When I joined Creative Strategies 14 years ago, one of my research areas was the digital home. This era of my life is filled with fond memories of hacking together Windows-based home theatre PCs, connected storage networks to host all my media, various brands of digital media adapters, and running ethernet cables all over my house simply so I could get the movies and pictures I had on my PC to my television. Much to the chagrin of my wife, my house was a working lab trying everything under the sun which promised to move media around the house. I’m confident I had cobbled together as networked a home as anyone but it was not pretty. For the nostalgic of this era, I put together a collage of some of my favorite digital living room solutions that passed through my home lab.
It is interesting to look at the past decade of digital home solutions and compare them with today. As it turns out, video game consoles proved to be the best gateway to connect the living room to the Internet. More people access the internet on their TV through game consoles than any other piece of hardware to date. Streaming media players from Apple, Amazon, Roku, and many in the Google TV ecosystem spanning NVIDIA, Razer, Google with their Nexus Player, and Sony integrating Android TV into their TVs, offer consumers broader choice beyond dedicated hardcore gaming consoles to access online services like Netflix and Hulu. But these products are still waiting for their breakthrough. Which leads us to ask the question, what is it that will break the battle for the living room wide open and liberate our TV experience from the hands of monopolistic cable and satellite companies?
Some are cord cutting, most are not
I believe the battle of the living room hinges on a “less is more” tactic. When it comes to our smart devices, I can argue more is better. I don’t just want one smart device but many. I have a PC, tablet, smartphone, and a smartwatch and all play critical roles in my life. However, in the living room, less is more. Time and time again the saying proves true “consumers don’t want another box”. This is why the “one box to rule them all” philosophy applies for the mainstream consumer audience. For those who don’t need to watch all the live sports and news offerings still unique to a subscription TV service, they have a plethora of choice. Based on our US research, 75% of people surveyed say they currently pay for a cable or satellite service. While our surveys indicate the masses are not quite ready to cut the chord, we do see an increase in intent to subscribe to On Demand services like Netflix, Hulu, Amazon Prime Video, and HBO Now. How do those services stack up in terms of usage in the US market today? Here is what our surveys tell us: When it comes strictly to services used to access on demand TV shows Netflix is the clear leader with 45%. Hulu is in second with 16.8%, and Amazon Prime Instant Video is third at 15%. Netflix and Hulu were the prime combination subscriptions for those in our survey who have cut the chord.
When it comes to age groups dominating usage of on demand TV services, 56% of 15-25 year olds said they watched a full length TV show via an on demand service in the past month and 49% of 25-35 year olds indicated the same. These were the two most active age groups for on demand TV services. The 35-45 year old demographic is at 37% and it drops off steeply from there for those older than 45. This makes it pretty clear who the demographic is for streaming services. But what I find interesting about that data point is how the younger demographic is consuming more of that media on other devices than the TV and in locations other than the living room. Which brings even more fascinating dynamics to the battle for the living room discussion. However, that does not mean the battle for the large screen in the living room is not relevant. The question is, for what age group is it relevant? Answering this question is key. But what we know is the 35 year old age group and older were much more likely to pay for subscription cable and satellite services than those younger. This may have everything to do with life stage where older demographics have kids, like to stay home more, and may generally desire content on the large screen more than the small screen. Whether this younger demographic follows a similar path will be interesting to watch as their life stage changes.
The Battle for The Big Screen
The big screen is not dead. Liberating our TV content from the TV is absolutely key in every ecosystem. Any time, any place, is how consumers want their content. However, the battle for the big screen is really the battle of the set-top box. The set-top box is the gateway to the TV, which is the gateway to customer eyeballs. Whether pay TV or pay on-demand services, the box remains the gateway. This is why cable and satellite providers will do everything they can to maintain control of that box and will pay massive amounts of money to make sure certain content, primarily sports, remains exclusive to the box they provide you. Those competing in the set-top box space must, at least for the time being, focus on areas unique to their set-top boxes.
Apple, for example, may go big with an SDK and give developers a playground to create new and exclusive applications for the big screen. Apple can use this strategy to drive demand to exclusive experiences the same way cable and satellite companies will with their content. Google may emphasize gaming with partners like NVIDIA and cater to those who want a more dedicated gaming experience along with all the on demand services they use. My biggest beef with most streaming set-top boxes has been around the lack of exclusive offerings. Most, if not all, of what I get content-wise from boxes the Apple TV, Google/Android TV, Roku, Amazon, etc, are all mostly the same. There is very little I can’t get elsewhere. This has to change if those providing hardware solutions want to differentiate against other set-top boxes. This is one area that makes NVIDIA’s Shield console unique. You can use it to access all the same apps and services as other platforms, but if you are a PC gamer you can also stream many of the most popular PC games using NVIDIA’s Grid Gaming service. This feature makes the Shield Android TV box attractive as a on demand streaming box to PC gamers, who are usually a completely different audience than console gamers. This is one example of many showing how this market can segment in order to differentiate.
This is essentially what I’m looking for. Things I can do with something like Apple TV or an Android TV offering that I can not do with other hardware. This is where the battle for the big screen could start to diverge as both the ecosystems of Apple and Google look to differentiate from each other and the cable/satellite companies.
6 thoughts on “The Battle for the Living Room Then and Now”
“Some are cord cutting most or not”
Some are cord cutting; most are not
Steve Jobs said there is no go-to-market strategy to break open the living room TV experience. He said that because cable companies rent set-top boxes to their customers for little or no money, there’s no reason for anyone else to make a set-top box with more capability because people wouldn’t pay for it. Additionally I believe the signals to the box are encrypted and the cable companies aren’t going to tell any newcomers how to decrypt the signals. This is how cable companies maintain control of the living room TV experience.
The only way I can see it changing is if over-the-top providers can convince the networks to give them extra content. BUT don’t forget that most people have Internet access through their cable companies! If those companies see too much reduction in TV service (“cord cutting”) they’ll jack up charges for Internet – and after I cancelled TV service, my cable company did exactly that.
The content providers and their cable partners are kings of the mountain. Their control may be eroded eventually but I’m convinced it will be a slow process. Reed Hastings said it will take 20 years.
That’s partly untrue in 2 ways though:
1- some ISPs especially in the US rent the modem for quite a bit of money, say $10/mo (a basic modem costs $60, buying saves $180 over 2 years, $540 over 5 years). Some users have taken to buying their own modem.
2- This is not purely a price issue: ISP boxes are rather limited. A PC/Android/iOS box offers a lot more functionality, say modern games (casual, social, or more hardcore), Skype, browsing, access to local dlna/AirPlay content… ISPs in France seem to be transitioning their media boxes to Android TV.
One way to differentiate is via content. Another way is through the user interface, both in user input/output methods (i.e., gestures, Siri/Cortana, etc), and in content search/discovery. Still another way is by bringing more value through leveraging the whole ecosystem, including wearables, mobiles, PCs, IoT, Cloud, advertising. This could even involve changing the business model, for example, through something like Google Fiber. In any case, I’ve no doubt that Google, Apple, Microsoft, and Amazon are figuring out how best to do these things.
I’ve heard here and elsewhere that the real issue of concern for traditional cable TV providers isn’t cord cutting, but rather “cord-nevers,” the younger demographic’s bypassing of cable service entirely.
I’m wondering if there are trends starting to become visible in terms of cord-nevers turning into corded people vs staying cord nevers? In other words, as young people get married and as they buy homes, are they staying cordless or are they getting cable?
I wish there was less exclusive content. If I could get everything through a TiVo box connected to the network, I would. They have (had?) the best user interface of any of the set top boxes that I’ve seen. I had a Series 2 TiVo and loved it. But with paying Comcast a monthly cable bill AND needing to buy a new HD TiVo box, I decided to drop the TiVo, buy a Roku puck and just live with the bad user interfaces.
At least it seems that the recent Roku updates have killed most of their software lock ups.
An ideal all-in-one box would need Hulu, Netflix, something like Comcast’s OnDemand, and the ability to record movies and TV shows before they leave Netflix and OnDemand. Being able to watch my old DVDs and BluRays would be a nice bonus as well as home movies from my hard drives. The access to Amazon or iTunes would be great.
Of course, I wouldn’t want everyone charging $8-15 dollars a month or $99 a year.