Plusses and minuses in the Google/Motorola deal for pay-TV industry

editor's corner

Jim O'NeilGoogle's (Nasdaq: GOOG) $12.5 billion deal to buy Motorola Mobility (NYSE: MMI) has a bunch of interesting side stories in addition to its obvious patent play.

Google, which just yesterday was seen as the enemy of pay-TV operators because of its struggling Google TV initiative and rumors of its designs on premium video offerings (including the potential for an online TV network), now has become, as IMS Research analyst Stephen Froehlich called it, a "frenemy."

The company's decision to continue operating Motorola Mobility as a separate business means that it now will become a major technology supplier, in the form of set-top boxes.

And, as Froehlich points out, the deal could bring Moto some big benefits, too.

Motorola's STBs could become better at content search and discovery using Android, instead of the current Linux OS they currently employ. As more content goes online and channel offerings continue to expand, making search easier could be a huge edge for service providers. Just ask Verizon's FiOS TV customers.

Froehlich also points out that operators could see cost savings from a modular, containerized head-end, based on Google's own datacenter innovations. It also would make upgrades more straightforward.

Of course, YouTube and Google TV actually complement Motorola's service, and, as Froehlich points out "Google owns the world's largest over-the-top video service" with the two providing an ideal server platform for cloud-based multiscreen services and, perhaps, an STB-based over-the-top offering.

Paul Erickson, who follows consumer electronics for IMS, added that the deal gives Google TV an invaluable opportunity to gain traction in the market.

"The faster time-to-market, deeper level of integration, greater feature set and higher level of functionality that would likely materialize in pay-TV tablet and mobile handset applications would benefit all Android hardware partners while providing an important competitive advantage against Apple," he said. Especially with the aspirations Apple has vis-à-vis providing premium video to the living room and to mobile iOS devices.

"Should the company advance the (Google TV) platform to a level acceptable by pay-TV operators for set-top box use, it potentially opens up yet one more arena where Google will be able to extend its expertise in search and reach in advertising placement," Erickson said.

In-Stat, meanwhile, believes the deal won't have much impact on the market in the next 12 to 24 months because service providers like Comcast and Verizon are unlikely to be wiling to transition to an STB based on Android quickly, especially, said Research Director Allen Nogee, since many engineers and executives in the industry don't believe the Google TV platform is "ready for prime time."

"While there was a great deal of concern about the platform a year ago, once it was released, that concern evaporated," Nogee said. "So while there is an opportunity for cross-fertilization between Google TV and Motorola's home business, we believe it is an opportunity that will take time to bear fruit."

However, he said, Google has traditionally had a tough time convincing Hollywood it was an ally. With Motorola, Google now has a much firmer base upon which to stand.

"By using Motorola's Home business unit as a point of entry, Google improves the odds of successfully partnering with members of the content development community," Nogee said.

In the end, like all deals, this one is loaded with "what ifs." What are some of yours?--Jim

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