Connected TVs will drive video service evolution, according to Ovum

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OvumThe latest Pay-TV report from Ovum estimated that consumers in almost a quarter of households around the world accessed some form of Internet TV service in 2012. Yet our consumer data shows that a relatively small proportion of this consumption is happening via large screens in the living room.

While online video consumption via personal computers and portable smart devices has become an increasingly mainstream activity, the use of connected TV sets for accessing web-delivered TV services is taking longer to catch on.

However, it is clear that the Internet is rapidly becoming a viable means of delivering video content to the large screen.

Ovum believes that a handful of key players are proving to be instrumental in driving the mass-market adoption of connected TV through a combination of service innovation and business model evolution.

VoD is the lead application, but mixed payment models are needed

The most prevalent connected TV service category is video on demand (VoD), which includes permutations such as transactional VoD (TVoD), advertising-supported VoD (AVoD), subscription-based VoD (SVoD), and non-commercial broadcasters’ catch-up, replay, or archive TV services.

Ovum’s Consumer Insights survey data reveals that big-brand OTT VoD providers such as Amazon, Apple, Xbox Live, and Sony have gained limited traction in most of the markets where they are available. However, Google – which is a relative newcomer to long-form VoD delivery but one with a substantial free-to-view offering (via YouTube) – is cited as a regular fixture by a significant proportion of our sample.

These trends suggest that consumers are resisting pure-play TVoD services in favour of free-to-view services that offer broadcasters’ catch-up and archive TV and movie content, SVoD services such as Netflix, and “freemium” propositions such as Hulu/Hulu Plus that combine AVoD with TVoD or SVoD elements.

Use connected TV platforms to innovate around the user experience

Recent industry developments highlighted in Ovum’s OTT TV Development Tracker: 4Q12 demonstrate that while traditional broadcasters and pay-TV operators still control access to a more comprehensive range of desirable content, web-based providers are leading the way in evolving the TV user experience. However, it should be noted that no single OTT player has yet combined all of the elements that make a truly compelling offering.

Providers such as Google (through Google Play), Hulu, and Netflix have services and brands that are strong enough to induce significant numbers of consumers to take up their VoD propositions. This is made possible through a continuing succession of device vendor partnerships along with the associated software updates required to maintain compatibility with each device platform as it evolves.

However, a fundamental problem associated with this approach is the resulting fragmentation of the user experience, the quality of which hinges to a great extent on the consumer’s choice of device rather than the service itself.

Despite the reach and service constraints arising from proprietary ecosystems, companies such as Apple, Microsoft (Xbox Live), Roku, Samsung, and Sony are better placed than their more “open” counterparts to focus on service innovation and differentiating from the traditional TV user experience.

Make connected TV a single entry point for multiple services

A key differentiator for connected TV players is the incorporation of additional applications such as cloud-based gaming – with both Google TV and Samsung having launched console-class gaming initiatives in the past year. Although not restricted to pure-play OTT offerings, the inclusion of streaming music services, such as Spotify and Deezer, is also gaining a presence within the connected TV mix.

The apps-based environment on which the majority of connected TV user interfaces (UIs) are now based lends itself to the increasingly “mix-and-match” nature of digital media consumption. As device uptake expands and business models develop, we expect to see an increasing diversity of web-based applications and services blended into the connected TV mix.

Increasing content leads to increasing complexity

The explosion of content accessible via connected TVs can be an issue if it is not properly presented to the consumer. Badly managed content services can result in frustration or a preponderance of undiscovered content, with users struggling to find the content that they want to access.

As a result, content discovery is becoming an important point of user experience differentiation for web-based TV services. In 1Q13, Samsung introduced its S-Recommendation feature, which tracks viewing habits over time to inform its automated suggestions and its cross-platform TV Discovery service. Personalized recommendations are also employed on the Hulu, Netflix, and TiVo services.

Meanwhile, Amazon Instant Video has extended its X-Ray second-screen feature to provide supplementary information from the Internet Movie Database for TV shows as well as movies.

Among the more progressive innovations to be introduced across the connected TV landscape is the use of voice control, which was pioneered by Microsoft’s Kinect sensor. Samsung joined this space in January 2013 with the launch of its Voice Interaction technology. Voice control is being used by both companies to support their TV platforms’ search and navigation capabilities.

The search for the ultimate TV experience will continue

However, there continues to be an important piece missing from the connected TV jigsaw. Fragmentation of the user experience is a major barrier to the wider adoption of connected TV services. As long as there is complexity and discontinuity in the transition between “traditional” and connected TV experiences, a large proportion of consumers will remain alienated and reluctant to explore the benefits of connected TV.

The BBC took a step toward bridging this gulf with the launch of its Connected Red Button feature, which enables uninterrupted switching between linear and on-demand content via a single UI.

A handful of early “operator-as-an-app” initiatives also hint at a multi-channel environment where the pay-TV service provider’s UI becomes the first point of interaction upon starting up a connected TV set.

As the Internet becomes a more reliable distribution channel for high-quality video, the quest for seamless integration of experiences across disparate content sources will be more readily achievable.

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