The Meteor Cometh

So for a long time, we’ve been talking about the mythical meteor that was going to hit the TV industry and wipe out all the dinosaurs. Because there didn’t seem to be a logical out to the situation we were in, where everyone was making money and no one wanted to rock the status quo. Which left prognosticators like me talking about the meteor, the “something” that would happen and cause change in the industry. Only we couldn't figure out where that meteor would come from or what it would look like.

Then suddenly this morning, the meteor appeared.

I’m talking about the lawsuit that Cablevision filed, asking the court to void the late 2012 carriage agreement they signed with Viacom because Viacom had “coerced them” by “threatening to impose massive financial penalties” unless they complied with Viacom's demands."

There’s a wonderful irony in this too, given that it was Viacom who successfully shut down Cablevision’s TV Everywhere play back in 2011. 

But I digress.

The “why” isn’t hard to get: the MVPDs hear all the consumer complaints about bundling and they’re tired of getting blamed for it. It’s an odd thing: the networks are quite teflon when it comes to the viewing public, who blame the MVPDs for forcing them to take thousand channel bundles without ever considering that their existence is purely the doing of the networks, whose carriage deals leave the MVPDs with no other option.

And so after years of handwringing about how and where the first crack was going to be, who was going to "cave" and let the barbarians into Rome, it now seems that the answer is the Federal court system (and likely the Supreme Court itself, as neither side is likely to go down easily.) They will be the ones who step in and save the TV industry from itself. 

And if and when they do decide that forcing bundles on MVPDs is a bad thing, that will indeed be the moment the meteor falls and kills the dinosaurs and busts the industry wide open so that Apple TV and beautiful, personalized interfaces and cloud-based DVRs and dozens of other magical things we can now do with our televisions come to life and start populating the ecosystem like mammals who no longer need fear being chomped on by a tyrannosaurus every time they pop their tiny little heads out of their holes.

Only don’t hold your breath: it takes a while for a case like this to make its way to the Supreme Court. So that meteor’s not striking tomorrow.

Popcorn Moment: while you’re watching the festivities unfold, keep your eye out for whether any of the other networks or MVPDs jump in and join the fray. It’s in the network’s interest to keep things mano a mano, since if all the MVPDs join in and turn this into TV’s version of the Great War, public opinion is sure to be with the MVPDs and the forces of anti-bundling.

Once again, it’s time to sit back and enjoy the show.

The Problem With Facebook Data

The more I use Facebook Graph Search, the more evident it becomes that Facebook made a major mistake with their most ubiquitous feature: the “Like.”

Follow this train: Facebook’s value, their kryptonite, is their data. They have a billion users, and they know the habits and preferences of all of billion of them because they can easily track that information by examining what they’ve Liked.

Or can they?

On the pre-Like Facebook, users were Fans of pages. That information - which brands, bands, books, movies, sports teams, etc. a user was a Fan of was prominently displayed on the user’s profile page. Which meant users spent a lot of time curating those selections, pruning and adding so that the list was an accurate reflection of who they were. Or at least who they wanted people to think they were.

As a result, it was tough (or tough-ish) to get users to become fans of pages they didn’t think would give them social currency or look good on their wall. Hence, the Like, an easy way to give a brand a thumbs-up (and permission to coat your wall with brand messages.)

But while the Like button has become ubiquitous and a seeming smash hit for Facebook, it does not appear to be used in any consistent manner. That was its selling point: a lower key way for users to indicate approval for a brand, but it’s also it’s Achille’s heel: if users aren’t displaying any sort of consistency in the way they use the like button, then the resulting data is fairly inaccurate and not all that useful. (Bye-bye monetization.)

This is evident in the spate of Tumblr blogs flagging the random overlaps Facebook Graph Search pulls up (married men who like prostitutes, Christians who like porn) and in less quirky uses, like the study BTIG did on the accuracy of using Graph Search as a movie recommendation engine. What they found should be somewhat troubling for Facebook: the movies users Liked overwhelmingly dated back to the list they compiled when they first signed up for the service or to the last used the Fan format.

There are multiple reasons users are either promiscuous or inconsistent with their Likes, but they all circle around two competing forces: (A) If The Brands We Like are how we present ourselves to the world, it takes a lot for a new brand to crack that list and (B) if Likes are easy to give and easily buried in the News Feed, there’s no reason not to give them out at random.

Now by brands, I mean any sort of product: movies, books, songs, actors, vacation spots, along with the more typical products and services we call brands. To the consumer, they’re all a part of who they are, and attaching their name to anything other than the tried and true, when that preference is in a prominent location, is a leap.

The constant rejiggering of the Facebook interface - particularly the introduction of the Timeline, where the “About” section, with the brands and media the user likes, is now one level down-- has lessened the amount of attention people give to their Likes. That in turn, works on the validity of Likes from another direction: those who don’t see their Likes as a reflection of who they are are likely to become more promiscuous with them, and at the same time more random, on the assumption that the action has both an immediate value (unlocking a coupon offer) and limited aftereffects.

The other culprit here, perhaps even more to blame than Timeline is Frictionless Sharing: by posting every article the user half-glanced at and every song they or their offspring started to listen to, Frictionless Sharing greatly reduced the impetus the user had to be sparing with their Likes. While “Mary is listening to Ruby Tuesday by the Rolling Stones on Spotify” was supposed to be of lesser significance than “Mary Liked Ruby Tuesday by the Rolling Stones,” users did not really grasp that subtlety and many likely figured that if all bets were off, why not just start Liking just about everything?

While it’s possible to imagine a scenario where Facebook encourages users to carefully parse out Likes to new products so that their opinions can help guide their friends, it seems unlikely:  first and foremost there is the black and white nature of the Like: it’s an endorsement, pure and simple, in the way that 3 stars out of 5 is not.

Can Facebook fix this? Probably. They’ll need to rethink both the Like and frictionless sharing and the value users place on having their brand and media preferences prominently featured on their profiles. If they can solve for that in a way that encourages more, rather than less interaction, and more curation of the brands (media and otherwise) a user Likes, they have a good chance to make their data more accurate and thus, more valuable.

The stakes are high, and it’s a big “if.”

Talking TV On The TV: My Debut On The Brian Lehrer Show

Me, Natan Edelsburg from Lost Remote and TV critic Eric Deggans discussing the impact of House of Cards, Netflix in general and the future of television overall.

The clip starts at 30 minutes and 30 seconds in.

Intel Inside Your TV: Evaluating The New Intel Virtual MVPD Announcement

In an announcement so expected it seemed almost anticlimactic, Intel finally fessed up that they were indeed building a virtual MVPD and its companion device. The venue, the Wall Street Journal’s D: Dive Into Media Conference, was as puzzling as the tone of the announcement itself, which took the form of an interview All Things Digital founder Walt Mossberg did with Erik Huggers, the Dutch-born project lead.

Huggers spent the entire interview prevaricating. About the only statement he made without adding a weasel was “I am Dutch.” The rest was just one waffle after another: he couldn’t announce the name of the “consumer electronic device” Intel was introducing, other than to admit it wouldn’t be named “Intel.” He couldn’t say whether content deals were in place or who they were with. Just a purposely ambiguous “We are working with everyone right now.”

Whatever that means.

In a nod towards the Theater of the Disingenuous so common to the tech world, Huggers actually tried to convince a skeptical Mossberg that “carefully curated” content bundles were a better thing than a la carte, resorting to the old rhetorical trick of repeating his main point over and over, lest someone ask him to explain.

Not that Mossberg and his co-host Peter Kafka didn’t try. They grilled Huggers on that assertion and pulled out the sharp knives when the topic moved to Intel’s facial recognition feature, which uses a built-in camera to determine which family member is actually watching, so as to surface their preferred programming. (It wasn’t clear what happens if people are watching en famille, an equally common scenario.) While facial recognition software is not in and of itself creepy, Huggers’s description of the non-user initiated manner in which the Intel device would automatically recognize users prompted Kafka to ask him “don’t you think a lot of people are going to be skeeved out by that?”

Like I said, it wasn’t an easy interview.

Intel seems to be working off the notion that “if you build it, they will come.” They, in this case, being the various TV networks whose programming they need to make the Intel device a success.

The one tangible benefit Huggers spoke about was true BBC iPlayer type catch-up TV, where every single show would be available for 7 days after it was first broadcast. Though here again, it was unclear whether this was merely something Huggers would like to see or a real feature.

Stripping away all the “maybes,” it seems the Intel TV will be positioned as a premium product-- Huggers acknowledged it would not be a discount play-- where consumers would actually pay more for TV service in order to have a much prettier, more intuitive and useful interface. How much more this service would cost is up for debate. One source I spoke with estimated that Intel would need to pay the networks a 25% premium versus the other MVPDs for content. 

What’s more, while Huggers touted the Intel device’s groundbreaking interface, the “dream team” he mentioned assembling from Apple, Jawbone and Microsoft seemed to consist of sales and marketing superstars: there was no talk of anyone with UX experience, though that may have just been an oversight.

Bottom Line: While Intel is to be lauded for their commitment and for having come this far, the product may turn out to be a tough sell. 

First and foremost, there’s the content issue: I have a Verizon app on my Xbox that has around 75 channels on it. Unfortunately, none of them are channels I ever really watch (e.g. ESPN and the major networks are not on there.) If the Intel offering can’t get beyond a similar scenario, it’s likely to be dead in the water, particularly if it’s a premium product: why pay more for something I don’t watch? Intel’s plan seems to be to launch with a small group of channels and then hope the larger networks come on board as the product becomes more successful, but that’s far from guaranteed.

Another hurdle Intel will face is the difficulty of installation. This isn’t a Roku box that easily plugs into your existing TV system, this is a whole rip-and-replace move, and it’s going to have to be really, really good to get consumers to chuck their existing pay-TV service (set top boxes included.)  Given the premium price, this is going to be a whole-house install, not just something you throw on the TV in the spare room. Add in too, the strong aversion people outside the early adopter cohort have to somewhat complex installation scenarios.

The final hurdle Intel faces, one that several audience members brought up to Huggers, are the bandwidth caps the ISPs can impose, a particular issue given the amount of bandwidth that video eats up. While Huggers gave a long answer about advances in video delivery systems and the rapid growth of bandwidth capacity, he glossed over the most salient fact: for most people, their pay-TV provider is also their ISP, and the MVPDs are not going to want to give up that revenue stream.

All of which is too bad. The TV interface, as Huggers pointed out, does look like it was transported directly from a 1994 CompuServe page and finding what to watch has become more complicated and frustrating than ever. The MVPDs have flubbed the chance of creating a decent catch-up TV function, pushing a lesser version of that off onto Amazon and Netflix, while the price of all of the above keeps spiraling upwards. 

A well-designed, feature rich platform would be godsend for consumers, one I believe people would indeed be willing to pay a premium to own. 

If only the networks and MVPDs would play along.

Six Years Later, Your Brand Is Still Not My Friend

The failure that is Facebook Graph Search illustrates how much the company is sliding backwards rather than heading forwards. While the shortcomings of the new search process have been amply documented, suffice it to say that (a) it is still easier to find something on Facebook by entering the search parameter into Google along with the term “Facebook” and (b) an article on how to rejigger your privacy to meet the demands of Graph Search has been the most e-mailed piece on the New York Times website all week. (The fact that Graph Search surfaces the likes and dislikes of friends of friends-- along with their profile photos-- has a whole lot of people freaked out.)

Privacy is always going to be an issue for Facebook, but the main failure here seems to be in misunderstanding the effect previous “innovations” have on the accuracy of their information.

Take the ubiquitous “like” which replaced having to become a “fan” of a brand page. As this recent piece from Mashable pointed out, people would carefully curate the pages they were fans of so as show off their preferred version of themselves to the world: becoming a fan was a very conscious action. And while “like” was specifically designed to be an easier interaction that carried less weight, the result was that people used it promiscuously and with little forethought and/or curation, so that the list of things a user “likes” is rarely reflective of their actual tastes and preferences. Which leaves Facebook with data that’s fairly inaccurate and thus of limited value. 

One might argue that Facebook Graph Search and the threat it offers to users privacy might be a spur for people to begin culling down their “likes.” That’s unlikely (no pun intended) as many users now have dozens, if not hundreds of “likes” and eliminating them will prove to be a rather onerous process. So Facebook is stuck with billions of  halfhearted “likes” and no real way to do anything with them.

That’s almost, but not quite, as bad as the self-inflicted wound that is the Facebook brand page. For a while there, Facebook had a good thing going: brands had somewhat standardized pages with multiple tabs where they could run contests, share photos, handle customer service issues, etc. Even better, with a little work, those pages could be customized so that the graphics were consistent with the brand’s logos, not Facebooks. 

Consumers liked the separation that brand pages offered, because, as I’ve been preaching since 2007, Your Brand Is Not My Friend™, something the current Timeline configuration ignores: with Timeline, brand messages are mixed in with friend messages and are promptly ignored as unwanted intruders. Compare that with the tabbed pages, where visiting a brand page was a conscious activity, something you did when you were in a mind frame to interact with that brand. 

It’s the underlying idea behind the Ad Locker feature on the KIT Social Program Guide - brands benefit when people interact with them on their own time, when they are looking to do something that feels a lot more like shopping (which is fun) than listening to advertising (which is not.)

I get that Facebook is trying to find ways to monetize all the data they’ve collected from the third of the earth’s population who use the site. They just need to bear in mind that people don’t always act in a way that’s most expedient for advertisers. Build your model around the way people actually behave, and you’ll be able to find a workable solution.  

Vine's Dim Prospects

Vine, the new video microblogging service from Twitter (it allows users to post videos of 6 seconds or less) is an interesting idea, but I suspect it has too many fatal flaws both in the concept and in the execution, in order for it to take off in the time frame we’ve come to expect from overhyped technology.

Vine’s biggest initial hurdle-- the spate of bad publicity it’s getting from the fact that it’s taken over Chatroulette’s position as the Penis Network can easily be overcome by the institution of some stricter TOS policies and more active policing. But Vine’s problems run deeper.

To begin with, videos, even six second videos, are a big time investment. Psychologically, you need to make a commitment to watching a video. You can’t scan it the way you scan a page of text or even photos. That’s slightly less true with 6 second videos than with longer pieces, but it's still going to be a huge issue for Vine in the early days, when most of the videos are going to be banal experiments.

The other issue weighing against Vine is the learning curve. The traditional method of shooting and editing video is to overshoot and then edit: 60 seconds of video becomes 6. 

Vine is not set up that way. You can't edit, so you need to pick your 6 seconds carefully. It’s a skill and a challenge, more difficult than limiting messages to 140 characters (where you can always use abbreviations), more artistic than picking one of 10 photo filters.

That alone will prevent most people from using it: there’s no room in their already busy lives for yet another piece of technology, particularly one whose functionality is limited to artistic expression in a medium whose techniques are still not innately familiar the way photography is.

When adoption and use drop precipitously after the initial honeymoon stage (and they will) Vine will be branded a failure. Which is too bad, because it’s a fascinating concept and there are people who’ll see shooting video in six uneditable seconds as a challenge and they’ll start to create something interesting, a whole new video language if we’re lucky.

That may take a year of two to happen, which is forever in internet time. Let’s hope that Vine is able to hold on that long. Or if not Vine, then something a lot like it.
 

Social Recommendations: No Surprises There - New On VideoNuze

This is the first of what promises to be a regular column on VideoNuze:

There’s a firmly held belief in the world of social TV and social media that our social graphs-- the people we are friends with on Facebook and Twitter and other social networks-- are the best source of recommendations for anything from restaurants to movies to TV shows. (Witness this week’s Facebook Graph Search announcement.)

Let’s take Facebook, the most personal of the social networks. While it is considered good form by many on Twitter and LinkedIin to connect with relative strangers, our Facebook friends are generally people we know in real life.

Or knew.

READ THE REST AT VIDEONUZE

The TV Business: A Primer For The Uninformed

It’s a relentless drumbeat: the TV industry is dead. It’s just like the music industry. 20somethings are avoiding the cord.  I want HBO a la carte. YouTube will kill cable. The TV industry is dead.

And yet, if there’s a common thread to all these articles and blog posts, it’s that so many of the people writing them have a limited idea of how the television industry actually works, particularly from a business perspective.

So here’s a little primer on how the US television industry works (there are significant difference in other countries), just to clear the air.

The Players:

This is step one - knowing who is who and what their relationships are. We are going to look at the 7 key players, circa 2013: The Networks, The MVPDs, The Premium Networks, The OTT Networks, Smart TVs, Third Party devices and Social TV.

PLAYER #1: The Networks: The networks (ABC, CBS, MTV, et al) provide content and right now, they are the most powerful force in the industry.

How Do They Make Money?

Networks have two revenue streams:

1.  Ad Sales - networks sell national advertising on their shows; local advertising is sold by the carriers.

2.  Content Deals - networks license their content to the various cable companies, satellite providers and telcos (collectively known in the industry as MVPDs.-- Multichannel Video Programming Distributors) The price is determined by the value of the network (number of viewers, potential revenue from local ad sales) multiplied by the number of subscribers the MVPD has. These deals are renegotiated every few years, which is why you sometimes see battles where say, Verizon is threatening not to show AMC programming because the post-Mad Men/Breaking Bad AMC wants more money than Verizon is prepared to give them. Here’s Where It Gets Tricky: Most of the larger networks own multiple channels. And they sell them to the MVPDs as an airtight package: You want ESPN? Well then you need to take the Badminton Channel and the Dodge Ball Channel and all 30 of ESPN/Disney’s other channels too. Right now, the MVPDs don’t have much wiggle room since they compete with each other and not being able to offer ESPN to potential subscribers would put them at a huge disadvantage. But Wait! There’s More! The networks know that you probably don’t want to watch the Badminton Channel, so they forbid the MVPDs from letting you do things like making your “Favorite Channels” list the default view, lest you leave the Badminton Channel off of that list. Networks also pay to have a good spot in the channel line-up and so they’re not about to give that up and let you, the viewer, start creating your own order... at least not as the default view.

What You Need To Know - Comcast, Verizon, Time-Warner et al are not forcing you to take thousand-channel bundled packages. The networks are more or less forcing them to offer it. The MVPDs would love to be able to sell unbundled packages since they’d make more money by signing up more subscribers while simultaneously cutting their own content acquisition costs.

When Will This Change? So here’s the current thinking: at some point, someone will launch a virtual MVPD (e.g. internet-based) with a beautiful interface and all the bells and whistles of advanced TV systems (any device, any place, any time.) This will be a premium priced system and will be very popular. Popular enough, that it will be in the best interest of an ESPN to allow this new MVPD to break up their bundle. And then the wall will crumble. This is what Apple has been trying to do (the mythical Apple TV) and they are not alone. So far, no one’s gotten any traction-- there’s no compelling business reason for any of the networks to play ball with them, but at some point this will change. (UPDATE: Read The Meteor Cometh for some thoughts on how Cablevision's lawsuit against Viacom may just be what brings about this change.)

“A Beautiful Interface?” The interface is the main pain point in today’s TV viewing experience. That giant, unwieldy grid was designed for about 7 channels and is now being forced to accommodate 700. A new interface would need to be free from the stranglehold of bundled content, which is why you haven’t seen one yet. But look at XBox or Roku for an idea of what’s possible.
What Happens In Asia, Stays In Asia: The networks also have an incredibly lucrative business selling their shows overseas: it's a win-win as those markets have a limited amount of home grown content and economies of scale make it hard for them to rival US production values. What's interesting here is that having licensed the content to a third party, the networks are much less concerned with things like TV Everywhere rights, which is one of the reasons why overseas markets are ahead of the U.S. in that regard.

PLAYER #2: The MVPDs

Comcast, Verizon, DirectTV and the rest.  The United States is the only country where MVPDs --  Multichannel Video Programming Distributors (e.g. the cable, satellite and telcos who bring you your pay TV) are regional rather than national.

How Do They Make Money?

MVPDs have two revenue streams:

         Local Ad Sales on the programming they run

         Subscription fees So here’s the thing to remember here: the vast majority of MVPDs don’t just sell pay TV packages. They sell broadband and landline services too. The old “Triple Play.” It’s an incredibly lucrative system for them and an incredibly bulletproof one too. How Many Cords Can You Cut? It’s bulletproof because what pundits forget when they talk about “cord cutting” is that the cord that brings you television is generally attached to the cord that brings you internet. And if you’re cutting the one, you’re still going to need the other. (To put this in perspective, over 90% of FIOS and Uverse subscribers get TV and broadband from the same provider.) So here’s where the genius of this set-up kicks in: the MVPDs will give you two options - get the pay TV service and get unlimited bandwidth (free unlimited bandwidth, in the case of Google Fiber), or, get broadband only, but face bandwidth caps. If you’re a heavy TV watcher who plans to get content off web-based services like Netflix and iTunes, you probably won’t wind up saving any money. MVPDs Are Not Blind They see where the market is going, understand the effect of Netflix and iTunes. And so they are busy cutting deals to include them in their offering. It’s already happening in Kansas City, where Google Fiber TV has Netflix baked into the program guide with more OTT (broadband) channels to come. Other MVPDs are not far behind. 

What Happened To TV Everywhere? The lawyers squashed it. Not the MVPDs lawyers - they’re the ones trying to get it off the ground. Rather, it’s been the lawyers for the networks and other content providers. They don’t want users watching shows outside the house unless they can get retrans fees from the MVPDs (retransmission fees-- they are claiming that a Comcast subscriber watching a live show on her iPad on the train is watching a different transmission than the one her husband is watching at home and the MVPD should reimburse them accordingly, because there's no way to count the iPad views for ratings (and eventually advertising purposes.) In February 2013, Nielsen announced its intention to begin counting internet views, so this too may change.  But Dish Is Bringing It Back To Life: At CES 2013, Dish unveiled a new set top box called the Sling Hopper that essentially blew TV Everywhere out of the water. The Slinghopper, which is a mash-up of the Slingbox and the Hopper, gives viewers the ability to watch shows off their home set top box anywhere there's an internet connection.That is likely to open up the door for the other MVPDs to roll out their own TV Everywhere systems, lest they lose customers to Dish.

What You Need To Know - Convenience usually trumps price and the MVPDs will soon be offering all the services viewers were cutting the cord for. Add in disincentives like bandwidth caps, and cutting the cord starts to seem like a bad idea.

PLAYER #3: THE PREMIUM NETWORKS

HBO, Showtime, Red Zone and other sports networks.

How Do They Make Money?

Subscriptions The subscriptions are sold via the MVPDs who collect the money for them and keep a percentage for themselves as a profit. HBO GO The success of HBO GO took the network by surprise: they did not expect it to become such a runaway hit and are still figuring out what to do with it. What they do know is that it’s a great bargaining chip with the MVPDs: give us a bigger share of the subscription fee or we’ll start selling directly to consumers. We’ve already got it up and running in Scandinavia. Why That’s Not Going To Happen Anytime Soon: Ever had to collect money for a co-worker’s birthday party? Remember how painful that was? Multiply that by 29 million and you’ll get a sense of what HBO is going to be up against if they try selling HBO GO on their own. 29 million bills each month. Call centers. Online help. Chasing down the deadbeats. Meanwhile, under the current system, the MVPDs collect the money for them and provide a steady income stream every month. They run specials like “three free months of HBO when you join” that bring even more subscribers on board. They even handle authentication on HBO Go. So why would HBO ever want to give that up? Especially since the MVPDs would drop them like a proverbial hot potato if they ever tried? Bottom line is that HBO is not “leaving money on the table” by not giving you an a la carte subscription. They’re just making sure the money stays on the table.

So No A La Carte, Ever? Not directly through HBO. But probably through your MVPD, who’d love to sell a combo basic cable/HBO subscription to all those recent college grads. It’ll happen at around the same time the bundles get unbundled.

PLAYER #4: THE OTT SERVICES

Netflix, Hulu, Amazon, Vudu, iTunes and all the other streaming services. (OTT = Over The Top, a reference to how web-based video is delivered, e.g. without a set top box. Like MVPD, this is another industry term that’s good to know.)

How Do They Make Money?

Subscriptions (Netflix, Hulu and Amazon Prime)

Sales and Rentals (Amazon, Vudu, iTunes)

Subscription services have the edge here. They may not have the selection their counterparts have, especially in terms of new movies, but they have ease of use. Rentals are tough: rights issues limit the rental period to 48 hours and forbid renewals making it a tough sell. So is having to pay $3 or $4 every time you want to see a movie: with a monthly subscription, the viewer is less aware of the financial transaction.

Where Are They Headed: Industry expectation is that the various OTT services will all cut deals with the MVPDs, where they’ll either be just another premium channel (Netflix) or a Pay Per View option. It’s just easier all around, particularly for consumers, who won’t need to add an extra device to watch OTT networks on their main TV. It’s also better for OTT networks as it expands their base of potential viewers.

PLAYER #5: SMART TVs

Samsung, Sony, Panasonic and other manufacturers

How Do They Make Money?

Direct sales to consumers. The additional “smart” features were used to justify higher prices than “dumb” HDTVs, though eventually everything goes on sale

Most Consumers Don’t Hook Them Up While the advantage of a smart TV is the ability to use an app-like button built into the set’s interface as an easy way to connect to Netflix or Facebook, several studies in the US and UK show that most consumers don’t bother hooking up the Smart TVs to the internet. Difficulty of set-up is the most likely reason for that, though lack of interoperability between different brands, and lack of demand for non-TV-centric apps (e.g. Facebook) also figure prominently

Future Prospects Not very bright for the app-based Smart TVs, but the notion of a “connected TV” - a TV that connects to the internet via a second screen device is where the industry is headed. Connected TVs will enable cloud-based systems capable of serving up millions of hours worth of programming. (That's a lot of reruns.)

PLAYER #6: 3RD PARTY OTT DEVICES

Roku, Apple TV, Boxee, Google TV

How Do They Make Money?

Direct sales to consumers. Though Roku is moving into Pay-Per-View specials (think 1980s HBO) and they’re all looking for licensing deals with TV manufacturers and MVPDs (similar to the ones Cablevision and TimeWarner inked with Roku this month)  particularly in developing countries, where TV is likely to skip the cable-to-the-house phase.

Long Term Prognosis: Roku recently introduced a device the size of a thumb drive that plugs into the TV’s USB drive and draws power from the TV set. All the more reason to believe that all these third party devices and their operating systems will get snatched up by MVPDs and/or TV manufacturers who will incorporate the technology and interfaces into an all-in-one device.

PLAYER #7: SOCIAL TV

Zeebox, Viggle, NextGuide, Fanhattan, Twitter, Facebook, et al. “Second Screen apps” is the industry term for what’s also known as Social TV

How Do They Make Money?

They don’t.

Not yet anyway. They don’t even make the networks and MVPDs any kind of demonstrable money beyond a possible viewership boost on a handful of shows and specials. (True Blood, The Grammys, Pretty Little Liars)

Changing The Channel Is The Killer App Time shifting (watching a show via catch-up, DVR or On-Demand) makes chat less relevant and discovery more relevant. The problem with discovery-based apps is that you still need to find the remote in order to change the channel. That’s not a very good user experience and it’s why we’re starting to see apps adding that functionality (Zeebox and Sky in the UK.)

2nd Screen Apps Will Likely Come From The MVPDs The most likely evolution of the second screen app is as a combination remote control-program guide with an overlay of social functionality that lives on a 7 or 8 inch tablet (iPad Mini or Nexus) and is provided by the MVPD. (Full Disclosure: KIT makes such a product, the white-label SPG.) The apps will be able to accommodate a range of second screen content, programming and discovery features,as well as an “ad locker” - a screen where users can do deeper dives into ads they’ve seen on TV at their own convenience. Google Fiber is giving voice-enabled Nexus tablets to users of its Google Fiber TV to use as remote controls and the rest of the industry is expected to follow suit over the next year or two. As current thinking has tablet-based apps replacing set top boxes (tablets are cheaper to provide and apps are easier to update) this is going to happen pretty quickly.

Making Money Off The Second Screen: The second screen is likely to become a major revenue source for the MVPDs. With more content than ever before, discovery will become critical. Unable to rely on on-air promotions to drive interest in new shows, networks will pay to have their properties featured in second screen recommendation engines. That opens the door to brand tie-ins and related ad vehicles. Look for the second screen ad market to eventually rival the first screen one.

SUMMARY

Change Happens Gradually And Then All At Once. The TV industry is in the same place the cell phone industry was just before the introduction of the iPhone: all the pieces are there, it’s just no one’s bothered to put them together. There’s no pressure on anyone to innovate because no one’s disrupting the market and so there’s no business reason to be an innovator: it’s risky and most companies are risk-averse. Eventually, someone will toss that bomb into the crowd and blow things up, the way the iPhone blew up the cell phone market. It may be Google or Apple or Intel or someone you’ve never heard of. Whoever it is, it has to be someone who feels their current market position is tenuous enough to make a risky move worth it. And what's important to remember is that right now there's no one in the TV industry who fits that description: profits are up, not down. But it will happen, and once it happens, change will come quickly. And everything you've just read will be completely and hopelessly out-of-date.

Further Reading:

Seven Things You Need To Know About 2nd Screen Interaction

What Now? Ten Things You Need To Know About The Future of Television

Prediction: Cord Nevers Become Cord Getters