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Analyst: Google TV Could be a Netflix/Redbox Killer

24 May, 2010 By: Erik Gruenwedel

Google’s foray into interactive television via its Google TV platform could be the conduit needed to jumpstart distribution of higher margin video-on-demand (VOD) movies into the living room — thereby possibly cutting Redbox and Netflix off at the knees, an analyst said.

Evolution of the so-called “smart TV” is intended to convert consumers’ big screen high-definition televisions into giant monitors for surfing the Internet, according to Ralph Schackart, digital media analyst with William Blair & Co. in Chicago.

Google TV, with partners Sony, Intel and Logitech, among others, is expected to launch units in the fall through national retail partner Best Buy.

Schackart envisions Google TV as the mainstay platform for third party applications seeking to connect consumers in the living room with the Web; much in the way YouTube revolutionized online short-form video consumption.

“We view Google TV as a platform other applications can layer on top of,” Schackart wrote in a note. “It will enable premium movie sales from many [third-party] stores such as Amazon VOD, [Blockbuster On Demand, Vudu and Best Buy’s CinemaNow].”

Analysts say the platform could help a recent cable and studio VOD initiative, dubbed the “virtual video store,” aimed at highlighting street date availability of new releases weeks ahead of DVD rental kiosks and Netflix by-mail.

At a recent cable convention in Los Angeles, executives said studios were receptive to offers consumers new release titles just 30 days after theatrical release, compared with the normal four-month delay — at premium prices from $20 to $30.

Rafi Mohammed, Ph.D., a pricing strategy consultant, said the premium VOD pricing would be cheaper than going out to the movies, while affording the studios the ability to market higher margin distribution.

“A brilliant strategy for studios to better profit from a [consumer] segment that enjoys and is willing to pay higher prices to watch a new release at home [then] when it is released theatrically,” Mohammed said. “If managed properly, this strategy will be win-win for studios, movie theaters, and consumers.”

Richard Greenfield, analyst with BTIG Research in New York, said Netflix and Redbox are not promoting that their movies are delayed 28 days, so he said it is up to studios/VOD distributors to market what content consumers can find where and when.

Schackart said Google TV could allow studios to deliver less expensive (higher margin) VOD movies directly through connected TVs, which he said would take market share away from Redbox and Netflix.

The analyst said Redbox has no concrete digital distribution strategy pending, relying instead on $1 DVD rentals, which Greenfield has implied more than half the studios loathe.

“If a consumer Googles Avatar via his TV, many service providers will be listed, but Netflix will not because it will not offer [the movie] digitally for many years until it reaches Netflix’s digital window,” Schackart wrote.

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