The Fight Over TV Is A Fight For Platform Power

You’re in for a big surprise. Microsoft is winning one of the most important battles in the digital world: The battle for the TV. The TV battle is important for reasons you already know: TV consumes more time than anything else and it generates annual revenues from $140 to $160 billion each year in the US alone.

But the stakes of the battle have risen sharply. The fight over the TV is really a fight over the next massive consumer platform that is coming up for grabs. Of platforms there are few: Google owns search, Amazon owns digital retail, Facebook owns social, and Apple owns consumer devices. Microsoft owns, well, nothing at the moment, despite its handsome revenue stream from Windows and Office.

That could change soon. Microsoft’s Xbox 360 is already the most-watched net-connected TV device in the US and soon, the world. With more than 70 million consoles in households worldwide – as many as half of them connected to the Internet, depending on the country – Microsoft can rapidly drive new video services into tens of millions of households.

This week we released our newest report, The Fight To Control The TV Becomes A Platform War, describing the 32 million consumer households in the US that watch online video on a TV set. That number is up sharply from 25 million the year before, and of them, 18.4 million are getting the job done with a game console, the majority of them using the Xbox 360. Nothing else comes close, not Internet-connected TVs – which are selling well but connecting poorly – nor over-the-top video boxes like Roku or the Apple TV. (I talk more about the report in the brief video above).

The report focuses on what the current platform owners should do about Microsoft’s ascendancy. Google has to push Android onto every TV device, including the Motorola set-top-boxes it is about to own. You may even see Amazon put out a Kindle TV – made by Samsung or LG, of course. Apple is invulnerable in so many ways yet the 4- to 5-hours a day we spend on TV is its Achilles heel, clearly the motive behind the company’s long-rumored interest in making TVs.

Notice that in none of this platform prattle have I even mentioned the current titans that have been warring over TV for years: The cable service providers, satellite companies, even the programmers that produce and deliver the content we all love. Not that they’re going away, they’re not. But they aren’t in the driver’s seat anymore. Because their businesses evolved under traditional analog constraints that will gradually evaporate, they are left unable to mount their own platform push. With the possible exception of Comcast, which is aiming to give it a good try using its Xfinity and Xcalibur brands.

All my friends on the content side need not fear: Content is still king. But from now on, the content is only as royal as the platform throne it rests upon. This means that the real action – the action that matters in the living room and then far beyond it – is the rising battle between platform aspirants. It’s a global battle, and it’s one that will determine whose devices, whose software, whose app store, and ultimately, whose customers will generate the most value in the coming years.


Numbers can be misleading

I have not been able to see the numbers in full, but I'm unconvinced on a few issues:

1) How does the amount of time spent watching TV relate to current statistics, especially across different age groups? I'd be very surprised if under-30s really spend that much time watching programmed TV. I'd say they spend much more time on-line and perhaps gaming on the Xbox.
2) As a result, the war for TV might be exaggerated as a potential battleground. Where the battle does lie is in what the preferred device for imbibing content will be. In today's world, mobile/portable is king & Apple has that segment wrapped up at the moment. Any TV/media center will have to play nice with Apple devices (for instance allowing such devices to stream to and from the TV.
4) Apple has proven time and again that it's not the device alone that makes the magic, it's the device combined with the service: iTunes in this case.

The Xbox has penetration in the household but how far are the services it's providing the trends of the future?

You're pointing out reasons why Apple has a shot

And I agree with them. Apple still has a great shot at it, in fact I laid out in the report a brief path that Apple can take. I will likely blog on that next week because it's worth putting my POV down before Apple announces anything so we can see if I was right or wrong.
The one specific point I can't support completely is #4: Yes, iTunes has been very powerful in music and the iTunes App Store is the cat's meow. But iTunes has failed to become a powerful source of video and it has also failed to capture much share of the book market. So iTunes is not a magic wand Apple can wave when it wants to. But if Apple does it right, it can use iTunes -- specifically iTunes developers -- to really attack the TV market in earnest.

"Apple has proven time and

"Apple has proven time and again that it's not the device alone that makes the magic, it's the device combined with the service: iTunes in this case. "

LOL! iTunes? That slow, bloated POS known as iTunes doesn't even compare to Xbox Live and it's services. It's not even close. I won't mention the fact that Apple TV has been a complete flop to this point, alone with Google TV.

Ordinary User's Perspective

I'm not terribly up on all the industry maneuvering, but I thought I'd chime in with my $0.02 cents as an "average consumer."

I have two X-Box 360s in my house, one on each TV. Some gaming, lots of Netflix. It meets my needs -- for now -- but there are definitely some issues:

1) Hamstrung streaming

Netflix works like a charm, but if you want to stream an MP3 or video from your home network, you need a "Windows Media Center Extender" or something. This means a computer left on in the house somewhere, or an expensive "NAS" network storage device. I find this baffling, as my X-Box has 60 gigs of empty hard disk. Why can't I just copy some media over?

To top it off, the X-Box has limited codec support. It won't play MKVs, certain AVIs, etc. and there are no third-party video apps to solve this. They keep redirecting you to Windows Media Center. I don't want to leave my PC on so I can play a tune or watch a movie!

2) Microsoft using X-Box Dashboard as a bully pulpit / ad farm

I find the latest X-Box Dashboard interface to be incredibly distasteful. It's ugly, and pumped full of ads (and I pay a monthly fee for this!). I have no choice but to use whatever Microsoft forces on me. I resent having to scroll past a half dozen things Microsoft is trying to sell me before finally getting to the video player, x-box arcade, or whatever. Zero interest in having "Bing" on my X-Box dashboard. I have a real computer, with a keyboard and mouse, if I want to surf the web!

3) Restrictive Licensing

Friends and I loan games to each other. The ones on discs, anyways! There's nothing immoral or illegal about this. Furthermore, it often leads to me buying more games. Yet, X-Box games are starting to take on one-off DLC licenses. I borrowed my friend's Battlefield 3 disc, and it wanted me to pay $10 before it let me play online! I refuse to play this sort of ball game. I just returned the disc to my friend; never thought about the game again.

Conclusions: I'm happy with the X-Box, but only sort-of. I'm watching little Roku sticks running android cropping up on the market with great interest. I could easily see myself picking up a pair of them for $100-200 each to do the things the X-Box does badly. I'm eying my options for an exit... and if the "X-Box 720" goes whole-hog with restrictive licensing, I simply won't buy it at all.

X-Box is increasingly vulnerable. Someone will blow it out of the water sometime soon; this is my feeling. Might very well be Valve Software / Steam.

I don't disagree with you

I think there are other big issues Microsoft has to deal with, possibly before these, like: Why is there no app store? Why can't I use my Android phone as an Xbox controller? There are plenty of things that Microsoft needs to do to future-proof the Xbox, so we're in agreement there.

But from the perspective of any technology platform, a company has a much easier time making those improvements if there are already 70 million customers using the box that you can field upgrade. Rather than having to convince a bunch of people to get a brand new device (just ask TiVo, Roku, Apple, and any number of other would-be TV players).

So Microsoft's position isn't guaranteed by any stretch, but it is clearly advantageous.

Re: I don't disagree with you

IMHO: X-Box has been a real win for Microsoft. They stepped in hard and came out ahead of Nintendo's Wii, which was a decent hit in and of itself. When I got the X-Box, and then a second X-Box, there _was_ no Roku. The other option was extremely clunky cable DVR (which i've since canceled) or awkward homebrew options like MythTV. Though X-Box had its problems, in 2007 it kicked the pants off of everything else on the market. This was before you even considered that X-Box was a serious gaming console, coming in only slightly behind the top-tier PS3 in capability.

After this strong start, they stalled. They sat on their laurels for years, happily collecting profits. Kinect was offered as an attempt to extend the commercial life of the platform; I found this insulting. A $150 peripheral? All I wanted was more video codecs! How can you not expand video format support, even a little, five years later? Or open up app support; let someone else deal with it if they don't want to. I feel like this was just a shallow, obvious push to get people to buy more paid/leashed content.

While people still love their X-Boxes, they're eying other options with a lascivious intent. The remaining barriers are hassle and cost: you can get a custom solution, but it'll either cost you time (and hassle) or money (paying someone else to solve the hassle).

What I _really_ want is an HDMI stick (like a USB drive) with ~32GB of storage, Android, and WiFi. Let me load custom video codecs onto it, charge $200. This could unseat the X-Box for anyone that simply wants to watch video... a major chunk of the X-Box's success has been as a media player! It's overkill for people that don't care about games, and such customers are soon to bolt.

Why in the world should

Why in the world should Microsoft allow Android to be used as a controll for Xbox? That makes no sense. Microsoft despises Google and vice versa. There not going to give their competition a leg up, especially when they want to take market share away from Android with Windows Phone.

Let me get this straight...

Let me get this straight... James has something positive to say about Microsoft? You don't say.

About as predictable as his negative/cynical view of all things Apple.

Methinks thou workest for Apple...

Okay, DW, the only people I know who think I have an axe to grind on Apple are people who work at Apple and the only reason they think that is that I don't reflexively fawn over everything they do. First, let me put your ad hominem attack back on the defensive, then I'll respond with why my assessment of Microsoft's opportunity is based on fact, not the bias you suggest.

First, here is a short list of things I have written about Apple in the past:
"Apple’s iTunes environment and App Store was the first such platform to create this kind of platform promise, and consumers have responded by the millions, snapping up 58 million iPads since the product was launched less than two years ago."
"Hats off to Apple for understanding that there was a clear need for a new form factor — a personal, media-centric device — that would satisfy consumers. From the crazy success of the iPad, we learn three specific lessons...[followed by nearly a page of lessons we learn from Apple's success]"
"Apple’s decision to market its iPod with black silhouettes entangled in white headset cords is a perfect example of a company that understood how even its smallest features conveyed its most profound benefits."

Need I go on? My praise for Apple is as frequent as it is genuine. Which gives me more than solid ground on which to stand to justify my assessment of Microsoft vs. Apple in the TV war. Without rehashing the report, consider this datapoint: Apple admits to selling 5 million Apple TVs, a fine enough achievement. Compare that to the 3.5 million Roku boxes sold. If Apple, with the world's most powerful electronics brand and channel can only manage to sell 1.5 million more boxes than Roku, then it shows very clearly that Apple is not succeeding in the TV business and has a long way to go. Compare that to the nearly 70 million people who have an Xbox 360. And the 22 million people who we estimate have a Kinect camera. That's for a product (the Kinect) that is clearly less useful than an Apple TV, and even costs more. The ability to engage TV customers score stands at Microsoft 22, Apple 5. The latent base of TV devices that you could mobilize in an instant score stands at Microsoft 70, Apple 5. Which is why my Apple advice in the report suggests that the company move around Microsoft (and the rest of the TV business) rather than try to compete on the same footing. It's something Apple could pull of if they do it right. Am planning to blog more about that next week.

Bravo! I couldn't have said

Bravo! I couldn't have said it better myself.

Question for clarification James

Exactly how are you guys tracking the use of gaming consoles for streamed content? Are there any caveats in your methodology I should know about before taking your conclusions about Xbox 360 representing a 'majority' of the consoles where content is being streamed in the US at face value?

Consumer Technographics

We use the surveys done by our Consumer Technographics team. These surveys ask thousands of people if they own these devices (we ask about each game console separately) and what they do with them (we ask about connecting them to the Internet, gaming online, watching online video, and a few other things). We then compare our numbers to any publicly available numbers from the manufacturers themselves or third parties (like FreeWheel, an ad server that reports that Xboxes are responsible for more pro video ad views than even the iPad -- with other game consoles being too small to break out separately).

I used more than one survey in this report, the main one I got game console data from is our Q4 2011 Consumer Technology Online Survey (US), with an n=4672. The subsample of Xbox 360 owners is n=966. I am not at liberty to share all of the data for all of the game consoles, but Technographics clients can request all of that data from their data advisors.

The Numbers

Thanks for your responses to all our queries, James. I will freely admit to being an Apple fan, although I like to think I'm not unduly biased towards them in that I will deny or obfuscate numbers/logic in order to defend them. Besides an interest in tech, I have no affiliations to them.

I notice you mention the FreeWheel numbers in your last response and, initially, the response I was going to give you when I first posted was to point you to this blog post by John Gruber of Daring Fireball (a diehard Apple defender):

His conclusion: "Assuming Freewheel’s data is both accurate and relevant, the conclusion we should draw from it is that iPhone/iPad/iPod iOS devices dominate post-PC ad-based video watching, Xbox is second with half iOS’s share, and Android is a distant third with half-again Xbox’s share."

The reason I didn't point you to that post was that I wasn't sure if FreeWheel was one of your sources. Of course, you do supplement their numbers with your own Technographics stats, which makes your perspective slightly rounder than that of FreeWheel's alone. But I would argue, as some others have in the comments above, that Xbox and Microsoft have a *long* way to go before they can be seen as leading the pack in television-on-demand / streaming television.

Similar arguments to the ones you make were fielded about Apple's rumored entry into the telephone market. At that time, Nokia was still king and no one thought the maker of the iPod could compete against either Blackberry or Nokia. Now, 6 years later, every smartphone looks like the iPhone and 'mobile apps' have become a new paradigm in IT!

What Apple is good at, is redefining the rules of the game. Apple TV is not a serious entry into the race, it is more like a place-holder. It does not enjoy the full attention of Cupertino or its resources. If the rumors of Apple entering the television space are true, I expect they'll be coming with a game-changer. My guess is that it won't be purely hardware, but that there will be a services component attached that will make us drool. It's what they do. If they weren't confident about their ability to leave everybody choking in their dust, they wouldn't enter the race to begin with.

The fact that the iTunes store has been slowly expanding its movie/TV show offering is just an indicator of their interest in the market, and a means for them to feed content to the portable devices they already sell. Again, it may be that they will change this model to something new and revolutionary to supplement their TV offering when it arrives.

This is all speculation, of course, but comparing Microsoft's track-record to Apple's, it is clear which company has both the resources, the will, and the talent to implement real change. Microsoft has often come up with great ideas, but has always lacked the organization and the will to really follow-through.

Good thoughts, but thoughts on a different topic

I appreciate the thoughtfulness of your response. These are good and important thoughts to consider. Though I need to correct your statement that I "supplement" FreeWheel data with Technographics. It is the other way around. Nobody else surveyed 4,672 people to answer these questions. Our data are our primary source. The other data (from FreeWheel, manufacturers, and even ISPs, many of whom have shared with me the actual Xbox traffic on their networks compared to every other video streaming deivce) are just a helpful means of calibrating and validating what we see in our primary data.

More specifically, though I don't discount your thoughts, they are thoughts on a different topic. You are defending Apple's ability to get people to watch video on any device. They are clearly leading there between iPhone and iPad (as long as we take out PCs, which is what FreeWheel does and you have to do to declare iOS the winner -- but that's something I'm willing to do as long as we're clear we're talking non-PC devices). But that is not the topic of my report. I am looking at who is succeeding on the TV screen. And for that, you have to give the award to Microsoft. They are clearly in the lead here on the TV screen because iOS is absent on the TV screen except for the handful of people that send iPad video to the Apple TV.

I don't take away from Apple all that the company has accomplished in the iPad and iPhone world. But Apple has failed to date on the TV screen. And it's not as though that screen doesn't matter anymore as some would like to pretend. It still attracts 4.5 hours of attention a day and commands $160 billion in direct revenue for ads and subscriptions. We can't simply say, "Apple's good at changing the game, look how they did so in phones and tablets" and assume the same applies to video generally and TV specifically. Because so far it has not. iTunes is used for video by less than 10% of the online population -- roughly the same percent that use video piracy. Apple has sold only 1.5 million more Apple TV devices than Roku. That can't be perceived as anything but a failure on Apple's part to extend its magnificent success in the iOS world to video and the TV. And simply saying, "if they weren't confident about their ability to leave everybody choking in their dust, they wouldn't enter the race to begin with," shows that you are willing to pretend that Apple TV isn't already an entry in the race. Go back to the 2007 debut of Apple TV: Steve Jobs didn't call it a hobby, he announced it in the same breath as he announced the iPhone. And I praised them both on TV, but pointed out that the iPhone was the one that was certain to succeed while the Apple TV was solving a problem people didn't have yet. That Apple TV only got called a hobby once it was clear it was failing. And it remained a failure until the company added Netflix -- the exact same tool that Microsoft used to make its Xbox video strategy succeed.

I am not saying that the company can't change that. But don't point to phones as the example because the phone upgrade cycle is completely different than the TV upgrade cycle, which is usually 7 years long. You can't just jump in with a new model and expect millions of people to move over, especially at price points that Apple will have to maintain in order to keep its margin far away from that of LG and Samsung. Apple's only shot to sell such an expensive device is if it does something very different. And that's what I hope Apple will do, something I expand upon in the report and hope to be able to do in a blog post very soon.

As to your point about Microsoft, you are -- without knowing it -- echoing me. I have been saying in my public speeches for as long as the Kinect has been on sale: "Remember, this is Microsoft, they could blow it."

The Topic is Television Share

Great responses. :) I'll react in the order you make them.

Firstly, you make a good point about the data. Not having read the Forrester report, I needed that clarification.

Secondly, as to the Non-PC device space, I'm curious if there really is such a *huge* segment watching television on their PCs that adding them to the mix or leaving them out really skews the viewing numbers? I'm in Europe, so Hulu and Netflix are not available here and are thus much less on my radar. Have they co-opted a large part of video viewership such that the PC viewers are a force to be reckoned with? If you take into account the rampant piracy, then perhaps yes...but otherwise?

The thrust of most of the points I'm making have to do, I suppose, with the 'direction' of video-viewing. I should point out that I'm basing my ideas on where I think viewers would like video to go, instead of where market forces will actually take it.

I think the average user wants affordable access to *all* video content world-wide, as instantly as possible, at the highest quality possible, and with the possibility of streaming it to any device of their choice. Preferably with as little hassle and advertising "noise" as possible. There will be trade-offs, but any service/technology that can bring this about will take a massive lead.

I concede your point about Apple TV! Although I maintain it remains a half-hearted attempt by Apple, regardless of their initial expectations, and that a 'serious' entry into the market would take a very different form. Steve Jobs had a tendency to preface every little thing with 'This is extraordinary' and 'We're very excited about...' and Apple watchers learned to take that with the necessary grain(s) of salt.

I'd be very curious to read your thoughts on the matter in the blog post you propose. I'm also rather curious what thoughts you have on where Microsoft should take this lead. If they were to 'take it out for a spin', where should they go?

Thanks again for sharing your ideas on the matter!

Xbox majority

You say the majority of the 18.4 million streaming via a gaming console is Xbox generated. Any idea what percentage that is?

Best estimate is at about

Best estimate is at about two-thirds (though some ISP data shared with me suggests it's more than that).