developed countries it is very hard to purchase a brand new cathode ray tube (CRT) TV set.
But despite the forecast boom in sales, only a modest proportion of connected TV sets sold in 2013 and beyond – 15 percent at most – are likely to be purchased solely or primarily for their integrated two-way connectivity3. In the vast majority of cases price, size, thinness or bezel width are likely to be the primary reasons for purchase.
Most customers purchasing connected TVs are likely to regard two-way connectivity as a welcome bonus. Some might be indifferent4. Some may struggle to access the functionality. A few might feel put out at having to pay for functionality which they have no intention of using, or to which they already have access.
A key reason why connectivity per se is unlikely to be a key selling point for new TVs in 2013 is because hundreds of millions of households around the world already have one or more ways of connecting their TV sets. In at least ten countries around the world, over thirty percent of households already have connected TV - even if in some cases they may not realize it5. In a few markets – those with high broadband and PC penetration – the effective connected TV base may be double this, at 60 percent of households6.
The effective base of connected TV households is so high because there are multiple ways by which a TV set can be connected. TVs can be connected via a wide range of peripheral devices, many tens of millions of which around the world are likely to already be permanently connected to the TV. Current generation games consoles, set-top boxes and Blu-Ray players typically have two-way connectivity built in and, in most homes, they are permanently connected to TV sets. These peripherals often offer dedicated menus and apps to access movie and TV on demand services. The principal usage of connected TV tends to be to access more content. So households whose TV set is attached to a peripheral with two-way connectivity would not need to purchase a connected TV to access video content on-demand.
Other devices that may not be constantly connected to a TV set can also make a TV “connected”. Laptops, tablets and high-end smartphones can all be connected to a TV set, via a wire or wirelessly. The installed base of these devices numbers over three billion globally. Modern laptops often incorporate high definition multimedia interface (HDMI) ports that provide simple-to-use, high-definition (HD) connections to TV sets; tablets can connect via wires or via a Wi-Fi connection; phones can connect via mini HDMI or wirelessly. In short – there are already myriad ways and billions of existing, owned devices that can enable a TV to become connected.
It should, in practice, be easier to use on-demand TV and movie services on a TV set with built-in two-way connectivity. After all, laptops, tablets and smartphones may be out of the house at the time when someone wants to watch connected TV. But the greater ease-of-use would only be a significant differentiator if viewers were to use connected TV services frequently. In practice, connected TV sets are likely only to be used occasionally to play online games, browse the Internet, download apps, or even video conference; the principal usage of a TV set is likely to remain to watch TV programmes and movies. Usage of TV-on-demand is rising but is likely to remain a small proportion of overall TV viewing. The majority of programs and films that people watch in 2013 will likely be available and consumed via broadcast terrestrial, satellite or cable.
In the majority of cases, broadcast quality and broadcast programs recorded to a DVR should be better than that which is available online. The internet’s rivalrous nature should never be overlooked: the internet is a shared resource. Your neighbor’s use of the Internet may affect the quality of service in your home. If bandwidth is scarce in your neighborhood, this may compromise your ability to watch TV-on-demand, particularly when the pictures are being shown on a large TV screen, rather than a medium-sized laptop screen, or a small smartphone screen. Broadcast, by contrast, is a non-rivalrous service, and everyone in your street or block can be consuming TV pictures with no impact on your quality.
In summary, the base of households supporting two-way connectivity is already vast; the usage of that connectivity has remained sparse. Connected TVs will sell, but most likely primarily for the thinness of their bezels, the sharpness of their screen or their value for money.
In 2013, because of the volumes of connected TV sets sold around the world, the implications of connected TV – chief among which is the ability to disintermediate traditional broadcasters, or even traditional TV content – will likely be the subject of intense, and occasionally under-informed, debate at conferences focused on the TV sector7.
But the bottom line is that unless must-see content at a competitive price point is made exclusive to connected TVs, for example via a channel or portal that is only available via connected TVs, the need for connectivity in televisions is likely to remain marginal.
TV manufacturers do need to consider ways of differentiating their products. They do need ways in which to boost the often tight margins that characterize the industry. But they should also determine precisely which functionality and features customers are most likely to value.
Broadcasters, in considering which services they should offer, should keep track of the installed base of devices on which their content could be received and consumed. And they should also monitor carefully the extent to which new forms of consumption grow in popularity.
1 According to analysts, connected TV sales should be in the high tens of millions in 2013; the installed base should reach into the hundreds of millions. Note that these are number for TVs with integrated connectivity. Hundreds of millions more households can readily connect their TV sets via peripherals. Sources: Smart TV Growth For 2012 Pegged At 15%, But North Americans Still Slow To Adopt, TechCrunch, 17 October 2012. See: http://techcrunch.com/2012/10/17/smart-tv-growth-for-2012-pegged-at-15-but-north-americans-still-slow-to-adopt/; A fifth of TV sets connected to the Internet by 2016, Digital TV Research, 2 November 2011. See: http://www.digitaltvresearch.com/ugc/press/22.pdf
2 As of Q1 2012, smart TVs, which incorporate connectivity, had 20 percent market share in the UK, up from five per cent share two years previously. Source: The Communications Market 2012, Figure 2.16, Ofcom, July 2012. See: http://stakeholders.ofcom.org.uk/binaries/research/cmr/cmr12/UK_2.pdf
3 One survey found that about half of connected TV sets had actually been connected. Source: Half of Internet TVs Aren't Connected, TechNewsDaily, 17 February 2012. See: http://www.technewsdaily.com/3827-exclusive-internet-tvs-connected.html. Research undertaken by Ofcom in the UK found that 60 percent of those that purchased a smart TV (which incorporates connectivity) did so because “I needed a new TV and decided to buy one with the latest technology”. By contrast one fifth did so because “I liked the range of internet connected services available” and 27 percent noted that “It was nothing to do with the internet functionality of the TV”. Source: The Communications Market 2012, Ofcom, July 2012, Figure 2.17. See: http://stakeholders.ofcom.org.uk/binaries/research/cmr/cmr12/UK_2.pdf. These findings are echoed by others who note that purchasers of connected TV sets in the US buy a connected set because the best TVs come with connectivity, not because connectivity necessarily defines the best TVs. Source: Sure, People Will Buy ‘Connected TVs,’ But Will Anyone Actually Use Them?, paidContent, 30 August 2010. See: http://paidcontent.org/2010/08/30/419-sure-people-will-buy-connected-tvs-but-will-anyone-actually-use-them/.
4 According to one survey in the UK, about half of those with a connected TV set had connected it. Source: The year of connected TV, Page 7, Harris Interactive, June 2012. See: http://www.harrisinteractive.com/vault/HI_UK_TMTE_Reports_ConnectedTV.pdf
5 Research undertaken in the UK published in June 2012 found that 13.5 percent of households claimed to have a connected TV set. Source: No rise in take-up of connected TVs, Broadcast, 15 June 2012. See: http://www.broadcastnow.co.uk/news/multiplatform/no-rise-in-take-up-of-connected-tvs/5043288.article (requires subscription to read the full article); Research conducted by Deloitte LLP on the UK market (4,000 respondents, nationally representative) at that time found that 43 percent of households have a games console capable of accessing TV content via dedicated broadcaster channels apps. For more information, see: TV: Why? Perspectives on the UK television sector 2012, Deloitte LLP, August 2012: www.deloitte.co.uk/television
6 As of 2010, according to OECD data, in 27 countries around the world, household broadband penetration had surpassed 60 percent. In these countries broadband penetration rates would likely have risen, to at least 65 percent, by January 2013. In at least half of these countries, broadband speeds should be sufficient to enable TV or movies-on-demand to connected TV sets. For more data on broadband penetration; Source: OECD Broadband Portal, The Organisation for Economic Co-operation and Development (OECD), December 2011. See: http://www.oecd.org/internet/broadbandandtelecom/oecdbroadbandportal.htm
7 For a collection of discussions on connected TV, see: Connected TV, Guardian: http://www.guardian.co.uk/media-network/connected-tv