The connected television market is crowded.

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There are dedicated over-the-top device makers (Roku, Boxee, Apple TV),“Smart” TVs and DVD players (Sony, Samsung, LG, Panasonic, Vizio), connected game consoles (Xbox, Sony Playstation), non-entertainment devices (iPads, HTPCs, PCs), user interfaces (GoogleTV), content aggregators (Hulu, Crackle), a billion content specific apps (Netflix, MLBTV, TedTalks, AmazonVOD, Pandora)…and infinite combinations of these  all trying to create the “next generation” of television.

So who is going to win? Lets put aside the discussion of cord cutting and the future business model of television (which I’ve discussed here and here), and just think about devices and who might be the dominant player. There are three core drivers that a connected television player competes on.

#1 – Hardware

  • Price, power and features – Televisions are large and relatively expensive. They naturally follow a longer replacement cycle (5+ years) versus less expensive digital devices like cell phones and digital music players (~2 years). A feature-packed Smart TV with processing power and a $5,000 price tag is not going to win this category, because even brand new they are a step or two behind the latest technology. Relatively cheap, upgradeable devices with lots of processing power that can make any TV “smart” are what will win here. Having a large user base (like Apple or Xbox) doesn’t hurt.
  • Interoperability – As devices become inter-connected they have to be able to work together. Anyone that has experienced the bliss of controlling your stereo from your iPad via AirPlay, or using your smartphone to control your TV knows what I mean. A connected TV that doesn’t interact with other devices in your home is no connected TV at all.

 #2 – Platform

  • User Interface – Television is a “lean back” experience, meaning you want to lay back and easily find the content you want. Players in this space need a clean, easily navigable UI that ideally can be controlled with gestures (waving your hand) or voice recognition, as opposed to a keyboard, or god forbid, the up/down/left/right control of a remote.
  • Account registration and cloud access – The most heavenly, easy to use, feature rich, content heavy experience is still fairly limited if only accessible on one TV in your bedroom. However, if you can use the same log-in info to jump to multiple devices, pull up profiles, access content libraries, ques and start/stop movies in the same place then you have something.
  • Social features and recommendations – With the explosion of digital content, the challenge is not always what is available, but how to find it. Targeting and recommendations (if you liked X, you will probably like Y) is now a critical functionality. The best recommendation engines are pulling from your social graph to tailor recommendations based not just your behavior but that of your friends. I may or may not want to chat and interact with my friends while watching TV, but chances are, my friends and I like the same content.
  • Developer ecosystem – No one can do it by themselves. Any user-focused software platform needs a robust developer community that provides incentives to innovate

#3 – Content

  • This is really the crux, and where most tech companies trying to take on the television industry have faltered (how’s it going GoogleTV?). If I can’t get the shows I want to watch, then the slickest interface and Minority Report-style navigation system means nothing. To me, this is the greatest inhibitor of the evolution of television (see here for more detail). Electronic manufacturers and software companies figured out a while ago that content development wasn’t their strong suit, so they have been in a race to sign up the largest array of content partners. The problem is most content partners don’t want to risk their current business model by giving away too much content to new interactive services. You’re left with either massive upfront payments (a la Netflix) or cumbersome authentication models (a la ESPN and HBO) that give you online access as long as you’re a current cable subscriber. It’s a tricky balance, but the service that makes the most relevant and engaging content available in an economically feasible model will win.

So using this framework, who will dominate the connected television market? Given the most recent upgrade I think the strongest contender may be Microsoft and the Xbox Live platform. As background, on Tuesday Microsoft upgraded the Xbox Live service to include 40 different entertainment services, live TV integration and Kinect gestural and voice control.

Hardware

There are 57 Million Xbox 360 consoles sitting in homes today already connected to large flat screen TVs. There are 35 Million XBox Live user accounts. To put that in perspective Comcast, the largest cable operator in the US, is in 22 Million homes. Add to that the Kinect video recognition system and you have a hardware platform that almost no one can touch. Forget using your phone or iPad to control your TV, just tell your TV what you want or wave your hand (although you can also use a windows phone). The legions of innovators hacking the Kinect to solve real world problems is a great example of crowdsourced innovation. You can pick up a system for about $250, pretty tough to beat.

Software

Xbox Live already had one of the best user interfaces, and now features the very slick tile-based interface of the Windows 7 phones and soon to be released Windows 8 operating system. Search via Bing is integrated and voice activated as well. Using your Xbox Live gamer tag, you can sign in to any Xbox (in any room or home) and pull up your personal content via the cloud.

Content

This is where the upgrade really sets things apart. Xbox is bridging the gap between over-the-top boxes and cable by integrating partners like FiOS and Comcast directly into their platform. You can watch 26 live FiOS channels, removing the step of toggling the input between live TV and a connected device. They are also bringing in an impressive range of direct new content partners like HBO GO, Epix, UFC and previously available content like Hulu, Netflix, their own Zune service and others.

Overall, while not perfect, I can’t think of another player that can really touch them in these three areas. All that, and you can also play games on it. In terms of market penetration, hardware sophistication, user interface, account and ecommerce functionality, social features and content partners they are the ones to beat.  A full screen Apple TV may be a game changer, but until then keep an eye on Xbox.

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