Web delivery puts broadcast television on death watch
Apple TV, Google Chromecast and Aereo are rapidly transforming media consumption.
The intersection of new technologies, devices and high speed networks has accelerated the pace of change, particularly for television. It's hard to believe that TV once consisted of a handful of channels, that programming ceased at some point each night, and that the picture was in black and white, not color, let alone 3D. Soon, with the exception of live sporting events and maybe news, we may not be able to recognize broadcast TV.
Video on demand (VOD) has become a staple of cable companies such as Comcast (CMCSA), Verizon Communications (VZ), Cablevision (CVC) and Charter Communications (CHTR). Streaming services from Netflix (NFLX) and Apple (AAPL), along with Comcast, Verizon Communications (check their iPad apps), HBO and others, are fueling time-shifting and place-shifting of consumption. Every teen or 'tween firmly expects to watch what they want, when they want, where they want and on the device they want.
With widespread smartphone penetration and tablet sales maturing, companies are turning their sights on the next battlegrounds, including the Connected Car and the Connected Home. Inside that Connected Home, there will be mini battlegrounds -- security, home automation, and the living room. While companies like AT&T (T), Verizon, and ADT (ADT) are working on the first two, Apple, Google (GOOG), Microsoft (MSFT), Slingbox, Roku and others are targeting the living room.
At the recent D11, CEO Apple Tim Cook spoke of a "grand vision" for TV. The company has shipped more than 13 million Apple TV units. Like the soon-to-be-released iRadio, Apple TV is a work in progress. Combined with the full power of Apple's digital hub, iTunes, it could be a powerful new weapon for Apple.
Last week, Google introduced a potential game changer in the form of Chromecast, a $35 thumb-drive-sized device that that plugs into the back of your TV, allowing you to stream content from any device. Well almost any device. If you have an Android tablet or smartphone, an iPad or iPhone, use Chrome for Mac and Windows then you are in luck. If you use a BlackBerry (BBRY) or Windows Phone, at least for now you will be stuck using a PC or tablet. This new product has already sold out online at Best Buy, Amazon.com, and Google Play.
Aereo is one to watch. While both Apple TV and Chromecast allow for the streaming of TV and other digital content, it is Aereo that should have the major broadcast TV networks -- Walt Disney's ABC, CBS, Comcast's NBC and News Corp's Fox -- worried. Backed by IAC's Barry Diller, Aereo is a Web video service that offers local TV channels and a DVR-like service, which can be viewed on a PC or Mac, iPad, iPhone, Apple TV or Roku device. While Aereo doesn't support Android as yet, given the existing support for Google's Chrome browser one has to wonder how long until it and Chromecast are supported. Currently offered in New York, Boston and Atlanta, Aereo has plans to expand to another 20 markets.
Arguably, Aereo poses a problem for the broadcast industry in that it collects fees to the tune of billions by allowing cable networks access to local channels. Like any company that sees a high margin revenue stream under potential attack, broadcasters filed two federal lawsuits accusing the service of violating copyright law. In March, a New York federal appeals court upheld a ruling in favor of Aereo. Given the fees and profits at stake, it's more than likely we have not heard the last of this. I for one can't wait to sample Aereo's service.
How to invest in this? Whenever I see so many companies looking to compete in one market, I step back and look at the food chain or ecosystem for those players that offer critical solutions vs. commodity components. A great example in the smartphone and tablet space is Qualcomm (QCOM), which counts Samsung, Apple, LG and HTC as customers.
In this digital content and Connected Home battleground, the teardown analysis on the latest Apple TV unit and on a Chromecast performed by iFixIt.com, and a similar analysis on the Roku 3 and the Slingbox 500, reveal key suppliers to be Toshiba, Broadcom (BRCM), Marvell Technology Group (MRVL), Micron (MU), Atheros (now owned by Qualcomm) and AzureWave. Toshiba and Micron are suppliers of NAND flash memory, while the key connective technologies are provided by Broadcom, Marvell and Atheros/Qualcomm. It's the latter group of companies that investors should be focusing on.
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