How to Sell Connected TVs this Holiday Season

by James McQuivey, Ph.D.
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The signs of the holidays are all around us: my teenagers have started listening to the local holiday music station, people are bundling up in anticipation of the snow that will soon be upon us, and the Wall Street Journal is reporting on the expected sales of TVs at WalMart this Black Friday. 

Aside from the economy, I'm following holiday shopping results because of the humble little devices we call connected TVs. CES 2009 featured many a promise from major TV makers – they assured us that connected TVs were finally ready to rock. Based on that, we estimated that a million of these TVs would be in US homes by the end of the year. In fact, if all the promises were kept, these million would be an easy sell because they would have fancy widget experiences just like the iPhone. Plus, we were assured the technology would get better every day so that accessing Internet content on the TV would feel as natural as switching from Dancing with the Stars to House (an activity I encourage).

This is not the time to go into my disappointment at the failure of some of those TVs to even arrive, much less the less-than-iPhone-like widget experiences they have delivered so far. Instead, in the spirit of technology denial, I’d rather focus on the fact that even if these TVs could do everything we hoped, somebody still has to sell them at retail. No, I'm not concerned we won't hit the million mark. Instead, I'm concerned that we'll have a million or more out there, but that fewer than 40% of them will actually connect to the Internet.

So how to sell a connected TV in such a way that consumers want to connect them when they get home? Walk the aisles of any store hawking TVs and you’ll be hard pressed to find a connected TV. Even if you ask Victor at your local Walmart Impact store as I did, chances are good he won’t know if his showroom TVs connect and what they would do if they did connect. From Sony Style, to Best Buy, to Sears, finding one of these TVs is a challenge, much less getting a demo. I recently asked a Sony Style store employee what was meant by the ubiquitous Netflix and Slacker logos around the TVs and he proceeded to pull out a remote control and truly wow me with what his floor model TV could do. But had I not asked, I would never have seen this demo because the stylish store, the lovely displays, and the busy employee did not offer it to me.

I recently walked into a Best Buy and saw a promising sign: a little blue sticker that raised the Internet Connected flag. It was prominently attached to anything that could connect to the Internet – a TV, a TiVo, a multi-room audio player. Finally, someone was volunteering the fact that the TV I was looking at could offer me the latest and greatest features.

I haven’t seen this elsewhere yet, but I need to. The industry needs to find a way to let the world know that things connect. This is made harder by the fact that so many of these connectable devices are sold in different parts of the store so I can’t even be tempted to consider how the iPhone might configure my Netflix Watch Instantly queue or how the DLNA-compliant TV might pull photos straight off my Windows 7 PC, because none of those devices are located even remotely close to one another. So here’s my connected TV wish list for this holiday season, hoping for some connected TV love:

• More blue stickers. I want to see stickers boasting of connectivity on every piece of Internet-enabled hardware in the store. Let me know that this thing connects. You don’t need to provide a four-page description of what it does, just raise the issue and let my curiosity lead me to figure out the benefit.
• Show me the brands. To give credit where it’s due, Samsung has done a solid job of letting people know its Blu-ray players and connected TVs offer Netflix and Pandora right out of the box because it features the logos prominently on packaging and even on some devices. These reassuring content brands offer a promise that supersedes any widgets, network protocols, or technology acronyms I don’t want to bother with.
• More co-located devices. Go ahead, put a laptop next to that TV, even drag a digital camera over to show how photos can get to the TV screen. Make me aware that these things are supposed to work together now. You’re not just selling me a TV, after all, you’re selling me a connected experience that implicates many other devices and services I could buy. Who knows, you just might sell me even more stuff once I understand how it all fits together.

That's it, industry. Go ahead, make my holiday.

It’s Berlin, Circa 1989, and the Media Industries Are East Germany

by James McQuivey, Ph.D.
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Allow me to add my voice to the chorus of those applauding the fall of the Berlin wall twenty years ago this month. It was this event that taught me firsthand why revolution is simultaneously impossible as well as inevitable. In 1986 I sat with other students from around the globe just blocks from the wall and debated whether it would ever come down. The naïve among us insisted freedom was imperative: It was inevitable. The others asked if we had stopped to think about the massive relocation of people, economic resources, and government structures that such a revolution would require: It was impossible.

Until it happened, just three years later.

 

The author, pictured left, photographed in front of the Brandenburg
Gate from what was then the East German side

Such is the content industry’s less political but equally momentous dilemma. Walls are crumbling on every side: First the CD and now the DVD. Traditional structures that held entire industries together like little Warsaw Pacts are under threat. Media companies that deal in any flavor of print, audio, or video are under siege from the economic effects of content digitization, forever altering how content is created, packaged, and distributed.

At Forrester we call this the Media Meltdown and though we’ve been documenting its slow dissolve for some time, it’s high time we declare that 1989 is upon us – it’s time to actively tear the wall down rather than watch value continue to trickle out around the edges. We must rebuild the media industries anew: goodbye analog inefficiency, hello digital economics.We recently published a report called How To Rebuild The Media Industries, in which we issue this call. We’re no Reagan, but we issue the call with the same clarity: Stop building value on your supposed content and distribution monopolies because digital economics have forever reduced barriers to competitive entry. Publishers and producers, someone else can make that content for less money. Networks and distributors, someone else can package and bundle the content more efficiently. And movie theaters, retailers, cable networks – anyone who delivers content – there are new alternatives to you popping up every day. How? Because the analog assets and processes you built your empires on will soon hang around your necks like dead weights wile new digital competitors enter unencumbered. Some will dispense with analog assets in one fell swoop as Conde Nast did with Gourmet, others will whittle assets down to the bone like Disney did to Miramax, while some will cut as much internal fat as possible while keeping up external appearances as Newsweek has done.

And that’s just the internal wrangling over budgets. When you serve external customers, you’ll change what, how, and when you distribute content. Sony Pictures will stream Cloudy With a Chance of Meatballs to owners of Sony Bravia connected TVs before it’s available on DVD. This is just one example of how to seize the economic advantage that comes from serving consumers at a new, digital, level of convenience. You’ll have to embrace the devic consumers embrace – connected TVs, smartphones, and eReaders – offering content as a service that spans multiple platforms, and charging for the convenience of easy access to what you provide.

In the last two months I have been on the road presenting our view to dozens of clients and to others in larger, less private settings. Some chirp that this is all obvious and inevitable, why do we even bother to write about it? Others squawk that we can’t possibly be serious – have we never stopped to consider how impossible such a massive relocation of labor, assets, and economic value is? To the former, I applaud your naiveté and welcome your bold moves in the market. To the latter, I encourage you to learn your history lesson. Those who rebuild now will still be here to discuss the finer points of the digital transition ten years from now. Those who do not, will not.

_____

Note: a version of this post was also published on Paidcontent.org, though without the attractive retro photo

Oprah abandons broadcast TV for a life in cable: Oprah, we need to talk...

by James McQuivey, Ph.D.
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Just this Monday Sarah Palin told Oprah she was "the queen of talk shows." Which might mean there's no better time to abdicate the throne than when you're clearly on top (and when the #2 talk show, Dr. Phil is produced by you). 

But Oprah didn't just announce that when she wraps her 25th season in 2011 she will wrap the show for good. No, she announced that she would also begin the next chapter in her mega-successful life: she's going to move to cable. Her cable network, titled OWN, for Oprah Winfrey Network, was actually announced some time ago, so while that's not news, the fact that Ms. Winfrey is moving away from daytime television's most-watched show to build a fledgling cable network is an eyebrow-raiser. 

Because cable TV is no safe haven away from the woes of broadcasters.

Audiences are fragmenting, cable TV is having a harder and harder time maintaining viewers in the face of the DVR and Hulu one-two punch. In fact, OWN was supposed to be up and running this winter but was postponed because of the challenging advertiser climate. It's a climate that's not going to get dramatically better even if our economy continues to improve. That's because advertisers have many alternatives for their advertising dollars, including the Internet, where more and more spending is shifting every day, reaching nearly $26 billion this year (see our July 2009 Interactive Marketing Forecast report for more detail).

Does that mean we're waving Air Oprah off the cable runway? No, we think cable is a great place for the Oprah empire. Beyond 500-channel programming lineups that are under threat, cable does have some serious advantages going into the next decade including high-speed broadband connections and control of the home network. Then take one look at O magazine and you'll see a smorgasbord topics that can easily feed a cable network and satisfy Oprah's devoted followers using those technologies better than they're used today.

That's why we offer Oprah our free advice, as if we had her here on the couch in our very own studio. Here's what we would say:

• Insist on Internet delivery of your content. Existing cable networks -- including Discovery Communications, your 50-50 partner in OWN -- are stuck in contracts they negotiated under analog assumptions. They involve separate licenses and all kinds of exclusive restrictions for linear feeds, VOD content, and online content -- which is why there's precious little of the latter coming out from cable nets. Tell your new cable MSO partners that you understand their need to make money from subscribers and from advertising -- offer to help by leading them to the future, insisting on a single license to your shows that they can use online, over mobile, and in VOD. But require that they invest in reaching your audience with those platforms with the threat that you will if they don't. Which leads to...
• Charge for access to your experience. If you can help it, don't roll yourself up in tier 1 of the cable lineup -- while it is tempting to make a grab for a large audience, you want people to pay for you like they do for Disney. You're not just charging for content, however, you're charging for access: your customers will pay for convenient access to OWN on multiple platforms so they can get their fix in the living room, kitchen, bedroom, or even when applying the mascara you recommended in the bathroom. On whatever device they happen to be near. Even if you do go tier 1, you can always make multiplatform access a premium experience -- tie it to the magazine subscription if you must, but do it. Help us prove that people will pay for what they value: easy access, on any device, to content they believe in.

You get the picture: cable can be good, as long as it's a different cable than the one we all currently experience. So while these points are a bit technical and Oprah probably has people that take care of these things, that's what we would tell her if we could have a face-to-face. (Yes, we might also blather on about our favorite Oprah moments, including the Flashmob with the Black Eyed Peas and 20,000 fans in downtown Chicago, but if we could stay focused on business, that's what we'd say.)

Why Some Channels Are More Convenient Than Others: A Convenience Quotient Analysis

[Posted by Doug Williams]

That was the title of colleague James McQuivey’s track session here are Forrester’s Consumer Forum in Chicago.  For those unable to attend, here’s a quick synopsis of what James covered:

While attendees may think they have had enough of the term – and the concept of – “multi-channel,” the truth is that multi-channel has only just begun.  It’s not just in-person vs. phone vs. online.  The mobile channel is prominent today, and we’ve got new options coming, like connected TVs, that won’t emerge for another year or more.

 

James’s theme is this:  Your product or service is never more convenient than the channels through which people access it.  And convenience is bigger than you think.  It’s not a need or feature – it’s a measure of how well your features provide consumer benefits.  Regular readers of this blog will know that we at Forrester have captured the notion of convenience in the following equation

 

Convenience Quotient = Benefits – Barriers

 

The overarching concept of convenience is addressed in a Big Idea report by James, called “Cracking The Convenience Code.”  I applied the CQ methodology to customer service channels in my report entitled, “Enhance Your Product Strategy With Convenient Customer Service.”  James reviewed these various channels – such as email, FAQs, online chat, live agent on the phone (among others) – and described how a simple benefits vs. barriers framework could be developed and scored by each member of the audience based on their own particular situation. 

 

Once done, the question to be asked is this:  How do we prioritize channels with convenience in mind?  The answer: use your CQ scorecard to:

• Pinpoint channels that deliver value – focus here! (Benefits > Barriers)
• ID channels that are more pain than they are worth – abandon? (Benefits < Barriers)
• Look for complementary channels (whereby consumers can get all the benefits by switching channels)

Channel synchronization is another key goal.  But keep in mind that:

• No single channel is barrier-free
• Sometimes the most convenient experience can only happen across multiple channels
• Synchronized channel experiences allow people to jump from channel to channel, cherry-picking the benefits without enduring the barriers – and that’s a good thing

All in all, a great session.  For more information on CQ, including links to all of Forrester’s CQ research, please see the new CQ web page on Forrester.com at the following link:  http://www.forrester.com/CPS/ConvenienceQuotient

New Roku boxes make the simple complex

by James McQuivey, Ph.D.
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Today Roku launched two new players to complement the original $99 Roku player. Perhaps somewhat obviously, the two new players come in at $79 and $129, allowing Roku to test whether there's price elasticity in this market. 

I'm not sure this was a necessary move. The cheaper box (called Roku SD), simply removes HD playback from the original Roku Player (now called Roku HD). The $129 version offers wireless-n wi-fi streaming to deliver dramatically better video quality. I don't personally need that since I hook up my Roku player -- which is in constant demand in my home -- via ethernet. (Yes, being a nerd has its advantages including a fully self-wired home that has over 24 ethernet ports in it.) So while I can see the value of the more expensive box for wi-fi users who have wireless-n routers (do you know if you do? betcha don't know), I think muddying the waters with 3 boxes instead of a maximum of 2 just feels like unnecessary complexity. A bit like Amazon announcing it would sell two versions of the Kindle in the US, one that's domestic only and one that can roam abroad, a decision doesn't appear likely to last very long.

What I'm really interested in seeing is what Roku's communication team promised when it assured me that all three boxes "will be compatible with our new upcoming Roku Channel Store" which is promised to launch very soon. I'm very eager to see this store and have been pushing on Roku for any information about its contents because that's where this gets interesting. You see, even though I'm big on connected TVs, from what I'm seeing, most are not going to deliver much in the way of content other than Netflix (as Roku does) and some VOD from Blockbuster or Amazon (also as Roku does). Roku can keep the connected TV threat at bay simply by providing some rocking content. I have my heart set on a Pandora experience, one that's visually-enhanced, please, to provide some cool screen action during playback -- take some cues from the Zune desktop experience, simply fabulous. But there are other good content options available, including a Hulu subscription I would gladly pay for. By the way, in case you were wondering why Hulu was thinking about charging, this is why. Once they charge you, they can put their shows on all these devices. I expect Roku to be first in line to sign the partnership agreement. 

New Report: How media industries must rebuild to survive

by James McQuivey, Ph.D.
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We've been flogging the media industries for years at Forrester. So much so that we sometimes assume that people remember all the ways we've warned, cajoled, and exhorted for more than a decade. But based on the things we're seeing the pundits finally say, it's clear that "the end is near" is a pressingly recent recognition on the part of many. For examples, see Malcolm Gladwell's review of Chris Anderson's book Free; Mark Bowden's lament over the loss of journalism ethics in The Atlantic; or programmer/essayist Paul Graham's thoughtful reflection on Post-medium Publishing.

Don't get me wrong: we welcome these and more voices to a conversation we've been trying to start for some years now. (If you think I'm just posturing, I direct your attention to former Forrester VP Mary Modahl's July 1994 piece entitled Publications Get Wired where she first blew up the "print isn't going away" myth.) But there are some very fundamental things that are getting lost in most of the discussions we are hearing. Namely, people are stuck on processes, historical reinterpretation, future prognostications, and personal feelings at the passing of an era.

In the end, however, none of that will matter as the fundamental economics of digital media assert themselves. Basically, it's now cheaper to make, distribute, and consume media. That changes everything.

Because the noise is overwhelming our clients, we decided to write a forceful summary of the core economic facts that are driving today's media businesses over an edge that we call The Media Meltdown. It's not all doom and gloom, though, because in the end, once we replace analog economics with digital efficiencies, we will be able to rebuild the media industries -- from newspapers (though they may need a new name since few of them will continue to use paper) to movies to books.

Ready for this? Hope so, because you don't really have a choice.

Our new report, titled How to Rebuild the Media Industries, is available to clients on our Forrester website.To tempt you, I'll share one of my favorite setups in the analysis:

Because the cost of the analog medium and its distribution are removed from the equation, increased competition among entrants old and new will drive revenues down until they reflect the cost of production. This is a maddeningly difficult lesson for media companies to learn when they have spent so many years believing that people valued their product at a certain price point, only to find that the value was actually an economic artifact — the result of the market's need to set a price that compensated producers for making and shipping physical media products.

Particularly painful for former media titans is the fact that they continue to hold assets and labor contracts associated with analog production and distribution methods. They can't rid themselves of those costs without also giving up the analog revenues associated with them — revenues they need in order to fund a digital rebuild. As a result, when faced with the digitization challenge, traditional media players pass through a dangerous depression we call the media meltdown. Our choice of the word meltdown has two purposes: It captures the challenges each industry faces as well as the maladaptive solutions these industries typically pursue. 

The meat of the report is our focus on what we call Act 3 for the media industries: Time to Rebuild. It's a phase we encourage the industry to plunge into, creating a sustainable environment, where: 1) fans pay - with time and/or money - to indicate which content they value; 2) market forces drive the creation of content; and 3) consumer convenience is the ruling principle for all players -- CE makers, pay TV providers, content creators, and more. We lay out the different ways that money will be made, many of which we'll dedicate entire reports to in the coming months, whether direct payment, direct subsidy, indirect subsidy, or various types of bundling. We end with a call to improve how consumers can discover, consumer, and share media in order to drive consumption up. 

There's good stuff in there, but we can only scratch the surface in a single document so with the problem and the end state properly defined, we will fill in the remaining details with follow-up reports over the next several months. Come give it a read and then join the conversation. Share your ideas with us: how will media companies make money in the future? How will content formats change? How will advertising survive? How quickly will smart media companies abandon analog economics? Can't wait to dive in with you.

And the winner of MTV's VMAs is...Twitter!

by James McQuivey, Ph.D.

I recently wrote about Social TV -- what we call it when people use social media like Facebook and Twitter to augment the TV experience. There were some doubters (there always are).

If you need proof that people are using social media to make TV more engaging, then look no further than this week's MTV VMA awards. Though everyone seemed to be talking about Kanye West, the real trendsetter of the evening was Twitter.

From the show's start to the finish, 1.3 million Tweets related to the VMAs were posted. The traffic to Twitter tripled during this rush. More interesting, the Twitter phenomenon was almost exclusively real-time, meaning that although there were another 700k posts that evening and into the next morning, but most of the heat came during the event as people in attendance and people watching reacted in real-time to what they were experiencing and feeling. 

This is the boon linear TV has been waiting for: imagine, a way to get people to watch TV at the same time as everyone else -- because if they don't, they'll miss the whole Tweet-party! That's what my Forrester report on Social TV was about, and I thank the VMA viewers for proving my point.

Oh, and yes, Taylor Swift totally deserved the award, this video is awesome; so sit down, KW. 

Can the Apple TV reinvent itself?

by James McQuivey, Ph.D.

I was in the middle of an ICTC (my new acronym for InterContinental Telepresence Conference) when I got an urgent message from Brian Chen at Wired News. Without any announcement, it seems, Apple had cut the price of its 160 GB Apple TV to $229, dropping the smaller model altogether. What did this mean? 

I've been following the Apple TV since its announcement 2.5 years ago. I bought one of the first, and I spent hundreds of dollars on TV shows testing it (I have all the episodes of Battlestar Galactica, seasons 1, 2, 3; and you don't). That said, I haven't used the Apple TV in months, even after I hacked it using Boxee. It's because the Apple TV doesn't make watching top shows easy enough to compete with cable, Hulu, and Netflix. 

Brian wrote a very solid piece in Wired News yesterday, click here to see the article. He managed to get in a lot of the big picture points I raised, which is always hard to do since I go there so quickly and barely pause to breathe. The point is this: The Apple TV is on its way out.

Does that mean that Apple should get out of the TV business? No. Here's my recommendation for how Apple shape the future of TV viewing: The Apple TV 2.0. Imagine a box that has an over-the-air HD antenna, an HD DVR with 320GB of hard drive space, and an ethernet/wireless connection to the Internet. This box is not a TiVo -- TiVo works very hard to make itself compatible with all the cable systems and satellite systems out there. Perversely, this means that when you buy one, you have to also keep subscribing to cable or satellite. The Apple TV 2.0, however, would get the bulk of its programming over-the-air, the old fashioned way (via an HD version of rabbit ears). All of that content is 100% FREE. With some amazing Apple interface that makes it easy to record and access your favorite ABC, CBS, NBC, Fox, and PBS shows, you'd take care of 80% of the content you typically watch. Then you'd use iTunes to get your favorite HBO and Discovery shows. As I suggested in Brian's article, iTunes could offer a monthly subscription service, say $19.99 that provides up to 30 free TV show downloads and 2 HD movie streams. Or more or less, depending on what the users wanted. Best of all (from a consumer point of view), this could actually replace cable. 

Do I think Apple will do this? No. Do I think they should? Yes, absolutely. If they don't, somebody will. You may have followed Sezmi's attempt to offer exactly this type of set top box. So far, it's not in the market, but it -- or something like it -- will be. Apple would be much more successful than Sezmi and has no conflict with cable providers, content owners, or CE makers to cause it to pause. Such a move would shape the market, something Apple loves to do. Note to Apple: If you take my advice and make millions, the mere knowledge that I improved the lives of millions will be sufficient repayment :)

Apple's Nano video camera further erodes the camcorder market

by James McQuivey, Ph.D.

You've got to be hating life if you're a videocamera maker like Sony or Kodak and you've just been bested yet again. First, it was the immensely successful Flip video cameras that sold more than 2 million devices without a significant brand name simply because the camera was so darn easy to use. (
Personal anecdote, I recently spent a day at a major CE maker with a group of industry analysts -- they let us try their new Flip camera competitor and one of the smartest guys in the room couldn't figure out how to turn it on. Said a nearby analyst: "Hmmm, no wonder Flip beat them to this market.")

Now the game just got more complicated because Apple has decided to add video camera capability not to the iPod Touch line, but to its Nano iPods. Pause for reverential awe. This was a brilliant move. (see Wired's take on it here).

Not only because it hits Flip in a sensitive spot -- right in the high school and college market where Flip was such a hit -- but because it further disrupts the videocamera market, opening it to more innovation and rapid change. You no longer have the three tiers of videocameras (disc or tape storage, digital decent, and then your lousy phone camera), instead, you have a fourth competitor. A personal media device that is now capable of actual personal media. Oh, and did I mention it's made by Apple? Right, just checking.

This puts Apple in an important place it hasn't occupied until now: it makes Apple software the potential hub for personal media, something that is poised to explode in the next 2-3 years. You see, even Flip's success has not guaranteed that people use Flip software to manage the videos they capture. But Apple's iTunes has always been the glue that makes Apple's ecosystem work. And now it just acquired superadhesive properties.

I'm not predicting the end of Flip just yet -- in the hands of Cisco, Flip may stay relevant to consumers by emphasizing the simpler interface or the higher quality of its HD line. Or it could move into the B2B world where Cisco's more comfortable. But I am suggesting that the days of standalone videocameras are waning. Other than aspiring moviemakers, who should ever buy a standalone camcorder again? The next big move should come from all the phone makers who will need to take advantage of persistent wireless connectivity to make sharing via phone easier than sharing via iTunes.

What do you think. Do you want one? How critical is adding personal video to iTunes to Apple's future? Does it glue Apple's offerings together in a way it couldn't previously, even leading (he adds, rather obscurely) to more Final Cut Pro users in the future? 

Digeo announces Moxi Mate, a whole-home DVR play

by James McQuivey, Ph.D.

via www.moxi.com

Today Digeo went live with its Moxi Mate, the companion to its Moxi HD DVR, designed to provide whole-home DVR functionality. I sat down with Greg Gudorf, CEO of Digeo, a few weeks back and he previewed the box for me. A couple of my reactions were: 1) the quality of box-to-box streaming is phenomenal; 2) they even designed it so you can turn the panel lights off at night, assuming it will be a bedroom accessory.

The real secret power of this, however, comes with the free inclusion of PlayOn software, which allows your PC to stream online video from Netflix, Hulu, YouTube (and really any other online media content you want including music and photos) to your Moxi Mate box. This is a clever end run around the problem of trying to get the rights to integrate Hulu content into the box directly. (As we saw with Boxee, this is not something Hulu is excited to enable as it threatens their relationships with content owners.)

Love the device. But the fight over how media content will get around the home has only just begun, let the games begin!