Widgets TV - Web-enabled TV in search of a killer app

Will widgets work?Web-enabled TV in search of a killer app

Media & Entertainment

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Whether it’s the traditional press and broadcast media, or the multitude of new media, audiences now have more choice than ever before. For media and entertainment companies, integration and adaptability are becoming critical success factors. Ernst & Young’s Global Media & Entertainment Center brings together a worldwide team of thousands of professionals with the industry knowledge to help you achieve your potential — a team with deep technical experience in providing assurance, tax, transaction and advisory services. Our global media and entertainment professionals work to anticipate market trends, identify the implications and develop points of view on relevant industry issues. Ultimately, it enables us to help you meet your goals and compete more effectively. We’ll use this study and other reports as a means of sharing information with you. It’s one of the ways Ernst & Young makes a difference.

Will widgets work? 1

Contents

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New technologies for a new age in television

Introduction

iTV’s long and bumpy road

What’s a widget?

Web-enabled TV forecasts

Critical success factors

Conclusion

Contacts

Key questions for content owners

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Introduction

Consumer Electronics Show that could prove game-changing. The Channel provides a platform for the development of TV widgets which are internet-enabled applications that will reside on the television screen. The functionalities of widgets can range from a small icon showing basic information (such as a weather forecast) to a full-screen, content-on-demand experience.

Ernst & Young believes TV widgets could be the catalyst to wide-spread adoption of web-enabled TV. The reasons are threefold:

Consumer familiarity:1. Many consumers are well acquainted with widgets from their internet and mobile devices. Apple’s App Store alone is forecast to earn $1.2billion in sales by 2009, with a signi� cant portion of these sales coming from widgets.1 In addition, consumers are interested in introducing more active behaviors into their television viewing experiences, as demonstrated by their growing propensity to multitask across online and television mediums. This content category is both familiar to consumers and aligns well with their evolving television consumption habits, all of which may help fuel the use of TV widgets. Recent increased usage of internet TV offerings, such as Hulu, has also accustomed consumers to interactive video experiences.

Content company adoption:2. Television companies are seeking ways to enhance their brands and extend their relationships with consumers. Likewise, video rental retailers are searching for new ways to monetize their licensed content. TV widgets provide content owners with an additional platform by which to enhance consumer engagement and extend their brands. Many content companies have already announced the development and scheduled release of TV widgets, including CBS and Showtime, who have announced they will be developing and releasing widgets over the next 12-18 months.2

Application-focused technology:3. Intel has partnered with Yahoo! to develop a technology that is easily leveraged by content owners. Furthermore, they have a multidevice hardware distribution strategy that fosters a rapid market adoption. They are also actively promoting their technology to all the critical value-chain players, including content, cable and consumer electronic companies. This strategy should result in a quick and scalable US market penetration.

After years of missed attempts, web-enabled television may � nally have found its killer application. Much like internet, mobile and iPhone widgets, TV widgets enrich the entertainment experience through the delivery of information, entertainment and social networking capabilities that sit right on the viewers’ TV screens — similar to computer desktop icons. When viewers click on a downloaded widget, however, they enter into an alternate media world that could be as simple as a partial-screen local weather report or as deep as a full-screen movie VOD archive. Content companies from television to movie retailers are seizing the opportunity to build new distribution channels, galvanize consumers’ growing TV/online multitasking habits, extend their consumer relationships and forge new revenue streams. To capitalize on this opportunity, content owners, media distributors and device manufacturers alike will need to develop new provisioning capabilities across platforms, forge new channel partnerships and package content and advertising in innovative and engaging new ways — and that’s just for starters.

Video-on-demand (VOD), digital video recorders (DVRs) and start-over technologies have made interactive television (iTV) capabilities commonplace in today’s home. However, the success of web-enabled television (web-enabled TV) has proven far more elusive. For over a decade, web-enabled TV applications have been released with little success. However, Yahoo! and Intel, in partnership, displayed the Widget Channel platform at the 2009

1 “Apple’s App Store could emerge as $1.2b business by 2009.” AppleInsider, 11 June 2008. 2 “Yahoo! brings the cinematic internet™ to life and revolutionizes web-connected television,” Business Wire, 7 January 2009, via Dow Jones Factiva.

“It’s frankly way beyond just passively watching broadcasts and is no doubt the future of TV.”

- Boo-Keun Yoon, Executive Vice President of the Visual Display Division, Samsung Electronics, as quoted in “TVs Tune to the Internet; Web-connected Television Sets Take the Show Floor at CES,” Multichannel News, 12 January 2009, via DowJones Factiva.

Global Media & Entertainment Center2

33Will widgets work?

Despite these powerful drivers of technology adoption, TV widgets are not without their challenges for content companies. TV widgets are a consumer-controlled medium, in which the viewer can pull down a variety of widgets from an application gallery, thereby allowing transparency and one-click access to competitors’ programming. In addition to the competitive challenges, there are also operational challenges. For instance, a TV widget and full-screen show might be running simultaneous con� icting advertising messages. Lastly, consumers have become accustomed to highly interactive, full-keyboard media consumption on their computers that will not easily transfer to the remote-controlled TV widget experience. The technology, therefore, raises a number of questions:

Can the appropriate interactive capabilities of the internet •port to the television set provide a compelling offering to consumers?

Will consumers exchange less rich interactive capabilities for •a 52” high-resolution television experience in the living room?

If so, are TV widgets the “killer app” for the previously •elusive web-enabled TV and what are the key success factors for consumer adoption?

Through a series of interviews with many of the major players across the TV widget value chain, consumer research led by The Diffusion Group, interviews with Ernst & Young industry experts and original data analyses, this report provides insights into these questions, and outlines the key areas that must be addressed in order for TV widgets to gain widespread adoption.


Mass adoption of iTV has only recently shown modest gains. There is a formidable history of missed attempts to capture audience and make money with a compelling iTV offering. Some argue that one of the earlier attempts, the pay-TV channel “Premiere” in Germany, led to the downfall of one of the great television empires – the Kirch Group.3

But the last decade has witnessed a � owering of iTV applications, with both VOD and DVR usage now somewhat commonplace.4 While these iTV applications are gaining currency, neither is yet web-enabled. The few web-enabled iTV applications which have launched, such as WebTV, have failed to achieve wide-spread adoption.5

New technologies for a new age in television

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At the 2009 Consumer Electronics Show, television companies were talking about the Yahoo!-Intel Widget Channel platform. ABC, CBS, Showtime and others have announced their intention to release TV widget offerings over the coming year.6 Interactive marketing agencies, such as Schematic, have developed the capabilities to assist media companies in creating and programming these widgets.7 These companies are betting that interactive media applications on internet and mobile devices have accustomed consumers to a wide variety of interactive experiences, which include accessing, sharing, discussing and manipulating media, which can be ported to the TV.

”TV is becoming more like the Internet. It is experiencing a content explosion that . . . requires search capabilities.”

- Keval Desai, Product Management Director, Google

3 “German MHP now in doubt,” Inside Digital TV, 5 February 2003, via Dow Jones Factiva, © 2003 Phillips Business Information, Inc. Some might argue that it was the pay-aspect of the channel that led to its failure, as Germany is primarily a free-to-air market and pay channels have historically struggled. However, it was the large investment in the interactive technology for Premiere which contributed to the challenges the Kirch Group faced.

4 In 2008, US VOD household penetration was 41m and DVR was 30m. “US Video-on-Demand (VOD) Households,” eMarketer, 5 December 2008 and “US DVR Households, by Subscription Type,” eMarketer, 5 December 2008, both citing data from MAGNA.

5 “Microsoft’s MSN TV2 easy to use, a bit pricey,” The Baltimore Sun, 17 November 2005, via Dow Jones Factiva. 6 “Yahoo! brings the cinematic internet™ to life and revolutionizes web-connected television,” Business Wire, 7 January 2009, via Dow Jones Factiva; “CES notebook,” CABLEFAX, 12 January 2009,

via Dow Jones Factiva, © 2009 Access Intelligence, LLC.7 “We also liked,” Advertising Age, 30 March 2009, via Dow Jones Factiva; © 2009 Crain Communications, Inc.

Will widgets work? 55Will widgets work?


iTV’s long and bumpy road

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One of the � rst iTV technologies was introduced in 1996 with the launch of the WebTV service (see Figure 1).8 WebTV allowed viewers to browse the internet and send email via their television screen. The service achieved 150,000 subscribers within a year of its launch and an estimated one million subscribers by 2004.9 However, WebTV never gained wide-spread consumer acceptance, due to its cost (which included a $200 keyboard purchase, plus a $9.95 to $21.95 monthly subscription fee),10 its lower-screen resolution, its relatively limited user interface and the prevalence of affordable personal computers.

8 “Firm will launch TV web browser,” Los Angeles Daily News, 10 July 1996, via Dow Jones Factiva. 9 “The Microsoft connection has kept WebTV relevant,” The Richmond Times-Dispatch, 8 October 2007, via Dow Jones Factiva; “Microsoft’s MSN TV2 easy to use, a bit pricey,” The Baltimore Sun,

17 November 2005, via Dow Jones Factiva.10 “The Microsoft Connection has kept WebTV relevant,” The Richmond times-Dispatch, 8 October 2007, via Dow Jones Factiva.11 “The red button debate,” B & T Weekly, 28 September 2007, via Dow Jones Factiva, © 2007 Reed Business Information Limited. Additional insights were yielded through Ernst & Young

market-expert interviews.

In 1999, British Sky Broadcasting (BSkyB) introduced a simple form of iTV through its Red Button service. With the push of a red button located on the consumer’s television remote control, consumers are able to request additional information on programming or advertisements, send text messages directly to the network, replay footage or participate in polls posted through their television program. Over 90% of BSkyB’s subscribers have utilized the Red Button iTV functionality since its introduction.11

BSkyB“RedButton”(UK)

AppleTV

TV Widgets

WebTV

HP MediaSmart

AOLTV

NetflixRoku

Xbox Live

PremiereWorldTime

WarnerCable

RespondTV andCommerceTV

• Set-top box between TVand internet

• Enabled internet browsing on TV

• Failed due to poor functionality and screen resolution, subscription fee, and the eventual introduction of low-cost PCs

• Set-top box button

• Provides a limited form of interactivity including in-program voting

• Still operational

• Media adapter

• Allows content from PC to be viewed over TV set

• Still commercially available, however, penetration is still low due to cost (>$300) and the technical savvy required to set-up a home network via PC

• Media adapter

• Allows content from PC to be viewed over TV set or streamed directly from internet

• Less than one million units have been sold in the two years it has been available due, in part, to the Apple iTunes walled garden

• Internet-enabled applications that run on TV set

• To be introduced in 2009

1996 1999 2000 2006 2007 2009e• Set-top box

between TVand Internet

• Provided access to the internet, email and AOL’s IM service along with TV programming

• Failed due to monthly subscription cost; reduced email functionality (could not open attachments) and poor user interface

• Provider-specific set-top box

• Enables online streaming of Netflix videos on TV set

20082002• Gaming

console with internet connectivity

• Subscription-based service enables users to download games as well as non-gaming content such as videos

20031994• Time Warner

launches iTV service in Orlando

• Penetrated 4,000 homes one year later

• System was expensive; cost of a set-top box was $3,000

2001• Pure-play

iTV infrastructure providers cease operations

• Premiere withdraws its support for the multimedia home platform iTV specification due to financial difficulties

Figure 1. History of iTV

7Will widgets work?

“People don’t want complexity… they don’t want the Internet dumped on their TV. They don’t want URLs and browsers either.”

- Michael Greeson, The Diffusion Group

Global Media & Entertainment Center

iTV’s long and bumpy road (continued)

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Media adapters are a more recent development in the history of iTV. These devices, such as Apple TV and the HP MediaSmart, enable consumers to stream content (including photos, video and music) from their computers to their television sets. Mass adoption of these devices has been stymied by their retail price ($200 or more) and the technical expertise required to con� gure a home network so that their computer and media devices can communicate with each other.

iTV technologies are highly variable, depending upon the maturity of the technology and the level of interactivity they provide. More mature iTV technologies tend to have less interactive capabilities — both quantitatively and qualitatively — with game consoles having the highest levels of both characteristics. Of all these technologies, web-enabled TV applications, such as TV widgets, are the least mature, yet provide the greatest amount of interactivity (see Figure 2).

History has shown that the presence of certain functional requirements can make an iTV technology (and new media applications in general) more successful than others.

Challengers Leaders

TV widgets• Game consoles•

Niche players

Media • adapters

Roku•

BSkyB’s Red Button•

DVRs•

Video on demand•

Visionaries

Maturity of technology

Inter-activity

WebTV•

Figure 2. iTV technology matrix

Will widgets work?

What doesn’t work?

Using the TV as a PC – • Most consumers are not interested in replicating the full functionality of a PC (e.g., word processing, � nancial management, sending and receiving emails, etc.) on their television set. Utilizing a keyboard on a PC is a “lean forward” experience, as opposed to the “lean back/laid back” experience of television viewing. Other barriers to PC-on-a-TV include the dif� culty in replicating the 24” PC monitor experience on a 52” television set (font size, etc.) and translating keyboard capabilities to a remote control.12 iTV must be its own experience and avoid simply translating the consumer PC experience to the television.

Limited content choices – • Fragmented, or “walled garden” offerings, which restrict and limit consumer access to a speci� c set of applications, limit consumer choice and, consequently, adoption.13 It is imperative that new iTV solutions provide consumers with the breadth of opportunities that the internet itself provides, not prescribe what types of content are delivered or by whom it can be accessed.

Multiple subscription-based services – • Consumers already pay a monthly fee for their internet connectivity and their television programming; they do not want to pay an additional monthly fee in order to replicate their existing internet service on their television set.

While past WebTV attempts can provide insights into what doesn’t work, they provide little insight into untested technologies, of which TV widgets are a prime contender.

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12 “Yahoo!’s Next Frontier: Internet TV; The Web pioneer is working with Intel and television makers to inaugurate TV widgets that will add some Internet content to home viewing,” BusinessWeek.com, 12 January 2009, via Dow Jones Factiva, © 2009 McGraw-Hill, Inc.; “Web-TV integration remotely possible,” ZDNet News from ZDWire, 1 March 1999, via Dow Jones Factiva, © 1999 ZD Inc.

13 “Walled gardens come tumbling down; Web 2.0 forces telcos to rethink strategy,” Telecommunications International, 21 August 2007, via Dow Jones Factiva, © 2007 Telecommunications Magazine.

What works?

Ease of use – • Consumers will be more likely to utilize an iTV application if it has a simple and elegant user interface and does not require in-depth knowledge of networking.

Advertising-based services – • Consumers prefer “free” to fee. Content that is funded by an advertising-based model may have a much higher adoption rate than services requiring an out-of-pocket expenditure on the part of consumers.

Premium content – • While advertising-subsidized experiences are more readily acceptable, consumers have demonstrated a willingness to pay for content which they perceive as having a high value. Media available on a transactional basis (e.g., paid movie downloads), is still a viable model, provided that the transaction price for the content is perceived by the consumer as being “reasonable” and the content is perceived as having a premium value, such as movies or a highly rated series.

10 Global Media & Entertainment Center10

What’s a widget?

TV widgets are mini-applications with a wide range of potential offerings. TV widgets, selected by the consumer, will sit, like computer icons, at the bottom or side of their television screen. In their simplest form, TV widgets enable consumers to view key information, such as news, weather or sports, via a tool bar. Once enabled, the tool bar can be docked at the bottom or side of the television screen. They might also include a “Now Playing” button that can alert viewers to programs on their favorite channel. A more interactive application might include Web 2.0 features, such as sending instant messages to friends, posting on message boards and participating in social networking exchanges about the events or characters on the show they are viewing. Such an application could allow viewers to debate opinions in “real time” as they watch the performances of their favorite singers on American Idol. In the most advanced offering, TV widgets can

provide fully programmed television channels that � ll the full television screen with streamed movies or television shows. While leveraging this technology to develop fully programmed channels raises a number of issues — ranging from regulatory to audience cannibalization — the variety and potential of these services and applications are extensive.

TV widgets will be powered by the Intel Media Processor CE 3100© system-on-a-chip (SoC), which incorporates a central processing unit, audio and video processors, and a graphics engine — all in a single device.14 This new internet-enabled SoC is built into Consumer Electronic (CE) devices such as HDTVs, DVD players and set-top boxes. The CE 3100© chipset and design framework will be released in the US in 2009, with subsequent releases in Europe and Asia Paci� c.

Figure 3. TV widget screen shot

14 “Intel® Media Processor CE 3100: Product Brief,” Intel Corporation website, www.intelconsumerelectronics.com/Download/320307-003US.pdf, accessed 17 February 2009.


“Widget applications help organize content and enable search and discovering relevant content easier.”

- Michael Greeson, The Diffusion Group


What’s a widget? (continued)

Device playersContent players

Access/interactivity

Create content

Acquire content

Advertising product

placement

Format

Security

Storage

Create widget

Delivery

Monitoring

Subscriptioncontracts

Advertising consumption

Sponsor-ships

ContentsecurityContent Access/

deliverySales/

consumptionInstallation/

networkPayment

processing Reporting

Product access

Serviceaccess

Contentsearch

Contentnavigation Interactivity

Productbundling

Consumertargeting

Personalizedadvertising

Softwaredownload

Serviceaccess

Productaccess

Invoicemanagement

Paymentprocessing

Accountupdates

Self-service

Userprofile

Accountmanagement

Productsupport

Servicesupport

Marketing

Create Distribute Aggregate Report

RoyaltyprocessingeCommerce

Planning

Scheduling

Availability

Programming

Contentbundling

Advertisingsales

Event driven

Distributionplayers

Intel and Yahoo! have enabled the creation of widgets via the design of the chipset and the availability of the application framework development kit. To promote their technology, they have fostered relationships with the key players in the TV widget landscape including:

Content players — • CBS, Showtime and others are developing applications that enable users to interact with displayed programming, request content on demand, respond to polls or send their comments and opinions to the broadcaster. Initial content on widgets will range widely from “information push” applications (news, weather, sports and stock updates) and extra programming footage, to the full streaming of VOD movie services offered by Blockbuster and Net� ix.15 Content companies are also partnering with interactive marketing � rms, such as Schematic, to assist in the design of TV widgets, enabling their development and entrance into the market.16

The wonderful world of widgets The TV widget landscape consists of content owners, media distributors and device manufacturers, who together provide the services to support the end-to-end TV widget capabilities (see Figure 4).

Figure 4. Widget landscape


Distribution players — • Device manufacturers, cable operators and online service providers such as Yahoo! are developing widget “galleries” to provide consumers with access to libraries of diverse applications. Intel and Yahoo! are driving an openness principle for gallery owners, requesting that gallery owners include all widgets; however, preferred placement within the galleries will be highly valuable to widget producers.17 In theory, the more visible the application, the higher the likelihood of its selection by consumers (as is the case with Electronic Program Guides). Content owners will likely sign deals with these distribution players in order to optimize the placement of their branded widget. No doubt negotiating a prime spot in preloaded galleries will be a critical success factor for individual widgets.

Device players — • Arguably the key to rapid adoption of TV widgets, device manufacturers will work with companies such as Intel to embed widget support in set-top boxes, DVRs, DVD players and television sets in order to ensure a fast and comprehensive route to market for this technology. Several CE manufacturers, including Samsung, Sony and LG Electronics, have announced their intent to ship widget-enabled high-de� nition (HD) television sets in 2009.18 Internet connectivity to enable widget selection will be made possible by ethernet ports or wireless USB devices installed in the television sets. Consumers will be able to access the widget-based applications via a short-cut button on their remotes.19

TV widget application technology sits in a walled garden on the internet, meaning that it is fully web-enabled. This platform structure allows the technology to leverage many internet functions and capabilities, potentially including advertising-serving, performance-monitoring and content-serving infrastructure.20

Open framework will spur development TV widget applications can be built using the Intel-Yahoo! development framework, enabling developers to design customized widgets for speci� c TV content providers and audiences. Much like the Apple iPhone Developer Program, which spurred the development of over 15,000 applications for the wireless device and which will generate an estimated $1.2 billion in revenue for Apple by 2009,21 the Intel-Yahoo! application framework will enable developers to create myriad mini-applications for internet/television interaction. Content owners, distributors and internet developers will be able to create widgets utilizing standard internet programming technologies, such as JAVASCRIPT®, XML, HTML and Adobe Flash®, thus lowering barriers for application development.22

Consumers will be able to select, or “pull,” the desired application into their device’s Widget Gallery either by activating a widget that has been preloaded on their CE device or selecting one from the Yahoo! Widget Gallery. However, as widget technology becomes more sophisticated, content providers will synchronize the availability of widgets based upon the programming being broadcast and “push” them to consumers for selection. These pushed widgets will relate directly to the programming on the screen and will enable users to interact more fully with the content being displayed.

Web-enabled televisions, annual unit sales, US(millions)

0.2 0.41.0

2.2

4.0

6.0

01234567

2008 2009e 2010e 2011e 2012e 2013e

Source: Park Associates, “Internet video: Direct-to-consumer services,”(2nd edition), 2008.

Figure 5. Web-enabled TV sales

15 “Yahoo!, TV makers unveil deals to webify the tube,” Penton Insight, 9 January 2009, via Dow Jones Factiva. 16 “We also liked,” Advertising Age, 30 March 2009, via Dow Jones Factiva, © 2009 Crain Communications, Inc. 17 The Mossberg Solution: Yahoo Widgets lend brains to boob tube,” The Wall Street Journal, 25 March 2009, via Dow Jones Factiva, © Dow Jones & Company, Inc.18 Ibid. 19 Ibid. 20 Interview with Lance Koenders, Technical Assistant to the SVP & GM, Digital Home Group, Intel Corporation, 3 March 2009. 21 “Apple’s App Store could emerge as $1.2B business by 2009.” AppleInsider, 11 June 2008. 22 “Widget Channel: Technology Brief,” Intel Corporation website, www.intelconsumerelectronics.com/Download/320270-003US.pdf, accessed 17 February 2009.

14 Global Media & Entertainment Center

Multitasking has become commonplace The ability to watch television while also keeping updated with news or engaging in social networking and email activities is already an established practice among consumers in the US and Europe. A Yankee Group study found that 56% of all US consumers browsed the internet/used email while also watching TV.25

In addition, a survey of 14,193 European online consumers by Forrester Research found similar results with over 50% of European consumers aged 19 through 29 reporting watching television while using the internet (see Figure 6).26

These studies show that consumers, especially the younger generations, will be more likely to adapt to integrated television and internet offerings, which cater to and combine both activities, while maintaining the consumers’ focus on the television screen.

23 “Worldwide and US Home Network–Enabled Video Devices 2008–2012 Forecast,” IDC, September 2008, document # 214155.24 “US Video-on-Demand (VOD) Households,” eMarketer, 5 December 2008 and “US DVR Households, by Subscription Type,” eMarketer, 5 December 2008, both citing data from MAGNA; “Videogames,”

Warren’s Consumer Electronics Daily, 11 March 2009, via Dow Jones Factiva; US Census Bureau, “Households, Families, Subfamilies, and Married Couples.” 25 Yankee Group Research, Inc., “Anywhere Consumer: 2008 U.S. Entertainment Survey,” 24 December 2008.26 Forrester Research, Inc., “European Multitasking Consumers Present Both Challenges And Opportunities,” October 2008.

Percentage of EU consumers who watch television while emailing/using the Internet

24%27%

31%36%

41%42%

44%47%

53%58%

51%47%

45%43%

0% 10% 20% 30% 40% 50% 60%

65+60 to 6455 to 5950 to 5445 to 4940 to 4435 to 3930 to 3425 to 2921 to 2419 to 2016 to 1812 to 15

All

Source: Forrester Research, Inc., “European Multitasking Consumers Present Both Challenges And Opportunities,” October 2008.

Web-enabled TV forecasts

Intel has adopted an aggressive multipronged device strategy to get chip-enabled equipment devices into the marketplace. The � rst device to ship with the Intel chip will be HD television sets. Parks Associates has forecasted that sales of web-enabled televisions in the US will grow from 400,000 units in 2009 to 6 million units in 2013, a 97% compound annual growth rate (see Figure 5). IDC has forecast the number of network-enabled video devices (including TVs, media adapters, DVD players and DVRs) in the US to grow from 12.6 million in 2009 to almost 66 million by 2012.23 However, the sale of web-enabled TV-enabled CE devices is not the only variable to be considered to determine future consumer adoption.

Consumer uptake is dif� cult to forecast, especially given the wide variability in interactive technology adoption rates. For example, it has taken 10 years for US households to achieve a 25% penetration rate for DVRs; eight years to reach a 25% penetration rate for VOD; yet only seven years for 25% of console and handheld gamers to connect their devices online.24

The lack of previous wide scale web-enabled TV adoption adds an additional element of uncertainty to the widget uptake rate. However, there are several key consumer behaviors that suggest they will embrace this technology.

Figure 6. Multitasking consumers

15Will widgets work? 15

TV widgets ful� ll “a lot of pent-up demand for the interactive TV market.”

- Allen Weiner, Gartner analyst, as quoted in “Yahoo! weds Web with TV,” The San Francisco Chronicle, 19 January 2009, via DowJones Factiva, © 2009 Hearst Communications, Inc.


Web-enabled TV forecasts (continued)

And the survey says...

According to primary research, consumers are very interested in widget-based TV applications. A Parks Associates’ report found that over 30% of US consumers consider the idea of news and information widgets on their television to be “appealing,”28 while approximately 61% of consumers surveyed say they would like their TV to connect to the internet.29 A study from The Diffusion Group found that 76% of consumers believe having a widget toolbar on their primary TV would be valuable.30

While it is inherently problematic to forecast consumer adoption of a nascent technology, the prior insights and research suggest that there is the appetite, familiarity and history to indicate that consumers could embrace TV widgets. That being said, it was the � ndings of The Diffusion Group’s consumer research concerning the most highly valued applications which provide some surprising insights into the areas of consumer demand.31

When 26 applications were tested, it was the Search/Discovery and Find/Watch functions that proved the most desirable. When asked to rank the widget-based applications in order of preference, the following appeared as the top-listed applications with 75% or more of respondents regarding them as valuable:

Ability to immediately � nd and watch episodes of current 1. season TV shows

Ability to immediately � nd and watch online TV programs 2. from a major network

Up-to-the-minute weather information customized for 3. your location

Ability to immediately � nd and watch TV programs no 4. longer on the air

Up-to-the-minute breaking news headlines5.

This is great news for television companies! The majority of consumer interest still revolves around premium television

Consumers know widgets

Computer widgets: • Consumers have already embraced the use of targeted, mini-applications on their computers, as evidenced by the popularity of desktop widgets (applications parked on the desktop such as calendars or clocks), browser widgets (applications used to customize a user’s browser home page such as those found on the Google Gadget directory) and social widgets (such as those installed by Facebook users). These widgets provide consumers with direct access to targeted applications and features, similar to TV widgets. According to a study published by Razor� sh, an interactive marketing agency, 55% of “connected consumers” (those people with broadband internet access who use social networks and digital media) use computer widgets on their desktops with some frequency and 62% use them on sites such as Facebook and iGoogle.27

Mobile widgets: • Mobile widgets are another means by which consumers are personalizing their device experience with targeted applications. Mobile widgets enable consumers to quickly access information without having to navigate the internet via their device browser, saving time and effort for the user. As discussed earlier, iPhone widgets have been particularly successful.

“[The TV] content explosion has implications: Consumers need search capabilities and advertisers want to know that they are reaching the right consumers.”

- Keval Desai, Google


programs, with widgets simply providing the ease of access and depth of content similar to the click-and-search functionality of the web that has previously been unavailable on the TV.32 In addition to simply galvanizing this consumer interest, content companies have several additional incentives to develop TV widgets:

Increased engagement: • Research has shown that consumers become more engaged with brands and programs through increased exposure across multiple platforms. In early 2008, MTV conducted a study of consumers called the Multi-Screen Engagement (MSE) Case Study, 33 using its show The Hills as a focus of research. The results provided “clear evidence” that consumer engagement with programs and brands increases dramatically with each additional digital platform to which a viewer is exposed. The MSE Case Study also found that the value of television advertising grows as viewers connect with marketing messages across screens and that an advertiser’s positive brand image increased dramatically among fans who browsed The Hills content online.34 The study also found that multiplatform offerings deliver a stronger impact on consumers, thus enabling higher advertising rates across all platforms.

Brand enhancement: • Making video content deeper and richer has been an increasingly important component of brand enhancement as digital media has matured. Television companies are seeking ways to enhance their content brands and extend their relationships with consumers.

Need to stay relevant: • Content owners can utilize TV widgets to deliver a twenty-� rst century, iTV experience to consumers without a large investment in technology. Television advertising is down and companies are seeking ways to stay

27 eMarketer, “The Widgetized Web,” 17 November 2008, citing data from Razor� sh LLC.28 “Television 2.0: The Industry Perspective,” Parks Associates website, www.parksassociates.com/research/reports/tocs/pdfs/Parks-TV2.pdf, accessed 20 February 2009. 29 “Widget Channel,” Intel Corporation website, www.intelconsumerelectronics.com/Consumer-Electronics-3.0/Widget-Channel-Overview.aspx, accessed 20 February 2009, citing data from

Forrester Research, Inc.30 “How widgets will revolutionize TV,” Penton Insight, 20 March 2009, via Dow Jones Factiva.31 Ibid.32 Ibid. 33 “MTV Networks Upfront Presentation: ‘The Ultimate ROI: Return on Innovation ,’” Wireless News, 10 May 2008, via Dow Jones Factiva, © 2008 M2 Communications, Ltd. 34 “The next wave in media measurement and engagement,” Business Wire, 25 June 2008, via Dow Jones Factiva; “‘The Hills’ is alive: MTV research links cross-platform marketing to brand af� nity among

web users,” Adweek, 5 May 2008, via Dow Jones Factiva, © 2008 Nielsen Business Media.

relevant to their two main constituents: consumers and advertisers. TV widgets provide a potential answer.

Achieve a “� rst mover” advantage: • A content player that is among the � rst to develop a TV widget and place it within the Yahoo! widget Gallery could achieve several � rst mover advantages:

Individually branded widgets will have a much higher 1. visibility at launch, as the overall number will be limited. The higher the visibility of the widget, the greater its chances to be downloaded onto the consumer device gallery and, once downloaded, inertia sets in and it has a higher likelihood of staying.

Placement of a branded content-owner’s widget on 2. the gallery, whether due to a preferred placement agreement or through search results, will be key to adoption. Content companies which release widgets early can negotiate premiere gallery placement.

Early downloads from a limited widget offering will 3. provide greater brand exposure.

However, in order to develop and launch an application effectively, content companies must ask themselves if they have the strategic, operational, process and technological capabilities to effectively monitor, measure and monetize a widget investment.

18 Global Media & Entertainment Center

Key questions for content owners

From an expense perspective, the costs to develop a TV widget are estimated to be relatively small ($50k-$150k) per application. However, the delivery and ongoing costs could be far more considerable, depending on the complexity of the application. Content owners must take into consideration the costs to refresh widget content frequently enough to encourage repeat use of the application, the impact on their Multiple System Operator (MSO) af� liate agreements, the requirements to schedule and deliver advertisements within the widgets and the impact on their core advertising and program viewership (see Figure 7).

Some of the key questions that will have to be addressed include:

Content creation: • Do we have the right content to support a widget offering? Do we have the ability to modify the content for widget delivery? Do we have the necessary data, processes and tools to support an interactive application?

Distribution and delivery: • Do we have the right skill sets in-house to develop, program and deliver engaging widgets? Will our network and other infrastructure adequately support anticipated volume, capacity management addressability and authentication?

Audience aggregation: • Are we able to support broadcast commitments across platforms in a synchronized way? Do our current sales processes, data structures and systems support monetizing interactive TV capabilities, gallery placement and optimization, and any other new competencies that will be required?

Reporting, measurement and analysis: • Do our data capture, engagement, measurement and reporting processes and systems adequately support interactive TV applications? Do our analytical tools support new demands for features, functionality, usage or advertising performance analyses? Are our billing, third party or transactional, and advertising-based revenue recognition and collection systems able to support new interactive capabilities? Are our current systems capable of accurately invoicing and collecting on a multiplatform basis?

Reporting, measurement and analysis

Audienceaggregation

Distribution and delivery

Contentcreation

• Do we have the content to support a widget offering?

• Is our programming conducive to interactive applications?

• Can we program content effectively across channels?

• Which content creates the greatest opportunity?

• Can we insert advertisements into our widgets?

• Can we align our advertisements across our linear and widget offerings?

• Do our advertisers want to pay for widget placement?

• Do we have the necessary data, processes and tools to price our inventory across platforms?

• Do our systems and processes support creating content across multiple platforms with a compelling interactive component?

• Do we have effective program management and communication processes for preparing and delivering an interactive application?

• Do we have the right creative team to develop a multiplatform offering?

• Do we have the correct content service providers?

• Are we able to modify our core content for a widget offering?

• How do we best work with our widget technology team to align content with technology capabilities?

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• What partnerships, if any, do we need to develop, deliver and sell interactive TV?

• How can we best monetize our interactive capabilities?

• Can our data, processes and systems handle delivering iTV offerings?

• Can our current sales processes, data structures and systems support monetizing iTV capabilities?

• Can we effectively and accurately monitor and report developing media applications (e.g., gaming, mobile)?

• Are we able to support broad-cast commitments acrossplatforms in a synchronized way?

• Can our data, processes and systems handle delivering iTV offerings?

• Can our current sales processes, data structures and systems support monetizing iTV capabilities?

• Can we schedule advertisements in a coordinated fashion across our linear and widget platforms?

• How will we manage the potential for conflicting advertisements when consumers access a rival widget?

• Will our sales and reporting systems be able to support iTV revenues?

• Can our data, systems and processes support new deal structures (e.g., new platforms, performance metrics)?

• Do our analytical tools supportour clients’ demands for performance analyses?

• Are we invoicing and collecting the accurate amounts across all our platforms?

• Do our current and historical content agreements allow the integration of interactive elements?

• Are we meeting our clients’ changing reporting demands?

• Can we report across clients, sales, properties, etc. to provide transparency into sales patterns? St

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Figure 7. TV widget considerations


TV widgets will not simply be a “create it and they will come” phenomenon. As applications develop and launch over the next 18-24 months, Ernst & Young has identi� ed ten critical success factors that the landscape players will need to address in order for TV widgets to enter and achieve widespread adoption in the marketplace:

Develop a viable business model:1. Advertising and Pay-for-Premium content are the most likely initial revenue models, with television commerce (t-commerce) being a later but highly desirable subsequent monetization model. As we have seen in other nascent digital media, it takes time to reach enough critical mass to yield signi� cant revenues. Critical mass most often results from an acceleration of adoption rates and market consolidation. Therefore, it may be several years before TV widget-based sales revenues support a viable business model.

Manage channel con� icts:2. Television companies’ af� liate agreements generally restrict the window and markets within which � rst-run content can be broadcast. In addition, content available on premium services can only be accessed by subscribers of those services. These contractual restrictions must be managed across widget offerings. Cable operators have been working for several years on developing an Authorization Engine to provide “cloud authorization” to ensure content can be viewed by each household regardless of the distribution channel (traditional TV, online or mobile).35 Until these capabilities are in place, the majority of the television programming widgets will likely be restricted to marketing trailers and extra footage which would not have af� liate or subscriber restrictions, which begs the next issue.

Provide a compelling consumer experience:3. TV widgets must provide users with a compelling experience, for which there are two key components: developing an engaging consumer experience and offering compelling content. Leveraging user-centric design can help developers to optimize the consumer’s widget experience by designing the experience according to the use and needs of the consumer. However, as The Diffusion Group’s study has shown, premium television content is the primary area of consumer interest. Determining how this content can be made available for early releases is critical to the application’s success. As such, balancing between channel con� icts and the consumer’s demand for premium long-form content will need to be managed early in the development process.

Mitigate impact on core ad sales:4. There are several concerns that will need to be managed in order to protect core ad sales. First, ratings must be protected on the channel in order to guard against the erosion of advertising rates when viewers migrate their attention to widget applications. This concern can be addressed via the use of side- or bottom-placed widget toolbars that will protect viewership ratings on the primary screen. A second concern is that con� icting advertising (e.g., Ford versus Toyota) could appear simultaneously on the widget and core TV screens. To manage this issue, television programming providers (including cable, telecommunications and satellite operators) can integrate widgets into their set-top boxes to provide a platform for managing these channel con� icts.36 Lastly, there is a concern that consumers will migrate to nonrelated (read “competitive”) content rather than staying within the company’s content experience, which could reduce rather than enhance consumer engagement levels and therefore erode, rather than increase, advertising rates. On the � ip side, a consumer engaging with a widget application that is docked in the taskbar may be more apt to stay on a particular channel through commercial breaks, rather than channel surf, thus increasing the overall amount of commercials to which they are exposed and potentially increasing advertising rates. While the content company should have a mitigation strategy, the ultimate impact on ad sales is yet to be determined.

Acceptance by the television programming operators: 5. As discussed previously, the television programming providers are critical to the application’s success. They hold the key to the set-top boxes, as well as the consumers. More importantly, their technologies are required to enable several aspects of next generation advertising capabilities. Operators will therefore need to embrace this technology and its role within the value chain, which would relinquish some of their controlled access to the consumer. Furthermore, MSOs have their own initiative to provide interactive advertising and content, Canoe Ventures. Given the early stage of widget discussions, it is still unclear whether the MSOs will choose to embrace their role within this nascent widget ecosystem or chose to go another way.

Critical success factors

35 “Members Only; Cable Operators, Programmers Try to Build An Exclusive Online-TV Service for Subs,” Multichannel News, 6 April 2009, via Dow Jones Factiva.36 Interview with Lance Koenders, Technical Assistant to the SVP & GM, Digital Home Group, Intel Corporation, 3 March 2009


Be usable and useful:6. Widget applications must feature a user-friendly interface as well as address an inherent need or interest of the consumer. A desire for a deeper, richer content experience could provide this requisite “usefulness.” However, content owners have been driving consumers to the web for this richer interactive experience, so TV-based widgets must be a distinct experience that addresses an as-yet unful� lled interest in the integration of internet and television.

Avoid TV-as-monitor: 7. Another question arises as to whether the television will become an interactive device in itself, or whether the computer will simply morph with the television screen, which, in effect, becomes a large monitor connected to the internet. TV widgets must complement the television’s independent identity within the home by offering an integrated TV experience and not try to mimic the experience of the computer.

Avoid potential regulation issues:8. Full-screen broadcasts could permit companies to launch fully programmed channels without regulatory licenses. However, there is a risk that legislators, particularly in highly regulated markets, will force such offerings to cease to broadcast. As a result, content companies will need to manage their offering carefully.

Develop operational capabilities:9. As outlined above, there are many operational challenges that will be required to program, schedule, broadcast and report on the performance of TV widgets. These challenges will need to be addressed in order to maximize the return on investment of these investments.

Create a “killer app”: 10. The two main drivers of “killer apps” historically have been facilitating consumers getting “what they want when they want it” and improving their ease and immediacy of communication. If consumers do, in fact, want deeper, richer content while viewing TV, then widgets might likely fall into the former category. But demand must be tested as each application is developed. As demonstrated by both internet, mobile and iTV applications, some content (e.g., news, weather, movies) lends itself far more readily to the “on-demand” content than others. In addition, ease of use could be a big pull for content owners — for example, a one-click icon to access web-stored warehouses of deep premium content (imagine Net� ix’s entire inventory available via a click of the remote). Each content owner must evaluate the viability of its own available content and widget design with a focus on these de� ning “killer app” criteria.

22

Conclusion

TV widgets represent another digital media platform content companies can leverage to strengthen their relationships with consumers through the innovative delivery of content. In the short term, widgets will likely remain a means by which companies can reinforce their brands and strengthen their relationship with consumers. However, as consumer adoption ramps up, advertising and pay-for-play could prove signi� cant, as long as the critical success factors are appropriately addressed. When this happens, content companies may have found the killer app that yields mass adoption of web-enabled TV.



Contacts

Telephone Email

Global Media & Entertainment CenterJohn Nendick, Global Sector Leader (Los Angeles, US) + 1 213 977 3188 [email protected]

Sylvia Ahi Vosloo, Associate Director, Marketing (Los Angeles, US) + 1 213 977 4371 [email protected]

Karen Angel, Global Implementation Director (Los Angeles, US) + 1 213 977 5809 [email protected]

Yooli Ryoo, Knowledge Manager (Los Angeles, US) + 1 213 977 4218 [email protected]

Peri Shamsai, M&E Senior Manager (New York, US) + 1 212 773 9172 [email protected]

Pam Walker, Events Coordinator (Los Angeles, US) + 1 213 977 3046 [email protected]

Global area leaders and advisory panel membersFarokh T. Balsara (Mumbai, India) + 91 22 4035 6550 [email protected]

Mark Besca (New York, US) + 1 212 773 3423 [email protected]

Neal Clarance (Vancouver, Canada) + 1 604 648 3601 [email protected]

Noriharu Fujita (Tokyo, Japan) + 813 3503 1355 [email protected]

David McGregor (Melbourne, Australia) + 613 9288 8491 [email protected]

Gerhard Mueller (Munich, Germany) + 49 891 4331 13108 [email protected]

Bruno Perrin (Paris, France) + 33 1 46 93 6543 [email protected]

Michael Rudberg (London, England) + 44 207 951 2370 [email protected]

Global service line leaders and advisory panel membersThomas J. Connolly, Global M&E Transaction Advisory Services Leader + 1 212 773 7146 [email protected]

Alan Luchs, Global M&E Tax Leader + 1 212 773 4380 alan.luchs @ey.com

Paul Macaluso, Global M&E Transaction Advisory Services Leader + 1 213 240 7040 [email protected]

Chris Pimlott, Global M&E Tax Leader + 1 213 977 7721 [email protected]

Gregg Sutherland, Global M&E Business Advisory Services Leader + 1 720 931 4435 [email protected]

Advisory panel membersHoward Bass + 1 212 773 4841 [email protected]

Glenn Burr + 1 213 977 3378 [email protected]

Vincent de La Bachelerie, Global Telecommunications Leader + 33 1 46 93 6205 [email protected]

Rick Fezell, Global Technology Leader + 1 408 947 6568 [email protected]

Bud McDonald + 1 203 674 3510 [email protected]

Tim Teagle + 1 213 977 3216 [email protected]

Ken Walker + 1 805 778 7018 [email protected]


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About Ernst & Young’s Global Media & Entertainment CenterWhether it’s the traditional press and broadcast media, or the multitude of new media, audiences now have more choice than ever before. For media and entertainment companies, integration and adaptability are becoming critical success factors. Ernst & Young’s Global Media & Entertainment Center brings together a worldwide team of professionals to help you achieve your potential — a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify the implications and develop points of view on relevant industry issues. Ultimately it enables us to help you meet your goals and compete more effectively. It’s how Ernst & Young makes a difference.

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Widgets TV - Web-enabled TV in search of a killer app

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