Analysts: Google TV's likely a holiday flop, but with great promise for the future

Jim O'NeillGoogle TV is setting up to be one of the biggest disappointments of the holiday season with sales likely to be a fraction of what Google--and its partners, Intel, Sony and Logitech--hoped they would be.

Disappointing reviews from pundits like The Wall Street Journal's Walt Mossberg have left the platform--which in October landed with much promise and amid significant hoopla--in a netherworld that's already prompted Sony to drop its price on an array of devices, including a 46-inch Google TV (from $1,200 to $1,000), a 40-inch TV from $1,000 to $898, and a 25 percent cut in the price of a Google TV/Blu-ray disc players to $299; the New York Post said Sony has never cut the price of a new product.

Google TV, at the moment, simply isn't an easy enough reach for the average consumer.

"It's just not complete yet," said The Diffusion Group senior analyst Colin Dixon. "And, it's too expensive. No matter how you buy it, you pay too big a premium, from 10-15 percent on a Blu-ray player and a TV that supports it, and the company can't cleanly articulate the value proposition to most Americans."

Kurt Scherf, vice president and principal analyst at Parks Associates, said he believes the integration of Google TV into devices like a Blu-ray player eventually will be a good fit for consumers looking to add entertainment power without adding more boxes, but agrees that the price is critical.

"I actually like the idea of having the Google TV embedded into a device that I'm likely to buy anyway, which is a new Blu-ray player to replace my existing DVD player," Scherf said. "The challenge for this model is simply that Blu-ray players themselves are so darn inexpensive. Sony doesn't have a prayer of selling many Google-capable Blu-ray players at $399 or even $299 when standard BD players are going for under $100."

While some high-tech users are likely to buy it anyway, that's not the mainstream GTV is targeting.

A problem that could be bigger than retail sales, said Strategy Analytics analyst Jia Wu, could be Google TV's lack of content deals with the networks, something all three analysts agree upon.

"There are clearly significant challenges for it to fit in the TV ecosystem," he said. "From content owners' standpoint,... they've been making tons of money through the traditional pay TV model. Google is known for disrupting old industries by bringing new, open and usually free business models. The threat it is putting to cannibalize the current TV business is imminent."

Google, said Dixon, has, so far, misplayed its hand.

"I think that (Hollywood) initially misunderstood what Google was," he said. "They swaggered into town and said, essentially, ‘We're Google, this is what we're doing; you can get onboard or be left behind.' Obviously, they miscalculated."

Scherf agrees.

"Google makes its money monetizing search, pure and simple," he said. "The studios don't trust Google because they have a well-established advertising model, and there has been no proof that what Google is doing can increase revenues and profits for EVERYONE, not just Google." And, he said, the industry is learning that the standard search-based advertising may not work the same way on a video screen as it does on a computer.

"You still need video-based advertisements," he said. "So, there is no evidence that what Google brings to the table improves interactive video advertising."

Dixon said he believes Google will begin to see the fruits of its labor as more CE manufacturers line up behind the platform (see related story). "Vizio, Samsung, LG, maybe others are likely to announce at CES," Dixon said. "Content providers will come if the platform is successful... it's the same model Google has followed with the cell phone. Google won't walk away from Google TV; it completes the picture. They want to be everywhere the Internet is."

Wu, meanwhile, said the recent price cuts for Google TV devices probably are due to content issues and competition from lower-priced devices like Apple TV, despite the difference in how the two are used.

"If Apple is only charging $99 for its TV box, how much premium can Google charge over Apple?" he said. "Google needs to figure out how to generate big payoffs to studios, as unlike online news producing professional video content is very resource-consuming. As a consumer, I still love the concept of Google TV."

Scherf said he thinks consumers may be put off by the demands Google TV puts on users, like keyboard search. (See his Logitech Revue hands-on article here.)

"It asks a lot from the end-user in terms of the ways in which we are supposed to interact with our TVs," he said. "After reviewing the product for a few hours, I was literally exhausted by the keyboard strokes and the back-and-forth required. I think that the integrated online/broadcast/pay-TV convergence is going to be much more subtle, with programming choices and recommendations embedded into an existing guide/user interface that doesn't require the user to pull up a search box every time."

That, Dixon said, may be countered when Google's Android Market opens on Google TV. "The Android Market makes it more fun," Dixon said. "You can do some very interesting things for TV with apps."

So, the future for Google TV is pretty bright... but right now, it could be the holiday season's biggest flop. -Jim

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