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MEDIA INDUSTRY
The battle in the living room
By Alessandro Araimo,
managing partner of the Value Partners London office and leader of the Media sector
Prima Comunicazione, February 2010
There is a battle taking place in our living room, where the TV was once king. Or better, it was the
TV broadcasters. They controlled the TV schedules and imposed their own programming. Our
choice was in fact limited to which remote button to press. Then pay television arrived. It widened
the choice for channels but domestic entertainment was left unaltered.
Today however, our living room contains various types of hardware. For example, PVRs (personal
video recorders), game consoles (like Playstation o Xbox), digital HD set-top boxes for Dtt/Satellite
(such as My Sky HD), Media Centres (such as Apple TV) and, last but not least, computers. This
allows us to do even more things, one of which is connecting to the Internet. We can now do this
in a different way compared to the past. Even TV itself has evolved with more recent models (e.g.
Samsung or LG) which can now connect to the Internet and are equipped with memory and
computing capability.
In short, with the growth of home entertainment systems, the competition between devices now
focuses on the battle to win the first position among users’ choice. TV broadcasters are therefore
under attack. They are terrorised by two things: losing their key role as mediators with the
audience and consequently being marginalised.
In the UK for example, it is possible to watch Sky Sport channels on the Internet - it just takes an
Xbox, a TV and broadband. Or, one can watch the BBC via the iPlayer running on a Playstation.
And it was Sony who launched the first attack through its console. Playstation is still one of the
best Blue Ray readers in the arena and it also enables Internet surfing, on-line multi gaming plus a
number of dedicated interactive services. If one combines this offer with the growing average age
of players, one realises that to call them just “games console” is extremely limiting. In reality, they
are becoming the main platforms for accessing a more varied and interactive entertainment,
compared to normal TV.
Let’s imagine an average user, say a 35 year old male. He switches his Playstation on, then he is
presented with a multitude of possible choices: play Fifa 10 versus someone based in New York,
watch a football match or a DVD, an on-demand film – Nintendo just signed an agreement with
Netflix in the US, to sell on-demand movies via Wii – access the Internet, update his profile on
Facebook or Twitter, and also look at his photo albums. He can listen to his MP3 tunes or watch
his holiday videos. Microsoft, Sony and Nintendo are also working towards the development of e-
commerce platforms connected to their consoles.
Even set-top box and TV devices are getting up to speed. While for the traditional TV operators,
the set-top box was not much more than a mere piece of hardware, it is now becoming an
increasingly strategic asset. Sky realised this a few years ago and is now investing directly in
decoders using a dual approach. It owns the companies providing the key components and it is
also allocating resources towards the development of various functions, such as HD, personal
video recording, Internet connection and the whole spectrum of related services. In Italy recently,
Mediaset (the main commercial TV network) began to pay attention to the subject and made an
effort towards the development and marketing of Dtt evolved set top box units.
This battle may soon involve the world’s main TV manufacturers (Samsung, Sony, Philips, LG
etc.), because TVs are now equipped with additional functions: they connect to the Internet, have
their own internal memory, USB sockets and have recording capability. Consequently, they are
more able to channel users through specific contents and services. To sum up, those who were
previously making money on contents through advertising and licenses, are now forced to invest
in hardware. By not doing this, they risk losing their control over users’ choices. On the other hand,
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subjects who were operating as mere hardware manufacturers are now in a strong negotiating
position with content providers, thanks to their strong relationship with viewers.
In this context, the competitive dynamics are also modifying business models. Put specifically,
they are generating an actual content rush. An agreement similar to the one signed for Xbox with
Sky, is currently being discussed between Espn (Disney’s own sport channel) and Microsoft. In the
new system, the content provider can negotiate with a higher number of clients and get direct
access to final users at the same time. This enables the possibility to bypass the TV broadcaster
or the pay-tv operator (e.g. Sky in Europe or the major cable TV operators such as Time Warner
Cable).
Furthermore, Internet operators are now adjusting to the new scenario. By adapting their platform
to the TV screen, they are able to meet users’ expectations. Yahoo allows access directly from
TVs. YouTube is perfectly visible on Apple TV, while Boxee has created new interfaces optimised
for TV screens. Consequently, agreements between content providers and new distribution
platforms are proliferating.
In this battle, reaching the critical mass is the key to success as Apple did with iPod and iPhone.
Considering that, to this day, there are more than 100 million active Sony, Microsoft and Nintendo
consoles in the world (with a 23% growth last year), this goal is not far from being attainable for
consoles and for the new “intelligent” TVs.