Understanding the Connected TV Market

The never-ending cycles of product "improvements" in the television
manufacturing business are actually less complicated than their marketing may
suggest. True, keeping track of the exact features (screen size, resolution,
compatibility details, etc.) of every iteration of every brand can be confusing
even for tech-savvy consumers. Thats not because the devices have become
increasingly difficult to operate, though. A lot of the puzzlement stems from TV
nomenclature. Whats the difference between Sharp s (PINK: SHCAY ) Aquos
LC46LE830U Quattron 46-inch 120 Hz TV and the Aquos LC46LE835U Quattron 46-inch
240 Hz TV? A couple of hundred dollars and a slightly improved image, but youd
never know it judging from the ridiculous model names. 2012 is the year of the
Connected TV. The bad news: This latest big leap in the television business
comes with a whole new array of obfuscating terminology. The good news:
Connected TV devices and services are melding content and technology, so there
ultimately will be fewer boxes to connect to one another, and thus less arcane
language to decode. Theres just a whole lot more entertainment to choose from,
which is, if nothing else, good for business. Heres the idea. A Connected TV, or
Smart TV, is a television that has a plethora of services built directly into
it. Like smartphones or PCs, these TVs run on operating systems, run apps, and
connect to the Internet to provide streaming entertainment. Unlike the offerings
of traditional cable and satellite services like Comcast (NASDAQ: CMCSA ) or
DirecTV (NASDAQ: DTV ), the bulk of content available on Connected TVs is
available on-demand rather than scheduled. Think movie/TV services like Netflix
(NASDAQ: NFLX ) and music services like Pandora (NYSE: P ). Connected TVs also
provide access to Web-based social networking tools like Facebook and Twitter.
Up to now, the number of Smart TV products on the market has been split between
set-top boxes that are connected to regular HDTVs and full-featured Connected
TVs with on-demand features built directly into the sets. Going forward, the
industry will focus more and more on building Smart TVs and forgoing set-top
boxes altogether. Nothing demonstrated this more than Januarys International
Consumer Electronics Show in Las Vegas. Who is making the goods? First are the
companies making the operating systems running on Connected TVs. Google (NASDAQ:
GOOG ) is looking to control the market with Google TV the way its seized the
smartphone market with Android. While Google TV devices have been available for
over a year, it was only at CES that the company publicly revealed its greatly
expanded partner list. Nearly all of Sony s new Bravia HDTVs are Google
TV-equipped Connected TVs. Samsung (PINK: SSNLF ) is also making Google
TV-equipped sets as part of its Smart TV (an actual brand name in this case)
line of Connected TVs. Budget TV maker Vizio is also making Google TV sets.
Other television manufacturers, like the aforementioned Sharp, use proprietary
operating systems for their Connected TV sets. Google is slowly stealing market
share in the space from Yahoo (NASDAQ: YHOO ), whose Yahoo Connected TV was a
pioneer in this area, with Samsung, Sony, LG, Toshiba, and Vizio using the
platform between 2009 and 2011. Set-top boxes that provide Connected TV
functionality to sets are still a part of the equation. Roku provides a cheap,
compact device thats gained a strong, growing following. Apple s (NASDAQ:AAPL)
self-described hobby project, Apple TV, is also a player in the space. Of
course, that's the company that may galvanize the Connected TV business later
this year. Rumors have been swirling since October that Apple will sell its own
line of connected HDTVs later this year. These sets will almost certainly run on
Apples proprietary iOS operating system, the same platform powering the iPhone
and iPad. The popularity of those connected devices guarantees a level of
familiarity in consumers that should ease the confusion that surrounds the rest
of this new TV market. As of this writing, Anthony John Agnello did not own a
position in any of the stocks named here. Follow him on Twitter at