Pressure, what pressure?

November 19, 2010
For an informed view on connected entertainment in the UK & Ireland, visit Cue Entertainment 

If Google Chief Executive Officer Eric Schmidt ever tires of his day job, he would probably make a good diplomat. 

At odds with the cable companies, the broadcast networks and the US Congress and reluctantly obliged to concede the potentially lucrative Chinese market to local search engine provider Baidu, Google is challenged from all sides.

Yet the interview with Schmidt that opened the Web 2.0 conference in San Francisco this week was notable for the effortless way he fielded questions. Whether they were about censorship, German concerns on map privacy or the company’s introduction of Google TV in the face of opposition from traditional television operators, Schmidt did not look like a CEO under pressure.

In mid-October, Google announced third-quarter earnings of $7.29 billion, of which the UK represents $840 million or 12%, and revenues are nearly 25% up on a year ago. The Android mobile phone goes from strength to strength and has overtaken iPhone in many markets, and advertising revenues are buoyant as never before. On Friday, mobile advertising specialist Millennial Media reported that Android ad impressions are up 2,182% since start of the year and now equal iPhone in a 74% share of the smartphone market.

With news such as that, Schmidt could take his foot off the pedal of progress and opt to consolidate the company’s position, but there is no sign that he will follow that road. Google pursues the path of innovation even when the forces of traditional media line up in opposition. Schmidt says he is convinced that his route will cause people to watch more television and enjoy a richer experience.

The opposition, however, does not listen. Fox Broadcasting voiced concerns about advertising revenues on a platform it does not control, and announced at the start of November that it would join NBC, ABC and CBS and block video content from Google TV.

Google has been in negotiation with broadcasters for some time and Schmidt says one broadcast executive demonstrated the industry’s concerns with the question, “Do you realise that you are taking a dumb television and you are making it smart?” Schmidt pleaded guilty.

He says that the fear that an internet connection will affect the revenue stream from “dumb televisions” negatively is unwarranted and that connected TV presents a major opportunity for all stakeholders.

“Because Android is a full browser on Google TV, you can have a tremendously powerful set of applications. Everyone has missed this. It’s a whole new platform play on your television. TV is a big business, guys!” he says. Google Sales Operations and Business Development Global President Nikesh Arora reinforced the corporate message later at the same conference: “The big prize in the next five to eight years is video advertising. 

The biggest radical change we are going to see in our lifetime is going to come in the video space. When you are in the middle of a transition it’s very hard to recognise it but when you get out of it, you realise it was blindingly obvious.”

Arora describes a future in which all TV sets will be “addressable”, in other words the unit will be identifiable uniquely in the same way that a phone number works today. “Whether it comes from a Google TV, an Apple TV, or is just a broadband connection in the back of your set, it gives a return path to the end consumer, which allows brand awareness to be converted to brand engagement, and advertisers can show different ads to different viewers,” Arora says.

The dreams and predictions of Google visionaries have a habit of coming true although it is wrong to assume that the forces of reaction are complacent. With a brief to promote advanced cable networks, the leading US cable companies founded Canoe Ventures in 2008. Members include the top six domestic operators, including Comcast, Time Warner and Cox Communications.

On Wednesday, the organisation announced what it describes as “An open call to companies wishing to participate in shaping tomorrow’s advanced television services today”. Interested parties are invited to join the Collaborative Innovation Programme (CIP) “…to identify and evaluate new market, business and product opportunities in the areas of Interactive Television, Video On Demand and Addressable Advertising.”

Canoe Ventures COO Kathy Timko says, “This is a call to action for the entire marketplace: We are open and committed to working with others who can help bring the promise of advanced television to life for networks, marketers, agencies and consumers alike.”

It is a somewhat belated recognition that the TV landscape has changed but at least it gives Google an opportunity to engage with a single entity.

One of the most significant elements of the CIP announcement is the involvement of PayPal, the online and mobile payment service that has captured over 10% of the $800+ billion online transactional economy but has not so far ventured into the realm of TV. PayPal Platform, Mobile and New Ventures VP Osama Bedier says, “Being able to make payments with a cable remote will change the way we watch TV and entertainment forever.”

PayPal has been at the forefront of developing transactional tools for use with the Android platform that is at the heart of Google TV, and Bedier knows that platform will play a similar role in changing the way consumers interact with their TVs. To acknowledge that in the context of the CIP initiative, however, would conflict evidently with the party line.

There can be no question that to give consumers a “buy now” button will increase impulse sales but the potential opportunities extend a long way beyond that horizon. Addressable TVs will become widespread, with targeted advertising the norm. When that happens, there will have to be an accommodation between all the interested parties, with exactly how the cake is divided and who owns which part defined clearly.

It is appropriate for Schmidt, the diplomat, to have the last word on the negotiations. He acknowledges that people in the business are concerned, since the broadcast and cable industries have not had innovation of this kind in a very long time.

He says, “It’s their livelihood, they do depend on this for revenue, for funding and so forth – it’s very real. So far, the conversations have been friendly and it will work itself out. I’m quite confident that we will get through this one, simply because the technology is so powerful. The software of course is free, so it will be a pretty good market.”