CES 2012 Reflections: Will the Bet on Smart TV Pay Off?

In the days leading up to the CES in Las Vegas last week, there were plenty of press reports about how the show, in many ways, does not reflect the big consumer-electronics trends that will define future consumption of all things media (and electronics). For example, the absence of Amazon and Apple, two companies that drive much of the tablet and portable-electronics markets, had the pundits saying that, without them, there was no way the show can truly point out the future. And others argued whether the CES show, with its cavalcade of product introductions, is really the best place for a new product to get its sea legs.

Of course, one market segment that does lay out its plans at CES is the TV segment, with representation by all the manufacturers of the flat-panel displays that will dominate retail showrooms in the coming year (Vizio was located at the Wynn Hotel).

This year’s TV sets continued the recent phenomenon of introductions that offer an exciting experience but are so next-generation that content creators are playing catch-up. In fact, the sets have created more questions for the content-creation and -distribution industry.

HD content, and the opportunity for 1080p delivery, is a given, but creation and delivery of event 1080p is a daunting challenge. And what about 3D? And the potential demand (a few years down the road) for creation and delivery of content at 4K resolution? The technology roadmap laid out by set manufacturers at CES suggests that all those things will become market forces.

As great as all the new developments in TV-set design are, there was little, if any, discussion at CES about how exactly the next generation of content will be created and delivered to the set.

It is fairly clear that the major set manufacturers are banking on Smart TV features’ becoming a major driver of TV-set sales. But, with the advent of devices like the Apple iPad, Samsung Note, and interactive services on such devices as the Microsoft Xbox, Sony PlayStation3, and Apple TV, one has to wonder whether the Smart TV will be able to offer a value proposition that changes the consumer experience.

What Is Smart TV?
Simply put, Smart TV offers a TV set that includes a computer processor that allows broadband connectivity and delivery of a host of services through a user interface accessed with the click of a button. From the “Smart TV” screen, users can download applications to check sports scores, news, weather, and more. Photo-sharing, social-networking (Panasonic rolled out a cool MySpace app at the show although the cool factor of MySpace remains a factor), games, and plenty of other apps are also available.

Then there are the live sports from leagues like MLB, NHL, and NBA, allowing viewers to watch out-of-market games via subscription packages. The ability to subscribe to an online video-streaming product like MLB.TV and access it on the TV set is a great value-add for those subscription services and a win-win for any sports junkie.

And tools like Hulu, Netflix, and YouTube allow on-demand video services to be available without the need to cut a check to a cable or satellite provider for dedicated video services.

Along With the Promise, Some Problems
So the Smart TV world promises a compelling experience. But it is becoming fairly clear that some fundamental technical and philosophical problems underlie the push toward Smart TV.

To date, the Smart TV experience is simply not that compelling. Interfaces and controls are slow and clunky. This year, the CES buzz was around control of Smart TV apps via voice and gesture, although it remains to be seen how that will play in the real world.

There is a more fundamental technology problem: the power of the processors. LG Electronics, for example, will roll out a Google TV later this year powered by the same quad-core ARM-based processor found in the company’s existing Smart TVs. And Samsung has a dual-core processor and now offers an option (available in 2013) to upgrade software and hardware via a slot on the back of the TV set. But first- and second-generation Smart TVs already in consumers’ living rooms are incapable of having anything but software upgrades.

The biggest hardware question is, do consumers want their TV set to be on the same replacement cycle as a laptop computer or cellphone? For example, most people expect TV sets to last about 10 years. Will a Smart TV delivered today offer a compelling Smart TV experience in 2022? It was only 10 years ago that the first-generation iPod hit the streets, complete with 5-GB hard drive and a snazzy black-and-white screen and scroll wheel. Now just imagine if that iPod were part of a $2,500 investment that has a prominent place in your living room.

That brings up the next challenge with Smart TVs: other devices. Not only do nearly all the sets on the market offer a fairly similar family of applications and services, but many of the most popular services are available on devices that can connect to the TV. And nearly all the most popular apps are often matched in terms of quality by their almost identical versions running on tablets and phones.

With cable set-top boxes, Blu-ray players, Apple TV, Roku, Boxee, the iPad, mobile phones, and gaming consoles like the Sony PS3 and Microsoft Xbox 360 all capable of easily offering apps like Netflix, Hulu, and those offered by sports leagues, what is the real value proposition? For example, in my household, I can now watch Netflix and Hulu on a variety of devices: the TV, the Blu-ray player, the Xbox, the Wii, three computers, the iPad, two iPhones, and a Kindle Fire.

In the Long Term
There is no doubt that the move to Smart TV capabilities is a compelling one. After all, if refrigerators, dishwashers, and every other device in the home can integrate computer functionality, it only makes sense. But the long-term question is, will consumers choose one TV over another based on Smart TV functionality when all of the functionality from one set to the next is basically the same? ? That seems doubtful. And it becomes especially true when much of the functionality can be added to an existing TV set with a $100 Apple TV or Blu-ray player.

Lastly, will cable and satellite operators eventually tire of an integrated ecosystem that allows subscribers to cut the cord of their TV package and rely on the Internet connection to deliver content straight to the TV? That seems likely. And even content owners could wonder whether the potential for audience and Nielsen-ratings erosion makes the backchannel of Smart TV delivery a worthwhile endeavor.

So what is the future of the Smart TV? Smarter, faster, and easier services are definitely in the works. Now it is just a matter of their becoming compelling, necessary, and fashionable.

And that is why all eyes, for now, are on the Apple TV that is rumored to be heading our way this year. Will an Apple TV create a market demand akin to that for the iPad and tablet? It’s possible. The question is whether it would not only create market demand but dominate it.

Up next: 3D, 4K, and Beyond