Tablets and Smart TVs: What You Need to Know

The devices replaced 3D as the hot topic at this year’s CES. Is your business ready for what’s ahead…and what’s already here?

Why This Matters

Five Things to Keep Handy About Smart Devices

Affordable Devices and Data Services

Many of the connected TVs, tablets and smartphones needed for smart TV are still pricey, as are the broadband offerings and data plans needed to connect them. Expect delays in reaching mass-market penetration until the cost of these devices comes down, and the price to connect them does too.

Bandwidth, Bandwidth, Bandwidth

Delivering content on demand to individual devices rather than pumping out linear channels to millions of homes requires much more bandwidth, and will entail some important changes in the way content is delivered into the home. Expect operators to move cautiously to avoid huge up-front expenditures, and for usage caps to remain in place.

The Content Conundrum

Multichannel operators want to deliver content to every available device, but current deals with programmers often don’t include those rights. Expect some tough negotiations between operators and programmers, as well as higher bills for consumers, who will ultimately pay for those rights and for network upgrades to deliver the content.

Measurement and Advertising

The delivery of content to multiple screens opens up opportunities for better-targeted ads. But measurement of mobile usage on smartphones and tablets is poor, and the mobile ad market is tiny. Expect delays in the development of ad models until devices are in a significant portion of homes and measurement standards are created.

Timing the Trends

Remember how the launch of Web TV in 1996 was supposed to revolutionize television? Expect to face some tough strategic decisions on the best time to jump into the market, and some hard times at companies that get in too early or get started too late.

The Consumer Electronics Show is famous for a certain kind
of mind-boggling excess, as manufacturers frequently outdo
themselves in an attempt to bring eyeballs to what’s hot, new
and exciting. Every January, something emerges from all the
bright lights and noise as the winner of the tech buzz battle. In 2010, 3D
was all the rage—but then sets didn’t fly off the shelves during the year
as manufacturers had hoped.

At this year’s CES show in Las Vegas, the talk was dominated
by smart TVs and tablets. And now—in the same
way 3D was dissected last year—everyone from developers
and manufacturers to broadcasters and consumers will be
watching to see how far and how fast smart TV moves on
that path from promise to delivery. And, more importantly,
to ascertain what it means to their business today.

Everyone is understandably expecting smart devices—
TVs connected to the Internet, tablets like the iPad with
a wireless connection, smartphones, game consoles or
computers networked into a TV set—to have a profound
impact on virtually every aspect of the television business.

But when? Questions concerning affordability, required
bandwidth and content development will continue to be
addressed, and are bound to in! uence the pace at which
these highly touted devices will be embraced. Much cau
tion is still in order about the potential impact of tablets
and smart TVs on the industry, at least in the short run.
While much has already been done, much more needs
to happen before smart TV becomes as much a part of
the everyday lexicon as the cathode ray once was.

“Sometimes seeing what is announced at CES isn’t terribly
helpful, because the press goes so heavily into overdrive
that it takes some time to " lter out what is real and viable
and durable from what is just exciting,” notes Brian Wieser,
executive VP, director of global forecasting at Magna Global.

Smart Devices Everywhere

The promise is certainly there, and was very much on
display at the show. Samsung went as far as to bring the
heads of both Comcast and Time Warner Cable to Vegas
to demonstrate how their subscribers will be able to access
the full features of Samsung’s smart TVs, allowing
them to watch both the regular cable lineup and a wide
array of over-the-top content from the Internet sometime
later this year.

These subscribers will also be able to use Samsung’s
tablets to both view programming and to search for new
programming—a development that overcomes many
of the problems users have in finding the right show
among hundreds of channels and tens of thousands of
VOD titles with what will one day be obsolete remotes.

“Our goal is to make any content available anytime, anywhere
on any Samsung screen,” Boo-Keun Yoon, president
of Samsung’s visual display business, proclaimed at CES.

As Brian Roberts, chairman and CEO of Comcast, said
at the show, “Today we are showing [an] application that
will totally re-imagine how our customers watch TV. Tablets
and smart TVs are really an important part of Comcast
Xfinity’s plan to [provide] a fantastic next-generation
experience…For the first time, we are radically changing
how our subscribers interact with TV, and making it easy
to access the entertainment they want anytime, anywhere.”

Parts of Roberts’ vision are already falling into place.
Comcast is now offering more than 150,000 titles online
to its subscribers, and most of the other major operators—
DirecTV, Dish, Time Warner Cable, Cox, Verizon
FiOS, AT&T U-verse and Cablevision—have launched
some kind of multiplatform play, making at least some
content available online or on mobile devices. By the
middle of 2011, these so-called TV Everywhere programs
are expected to be in about 70 million homes.

The new connected TVs will allow users to easily do
many things that were difficult on ye olde television—
watch online video, play games, download movies, buy
goods, share photos with friends and family, and even
interact with programs and ads. And when coupled with
tablets, smartphones and other devices, they also promise
to open up a new era of TV viewing with ubiquitous
on-demand content.

But among the issues slowing the progress is finding a
way to connect all these devices. PricewaterhouseCoopers
estimates that about 85.5 million homes had a broadband
connection in 2010; that total is projected to grow
to about 113.8 million, about 92% of all homes, in 2014.

Even with those high penetration rates, not all devices
can be easily connected. Wired broadband connections
are often not available in the living room or bedrooms
of many homes, and wireless home networks often offer
slow or limited connectivity throughout the whole house.

The new LTE 4G networks, which offer speeds fast
enough to carry high-definition video and the expansion
of 3G coverage, could help solve the problem, but will be expensive to implement. AT&T will be spending
$700 million just to get its network ready for 4G launches,
which it hopes will reach 70 to 75 million Americans
by the end of 2011. Verizon spent $9.3 billion just for
the spectrum needed for its 4G network, which reaches
more than 110 million customers today.

The launch of the new LTE 4G networks was a hot
topic at the show. A number of 4G devices were demonstrated
at CES, including both phones and tablets,
and some deals were cut for the delivery of content over
these new networks.

During CES, Verizon and Sling Media cut a deal that
will allow users who pay a subscription fee to use their
Sling devices to access TV content on Verizon’s new 4G
networks. “Verizon’s new LTE network shows how far
networks have come, and how they now have the ability
to really show off an application like ours,” which currently
allows users to watch content from Dish Network
away from home on their computers or mobile devices,
notes Jay Tannenbaum, VP of marketing at Sling Media.

More bandwidth will be needed, however. Even
though the delivery of video content to connected TVs
and other devices is only in its infancy, Netflix subscribers
already account for 20% of the downstream traffic on
" xed-line networks during peak hours, notes Ken Morse,
chief technical of" cer of the SP video group at Cisco Systems,
which announced a software-based architecture
dubbed Videoscape at CES that is designed to help operators
deliver content to multiple platforms and devices.

“By 2015, we are estimating that video will account for
91% of all IP network traffic,” Morse said.

Much of that growth in video traffic will be driven by
connected devices. In the U.S., sales of connected TV
will grow from about 3.2 million in 2010 (amounting
to about 9% of all sets sold) to 5.2 million in 2011 and
16.3 million in 2016 (when they will account for about
52% of all digital TVs shipped), according to the Consumer
Electronics Association.

The Wait Is On

Even with that growth, it will take years for smart TVs
to reach a significant proportion of U.S. homes. Forrester
Research projects that it will take another four
years—until 2015—for smart TV to be in about 43 million
American homes.


Older TVs can be connected to the Internet via game
consoles, Blu-ray players with an Web connection or boxes
such as the LG Smart TV Upgrader that launched at CES.

But users would also have to find a way to hook up
those devices to a high-speed connection. And dedicated
boxes like Apple TV or Roku that supply access to
over-the-top content have proven to be a relatively niche
product. Since launch in 2002, Roku has sold about 1
million units, while Apple’s second-generation box sold
about 1 million units in the last four months of 2010.

Cell phones are being replaced much more rapidly,
with Nielsen estimating that U.S. smartphone penetration
could top 50% by the end of 2011. The Consumer
Electronics Association predicts that some 72 million
smartphone units will ship in the U.S. this year.

Tablet Growth and Broadcasters

Impatient consumers should also be cheered by what
is impressive growth in the tablet market—though
things will still take time. Forrester Research is predicting
that U.S. tablet users will more than double to 26
million by the end of 2011 and that total tablet ownership
will hit 82.1 million by 2014.

The proliferation of video-friendly devices such as tablets
and smartphones is good news for broadcasters who are
launching mobile digital TV services later this year. More
than two dozen devices capable of receiving mobile broadcast
signals were on display at CES, and some of the demonstrations
offered broadcasters, which have been struggling
with stagnant ad sales, potential new revenue.

But broadcasters face their own challenges in the transition
to the new landscape. While more devices are entering
the market, the major groups backing mobile DTV have
not cut a deal with a carrier such as Verizon that would
have the market clout to force manufacturers to include
mobile DTV receivers. Not surprisingly, the vast majority
of the new tablets and smartphones launched at CES can’t
receive mobile DTV signals on their own.

A gulf still exists for broadcasters and programmers looking
to deliver content via apps to tablets and smartphones.
Currently, creators must develop apps for many different
operating systems and devices. That imposes considerable
costs on both programmers and advertisers, and has limited
the mobile ad market, which Magna Global estimates
will produce only $631 million in revenue in 2011.

To take full advantage of the ad potential of tablets and
mobile devices, better measurement will also be needed.
Nielsen is delivering combined ratings for linear TV, DVR
and VOD usage and will be adding online usage to the
mix this spring. But it has released no timetable for adding
mobile metrics, which Nielsen says poses some problems.

A much more hyped problem is cord-cutting. Some have
argued that these new connected devices would encourage
consumers to drop or cut back on their multichannel subscriptions;
they point to multichannel subscriber losses of
335,000 in the second and third quarters of 2010.

If this trend accelerates, it could threaten the $74 billion
multichannel providers expect to take in from subscriptions
in 2011, according to PricewaterhouseCoopers. And
it could severely hurt cable programmers, which receive a
large chunk of their revenue from operators.

Still, the recent losses amount to only 0.3% of the overall
multichannel universe, and they may reflect the U.S.
unemployment rate of more than 9% for six quarters. A
recent study by Frank N. Magid Associates found only 1%
of multichannel subs were planning to cut the cord. and a
fall 2010 study by CTAM found that 84% of people who
were using connected TVs to watch online video watched
the same or more regular TV than they did before.

Operators also seem to have embraced these devices
as a way to enhance their services. “We’re positioning
ourselves to offer content across all platforms, just like
what we’re doing with NFL Sunday Ticket,” which allows
subscribers to watch games on TVs, PCs and mobile
devices, said Derek Chang, executive VP/content
strategy and development for DirecTV.

A more immediate issue is content rights. Current deals
between operators and programmers don’t necessarily include
rights to stream content to a tablet, for instance, and
in some cases the channels that have acquired programming
from the major studios don’t have those rights either.

“The technology is here, it is just a matter of working
out the rights issues,” Chang said.

Thorny negotiations between programmers and distributors,
it seems, are one thing that the new age of
smart TVs and tablets is unlikely to change.