Impasse over online video standards is one piece of a bigger picture
Esoteric as this topic may sound for many, it’s a decision that sets Google on the path to war with Microsoft and Apple over the future of web video. HTML5 is widely seen as the software platform on which true service convergence across multiple device types from multiple manufacturers can be most easily and economically supported. Appropriately designed, it should be possible to use the same standards, code and content formats for an application delivered to phones, tablets, PCs and TVs from multiple manufacturers. Hence, in order to have a world where consumers can make separate choices over device supplier AND entertainment provider, it matters hugely who prevails in this debate.
Google’s stated reason for dropping H.264 is that it is a proprietary technology controlled by the MPEG LA, a firm that licences patents for a price. Its own alternative, WebM, is royalty free. On the face of it, Google’s decision to support the lower cost option would appear to be good news for content producers and distributors.
However, the broader context of this move warrants closer scrutiny. In addition to owning the organisation responsible for managing the development of WebM, Google has also recently acquired Widevine, widely regarded as one of the most appropriate and capable DRM systems for online video streaming. Hence, the company has control of two major pieces of technology that determine how web distributed video content is encoded and protected. Google also control Android, fast becoming the dominant OS in the smartphone market and about to break onto the connected TV scene with almost certainly similar impact.
As a result, Google is quickly piecing together control of all of the key software elements required to deliver a large scale video entertainment service on mobile phones, tablets, and, most importantly, the TV screen.
Should Android become the de facto software environment for devices within the connected home, the decisions Google makes regarding the future evolution of the platform, what technologies to support and what not to support, and how to monetise content on those platforms become key determinants of the future success of OEMs, broadcasters and studios alike.
How might Google use this position? A key question exercising the TV industry is how the advertising market will evolve in a connected TV environment. Apple’s iAd service demonstrates very effectively how content and advertising can be brought from two different places and integrated seamlessly on the device within an app. In the iAd case, advertising is delivered from Apple’s third party platform, independent of the content producer.
Extend this concept to the connected TV (or set top box) and this capability represents a major threat to broadcasters delivering content to any broadband connected device. Google will have the power to monetise a TV advertising opportunity completely independently of the broadcaster. Consider the following scenario: American broadcaster ABC seeks to deliver content to a Sony connected TV based on the Google TV software platform. The user selects the CBS player catch-up app. However, recognising what type of app it is, the device requests a 30 second pre-roll ad from AdMob (another Google company) and serves this to the screen before launching the ABC catch-up app.
Extend this process to the selection and play out of individual programs from individual broadcaster catch-up services, and the potential exists for either Google or some other third party who controls the device to create on the fly at the device a “channel” complete with adverts based on linear content made available via broadcaster catch-up services. What is more, this whole process can be done without the knowledge or consent of ABC.
There will of course be checks and balances that are likely to prevent a platform owner from completely eliminating a broadcaster from the revenue stream as we see with current platforms today. However, it is quite conceivable that as Google TV’s share of the connected TV market grows and as its dominance of the software used to create and deliver the user experience increases, so broadcasters and studios will be “encouraged” to adopt Google’s device based TV advertising platform to provide a better and more personalised advertising experience to users within their mainstream TV programming. This will be in return of course for 30% of TV advertising revenue.
It is this prize – a significant piece of the TV advertising market - that Google is ultimately seeking. At present, Zenith Optimedia estimate that the global TV advertising market is worth USD 180bn out of a total USD 443bn. This compares to an internet ad market of USD 70bn.
Today’s battles between Holywood studios and companies such as Apple and Netflix over control of online and mobile video distribution are only a precursor to the battle for the bigger prize. As I’ve said previously, control over content rights and over the user’s device itself will be key. The recent purchase of NBC Universal by Comcast is just the start.