Creating a Sustainable Business Model for the TV Industry
Strategic analysis on the Smart TV ecosystem
MASSACHUSETS
By
Eileen J. Park
IN61WTUTE
OF TECHNOLOGY
Bachelor of Science
Ewha Women's University, 2003
MBA
Seoul National University, 2014
JUN 18 201
LIBRARIES
SUBMITTED TO THE MIT SLOAN SCHOOL OF
MANAGEMENT IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE DEGREE OF
MASTER OF SCIENCE IN MANAGEMENT STUDIES
AT THE
OF TECHNOLOGY
INSTITUTE
MASSACHUSETTS
JUNE 2014
0 2014 Eileen J. Park. All Rights Reserved.
The author hereby grants to MIT permission to reproduce and to distribute publicly paper and
electronic copies of this thesis document in whole or in part in any medium now known or
hereafter created.
Signature redacted
Signature of Author:
/
Certified By:
'
/MIT Slo'an School of Management
May 9, 2014
Signature redacted_
Michael A. Cusumano
SMR Distinguished Professor of Management
Thesis Supervisor
Accepted By:
Signature redactedMichael A. Cusumano
SMR Distinguished Professor of Management
Program Director, M.S. in Management Studies Program
MIT Sloan School of Management
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Creating a Sustainable Business Model for the TV Industry
By
Eileen J. Park
Submitted to the MIT Sloan School of Management on May 9,
2014 in partial fulfillment of the requirements for the degree of
Master of Science in Management Studies
ABSTRACT
Over the past decades the revolution of electronic devices had a major impact in our everyday
lives. The penetration of PCs and distribution of Internet made it easier to communicate with
people around the world. The rise of smart phones changed many aspects of our everyday life, the
impact ranging from alarm clocks to email consumption to video conference calls. The era of
connected devices now trigger a radical change in an area that has not been disrupted over
decades - the TV experience. By integrating the Internet into television sets, Smart TVs will
allow consumers to use on-demand streaming media services, listen to Pandora Radio, access
interactive media, use social networks, and download apps. In light of this industry change,
several questions arise from the perspective of TV manufacturers. Can the Smart TV become a
platform leader and create a sustainable ecosystem? What is the business model for TV
manufacturers and how will they collaborate with other stakeholders? How will the smart TV
create value for the customers and not get dis-intermediated? This thesis looks at factors that
drive the industry change and identify challenges and opportunities to address. Overall, the thesis
provides a strategic direction for television manufacturers.
Thesis Supervisor: Michael A. Cusumano
Title: SMR Distinguished Professor of Management
iii
ACKNOWLEDGEMENT
I would like to express my sincere gratitude to Professor Michael A. Cusumano for his role as my
thesis supervisor. His lectures and insightful feedback on my work contributed to my learning and
to a better end product. I would also like to thank Professor Andrei Hagiu of Harvard Business
School who introduced me to the various aspects of platform strategy.
I am thankful to Min Lee at Samsung Electronics who helped me grow professionally and was
also willing to discuss his opinions and aspects on the Smart TV platform. I am truly grateful to
Professor Namgyoo Park at Seoul National University for his guidance and support throughout
the years. I would like to thank my friends and MSMS crew for their support and great teamwork,
making my time at MIT memorable.
Most importantly, I would like to thank my wonderful family for their unconditional love,
support and prayers. I would not be able to do this without them.
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TABLE of CONTENTS
Page
Contents
8......8
C H A PTER 1: Introduction ...................................................................................................
8
1.1 Research Background and Objectives .................................................................................
1.2 Research Approach.................................................................................................................9
9
1.3 K ey Platform Concepts....................................................................................................
9
..........
...............................................................
D
istinctions
and
1.3.1 PlatformDefinitions
..... 9
1.3.2 PlatformLeadership ............................................................................................
10
...........................................................................................................
1.4 Sum mary of Chapters
C H A PTER 2: A nalysis of Sm art TV Ecosystem .......................................................................
2.1 D efinition of Sm art TV .........................................................................................................
2.2 Sm art TV Background ....................................................................................................
10
10
11....
I1
C H A PTER 3: Sm art TV Platform A nalysis ..............................................................................
3.1 TV Industry Paradigm Shift..................................................................................................16
3.1.1 ContentProviders ..........................................................................................................
3.1.2 Broadcast/CableNetworks .........................................................................................
3.1.3 N etwork operators(Distributors)...............................................................................
3.1.4 Device Manufacturers................................................................................................
3.2 Sm art TV Platform Ecosystem .............................................................................................
3.2.1 Sm art TV Industry Platform .......................................................................................
3.2.2. Sm art TV Platform Ecosystem ......................................................................................
3.2.3 Smart TV Ecosystem Overview ......................................................................................
Sm art TV Platform Challenges.............................................................................................27
3.3
3.3.1 Control Over the Platform........................................................................................
3.3.2 Control Over the Content............................................................................................
3.3.3 Control Over the Customer........................................................................................
16
CHAPTER 4: Case Study - Strategic Direction for Samsung Smart TV ...............
Sam sung Sm art TV Developm ent ........................................................................................
4.1
4.2 Com petitive Landscape.........................................................................................................32
4.2.1 Sony Bravia TV ..............................................................................................................
4.2.2 LG Smart TV ..................................................................................................................
4 .2 .3 Google ............................................................................................................................
4.2.4 Apple TV.........................................................................................................................
4.3 Sam sung's Platform Strategy................................................................................................36
31
31
C H A PTER 5: Conclusion ..........................................................................................................
41
W ork Cited..........................................................................................
vi
-----------------.........................
18
18
19
20
21
21
23
24
27
28
30
33
34
34
35
43
LIST OF FIGURES
Page
Figure
Figure 1: Smart TV and Smartphone Comparison.........................................................................11
Figure 2: Internet Penetration R ate..............................................................................................
12
Figure 3: US Household (M) of 10Mbps+ .................................................................................
12
Figure 4: Global Smart TV Sales and Average Selling Price .....................................................
14
Figure 5: Smart TV Industry Development.................................................................................16
Figure 6: Traditional TV Industry Ecosystem.............................................................................17
Figure 7: Smart TV Trajectories of Industry Change..................................................................17
Figure 8: Pay T V N et A dditions.....................................................................................................
19
Figure 9: Impact on Stakeholders with Consumer Adoption of IP-delivered Video Growth........21
Figure 10: Smart TV Ecosystem ................................................................................................
23
Figure 11: Smart TV Sales Forecast and US Market Penetration...............................................24
Figure 12: Smart TV Players Strategic Moves...........................................................................25
Figure 13: Sm art TV Platform s ..................................................................................................
27
Figure 14: Available Smart TV Video Content Apps n ..............................................................
29
Figure 15: TV-Internet Connections and Preference of Device for OTT Services....................32
Figure 16: Global Smart TV Market Share .................................................................................
32
Figure 17: Streaming Device Market Share in US......................................................................33
Figure 18: Smart TV Alliance Members .....................................................................................
34
Figure 19: Google's Business Model .........................................................................................
35
Figure 20: Apple's Closed Ecosystem .......................................................................................
36
Figure 21: Features used Once/per week by US Smart TV Owners ..........................................
37
Figure 22: Ambidextrous Organization.....................................................................................
39
Figure 23: Samsung's Smart TV Platform Architecture Vision ....................................................
40
vii
CHAPTER 1: Introduction
1.1
Research Background and Objectives
Over the past decades the revolution of electronic devices had a major impact in our everyday lives. The
penetration of PCs and distribution of Internet made it easier to communicate with people around the
world. The rise of smart phones changed many aspects of our everyday life, the impact ranging from
alarm clocks to email consumption to video conference calls. The era of connected devices now trigger a
radical change in an area that has not been disrupted over decades - the TV experience.
In the past, the TV industry moved along the S-curve through technological innovations from
manufacturers. For example, in the 1980-99's CRT TV dominated the market and Sony was the leader. In
early 2000, Plasma technology disrupted the market and Panasonic led this change. A few years later, the
LCD technology became mainstream and Samsung took over the market. After two years, the market
demand soared with the breakthrough LED technology, which led to slim, energy efficient TV sets.
However, when the "Smart TV" concept was introduced to the market in 2010, this disruption was more
of a feature innovation instead of a technological innovation - bringing the Internet to the TV through
devices such as connected TVs, latest generation set top boxes, and connected game consoles.
Integrating the Internet to the TV undoubtedly is changing every segment of the TV industry from content,
distribution and devices. The TV is transforming into a potentially powerful platform, therefore market
players' must rethink their business models and build a distinctive competitive strategy to succeed in the
battle for the living room. These markets require distinctive competitive strategies because the products
are parts of systems that combine core components made by one company with complements usually
made by a variety of companies. But the future of TV will lie in the hands of those who can change their
thinking to master the business of next-generation TV, and not just the technology.
In light of this industry change, several questions arise from the perspective of the stakeholders of the
Smart TV industry. Can the Smart TV become a platform leader and create a sustainable ecosystem?
What is the business model for TV manufacturers and how will they collaborate with other stakeholders?
How will the smart TV create value for the customers and not get dis-intermediated?
The objective of this thesis is to address the underlying challenges and opportunities that various
stakeholders face in the Smart TV industry, especially in the case of a manufacture company.
8
Research Approach
1.2
-
Apply core concepts of platform leadership and industry platforms to the current TV industry
*
Analyze market trends and business models related to Smart TV ecosystem
*
Use case studies, interviews and consumer research to identify platform strategies
*
Review key issues the Smart TV ecosystem stakeholders are facing
-
Suggest a platform-based strategy that TV manufacturers must adopt to create a sustainable
business model within a platform-centric ecosystem
1.3
1.3.1
Key Platform Concepts
Platform Definitions and Distinctions
In this study, the term platform is adopted from the external (industry) platform defined by Gawer and
Cusumano. Industry platforms are products, services or technologies that are similar to the former but
provide the foundation upon which outside firms (organized as a 'business ecosystem') can develop their
own complementary products, technologies, or services (Cusumano & Gawer, 2002). Industry platforms
are defined as products, services or technologies developed by one or more firms, and which serve as
foundations upon which a larger number of firms can build further complementary innovations, in the
form of specific products, related services or component technologies. There is a similarity to internal
platforms in that industry platforms provide a foundation of common components or technologies, but
they differ in that this foundation is "open" to outside firms. The degree of openness can vary on a
number of dimensions - such as level of access to information on interfaces to link to the platform or
utilize its capabilities, the type of rules governing use of the platform, or cost of access (as in patent or
licensing fees) (Cusumano M. A., 2012).
1.3.2
Platform Leadership
To identify the importance of the industry shifting from product-centric strategies to platform-centric
strategies the study applies concepts such as 'The 4 Levers' which explains broad categories for platform
leadership strategies, and 'Coring & Tipping' regarding strategies to create a platform or encourage a
market to adopt your platform. (Cusumano & Gawer, 2002)
The 4 Levers: Firm Scope, Platform Technology, External Relations,Internal Organization- broad
categories for implementing a platform leadership strategy
Coring & Tipping: "Coring" is the set of activities a company can use to identify or design an element (a
technology, a product or a service) and make this element fundamental to a technological system as well
9
as to a market. It addresses to solve the problem - How to create a platform market where one does not
yet exist? (e.g., solve an "essential" industry system problem).
"Tipping" is the set of activities or strategic moves that companies can use to shape market dynamics and
win a platform war when at least two platform candidates compete. - How to encourage a market to
adopt your platform when multiple platforms compete? (e.g. subsidies of one side)
1.4
Summary of Chapters
This thesis consists of five chapters and the following is the executive summary of the main chapters.
Chapter 2: Focuses on analyzing the factors that brought upon the Smart TV era and the impact Smart TV
has on the TV industry ecosystem.
Chapter 3: Analyzes the Smart TV platform, value chain and ecosystem. This chapter also illustrates each
stakeholder's value proposition and business strategy. In addition, this chapter identifies Smart TV
industry key issues on controlling the platform, content, and customers.
Chapter 4: Case study on Samsung's Smart TV strategy and future recommendations.
Chapter 5: Summary of Smart TV platform analysis and strategy with suggested framework on how to
gain platform leadership in the Smart TV industry.
CHAPTER 2: Analysis of Smart TV Ecosystem
2.1
Definition of Smart TV
A Smart TV is either a television set with integrated Internet capabilities or an add-on streaming device
for television that offers more advanced computing ability and Internet connectivity than a basic
television set (Hoelzel, 2014). Smart TVs allows the user to install and run more advanced applications or
plugins/add-ons based on a specific operating system. For example, Smart TVs enables the user to browse
the Internet, watch YouTube video clips, and download game applications from the television set. In more
detail, the Smart TV can be placed into two categories, although the two share many characteristics.
- Smart TVs: Television sets that contain a built-in Internet connection and often feature a proprietary
operating system, typically controlled by the manufacturers. These tend to be companies with a trajectory
in the traditional TV market, such as Samsung, Sony, and Vizio.
10
- Streaming Devices: Televisions that lack independent "smart" features and dedicated Internet
connection can instead receive added features and Internet access through a streaming device that plugs
into a TV. This can be a set-top box like Roku, or a thumb drive-sized device like Google's Chromecast.
Although connected TVs were available to the market since 2007 the term 'Smart TV' was used since
2011 only after smartphones became mainstream. Using the Smart TV concept was an attempt from the
television manufacturers to follow the footsteps of the mobile phone industry's success on the transition
to smartphones. The manufacturers thought that customers who were familiar with the smartphone
features would naturally understand the concept of Smart TV. Consequently, many features and user
interfaces of the early Smart TVs resemble the features of a smartphone such as weather/stock feeds, web
browser, and notepad applications. However, the aim of Internet connected TVs is not to nudge
consumers toward some unfamiliar behavior like searching Google on TV in their living room, but to
enhance the everyday experience of watching television. The industry is learning that the smartphone and
Smart TV are two distinct devices with different purposes and usages. Therefore, it is essential to
understand the main differences between the two industries.
Figure 1: Smart TV and Smartphone Comparison
Smart TV Characteristics
Smartphone Characteristics
- Center of the living room, shared device
- Personal device one carries with them all the time
- User interface/experience is more suitable for
- User interface/experience is suitable for two-way
one-way communication
communication services
- Consumers expect a lean-back experience
- Main function is to communicate
- Average product lifecycle is 5-7 years
- Average product lifecycle is 1-3 years
Source: Kwon, Digieco 2012
Smart TV Background
2.2
The growth of Smart TV can be discussed in mainly two perspectives: Technological factors and user
behavioral factors. Both are correlated to each other since technological developments drive a change in
the user's lifestyle and vice versa.
-
Technological Factors
Throughout the past, new technology has proven that it can change the way we receive news and
entertainment. Radio challenged newspapers in the early 1900s, and television challenged radio. Now,
due to the proliferation of Internet and technological enhancements in bandwidth and codecs, the
traditional television has its own competitor - the Smart TV. First of all, the increased access to Internet
broadband across developed economies escalated the penetration rate of Smart TVs. In 2005 the world
11
population was 6.5 billion and although globally only 16% were using the Internet, in the developed
world 51% of users were it. By 2013 the number was up to 77%46, which indicates that most of the
households are equipped to use a Smart TV. The increase in broadband speed also affects the spread of
Smart TVs because broadband connection of up to 10Mbps enables users to easily stream video content
online. The increase in global number of Smart TV sales reflect this development as 114.9 million units
(2010) more than doubled to 307.4 million units (2013) with a 28% compound annual growth rate.
Figure 3: US Household (M) of 1OMbps+
Figure 2: Internet Penetration Rate
2005
2010
2013
40 -
World population
6.5 B
6.9 B
7.1 B
30 -
Using the Internet
16%
30%
39%
20 -
Developing world users
8%
21%
31%
10
Developed world users
51%
67%
77%
33.2
24.6
19.5
13.7
0
2009
Source: International Telecommunications Union
2010
2011
2012
Source: Parks Associate Estimate, 2009
Another driving factor was the technological enhancements in video content distribution such as Internet
Protocol television (IPTV) where services are delivered using the Internet protocol suite over a packetswitched network such as a LAN or the Internet, instead of being delivered through traditional terrestrial,
satellite signal, and cable television formats. Unlike downloaded media, IPTV offers the ability to stream
the media in smaller batches, directly from the source. As a result, a client media player can begin playing
a video clip before the entire file has been transmitted. This enabled video streaming over the Internet
bringing services such as live television, time-shifted television (catch-up TV) and video-on-demand
(VOD) directly to the living room.
A more impactful method is over-the-top-content (OTT), which also does not involve multiple system
operators (MSO) and uses an open Internet and unmanaged network open ecosystem. While IPTV
network type is closed, proprietary network, accessed via a specific Internet service provider, OTT
delivers content directly from the provider/content aggregator to the viewer using open network. OTT
video streaming services provide the benefit of low cost and flexibility of content usage among devices,
therefore services such as YouTube, Netflix and Hulu adopted this technology as an economical VOD
delivery model. Most of these services were the killer applications for Smart TV and led users to stream
content across multiple devices.
12
In addition, digital convergence and the decline of hardware prices positively affected the growth of
Smart TVs. Info.org (Project, 2005) defines digital convergence as "the trend for various ICTs to become
digital and for CTs to be based on packet switching and to operate over a common network
infrastructure." Digital convergence is the priming of underlying digital technology components and
features, such as voice, texts, video, pictures, broadcasts, presentation, streaming media, global
connectivity and personalized services; the combination of all of these features and abilities from multiple
electronic systems into a simplified, converged and computer-mediated communication system to enable
individuals interact, play, communicate, collaborate and share information in many new ways. Based on
digital technologies encompasses converged devices, such as smartphones, laptops, Internet enabled
entertainment devices and set top boxes, converged applications (e.g. music download on PC and
handheld) and converged networks (e.g. IP networks) (Yoo, 2011). This give ways for devices to bring
the Internet to the television set through different paths. For example, game consoles such as Xbox or
PlayStation not only provide gaming entertainment, but also work as an add-on Smart TV device that
delivers video content and applications to your television. Blu-ray players function as high-definition
video content players as well as set top box type Smart TVs.
This is related to the term N-screen (connected devices) as a "unified entertainment experience across
several devices," (Hong, 2014) meaning that one can seamlessly switch between watching the same
program on one's TV, tablet or smartphone, with the software adapting the programming to the various
formats automatically. Although each device performs its own task and they have different internal
architecture, the common thing they share is each of them serves the users whatever it is. Another thing
they share among them is they are connected to Internet. Therefore, manufactures and content providers
look for ways to optimize their products and services so that it will integrate standardized formats or
features compatible to other devices. Therefore, the explosion of smartphones, tablets and laptops are all
related to the penetration of Smart TVs, as users want a more seamless connected experience.
The decline in Smart TV prices also impact the adoption of Smart TVs making the technology relatively
accessible to consumers. The global Smart TV market shows this trend as the average selling price for
Smart TV declines with a compound annual growth rate of -9.3% as unit shipments increase with a 23.2%
growth rate.
13
Figure 4: Global Smart TV Sales and Average Selling Price
Unit Shipment (M)
300 -
-Average Selling Price (U$)
- 2500
2100
250
195
1800
1750
150-20
200 --
1500
150
9
10
100 --
500
50 --
0
0
2011
2012
2013
2014
2015
2016
2017
Source: Frost&Sullivan (2012)
User behavioral factors
As the core consumer segment for digital devices shift from Baby boomers and Generation X to
Generation Y many user needs and values have changed. Baby boomers are people born during the
demographic Post-World War II baby boom between the years 1946 and 1964 (Age 68 to 50) who enjoys
a lean-back experience of a television. Generation X are people born in 1966 to 1976 (Age 48 to 38) who
are familiar with Internet, and Generation Y are people born in 1977 to 1994 (Age 37 to 20) also called
'Millennials' (Werner, 2011). A survey done in 2010 by US Bureau of the Census illustrates that
Generation Y account for 29% of the US total population. Researches also discovered that the annual
income of Generation Y surpassed that of the Baby boomers in 2012, making Generation Y the lead
consumer in the US.
Although characteristics of Generation Y vary by region depending on social and economic conditions, as
education writer and speaker Mark Prensky defined, the key characteristic of generation Y is 'digital
natives' meaning a person who was born during or after the general introduction of digital technologies
and through interacting with digital technology from an early age, has a greater understanding of its
concepts.
William A. Draves and Julie Coates, authors of Nine Shift: Work, Life and Education in the 21st Century,
wrote that Millennials have distinctly different behaviors, values and attitudes from previous generations
as a response to the technological and economic implications of the Internet. They found that 97% of
these students owned a computer, 94% owned a cell phone, and 56% owned an MP3 player. They also
found that students spoke with their parents an average of 1.5 times a day about a wide range of topics.
14
Other findings in the Junco and Mastrodicasa (Junco & Mastrodicasa, 2011) survey revealed 76% of
students used instant messaging, 92% of those reported multitasking while instant messaging, 40% of
them used television to get most of their news, and 34% of students surveyed used the Internet as their
primary news source. The followings are some key characteristics of Generation Y that effect and drive
the growth of Smart TVs.
Generation Y characteristics that drive Smart TVs
- Higher purchasing power: Generation Y population have seen their parents work hard and then
watched their pensions disappear, so now they anticipate enjoying life rather than saving. Gen
Y's annual spending power exceeds $200 billion and they also influence another $50 billion in
purchases. (Escalera, 2012) Especially, compared to the Baby boomers the Gen Y's are willing to
invest in big-ticket items such as TV sets, game consoles and mobile devices.
- Accustomed to multi-tasking: The traditional TV set is still the most watched device for video
content (average of 24 hours and 44 minutes/per week), however research from media tracking
institutes such as Nielsen illustrate a continuous decline in traditional TV viewership. Instead,
Gen Y's are increasingly watching shows on non-traditional media (average 5 hours and 39
minutes online/ per week), but most often, they engage old media (TV) and new media (portable
devices) simultaneously in what's known as "the second screen." Researches show that 89% of
the people surf the Web on their computer while watching television on a set. (Zigmond & Stipp,
2011) Therefore, it is inevitable for Smart TV manufacturers to incorporate Web features,
applications and increase the connectivity with portable devices to the traditional television set to
sustain the position in the center of the living room.
- Used to on-demand, streaming content: Studies from Dan Zigmond and Horst Stipp show that
Gen Y watches less live TV and more on-demand/streaming content through other devices such
as DVRs, PCs and Smartphones. (Zigmond & Stipp, 2011) This disrupts not only the TV
manufacturing industry, but also the broadcasting, advertising industry. Gen Y's are consuming
content on new media and interacting with TV in innovative ways where conventional live TV
may become obsolete. The industry must think of time-shift content, de-bundling of channels, and
personalized advertisement models.
- 24/7 connected: Some refer to Generation Y as 'the Facebook generation' implying that instead
of getting a person's number, this generation would add you as a 'friend' on Facebook. (Westlake,
2008) Research from Nielson shows that 72% of this generation is on Facebook. This data
emphasizes how connected and socially active Gen Y is. Therefore, Gen Y is leading the way in
15
socializing online around television, which brings new opportunities to change the TV viewing
experience from a one-way experience to an interactive two-way experience.
Both technological and user behavioral changes shape a new era for the TV industry opening new
business opportunities for multiple stakeholders in the value chain. Figure 5. illustrates how the Smart TV
industry was shaped as the technology and user experience changed.
Figure 5: Smart TV Industry Development
Year
'99 '00 '01 '02 '03 '04 '05 '06 '07 '08
U
'09 '10 '11 '12 '13 '14
ADOBE
FLASH PLAYER
Online Video
Format
@omcast.
DVR/IPTV
v
nvnFOS
DIRECTV
amma4on
hulu
Over-the-Top
henV6V
Devices
XBOX LVE
SONY
chromecast
amazon f rei V
Googe V
Source: Company Website
CHAPTER 3: Smart TV Platform Analysis
3.1
TV Industry Paradigm Shift
As illustrated in Figure 5, 2007 was a revolutionary year for the TV industry. Netflix introduced over-thetop subscription offerings to the market by launching its on-demand Internet streaming service.
Broadcasting companies and content providers such as NBCUniversal Television Group (Comcast), Fox
Broadcasting Company (21st Century Fox) and Disney-ABC Television Group joined together to create
Hulu to offer their content via OTT. WhereverTV started free live streaming TV channels on the Internet
making TV content more accessible. Hardware manufacturers such as Samsung, Sony, and LG launched
the early Smart TVs and Apple launched AppleTV -- a set top box type Smart TV.
The main topic in 2007 Consumer Electronic Show (CES) and MacWorld was 'Content Portability'
meaning that users can seamlessly watch their content anytime, anywhere on any device. Microsoft
16
founder, Bill Gates said, "The Internet is set to revolutionize television within five years, due to an
explosion of online video content and the merging of PCs and TV sets". CBS CEO Les Moonves said,
"Media companies' future is in content that extends to multiple platforms . The convergence of the
Internet and TV is disrupting the video/television industry and has the potential to transform the entire
ecosystem for every player-both established and those that are just emerging into this dynamic industry.
The disruption can be explained by looking at the change in the business models of each player in the
market. The traditional ecosystem for the TV industry consists mainly of six major stakeholders. It starts
with the content owners such as TV, movie studios that create content based on the sponsorship they
receive from programmers. The programmers such as large broadcast/cable networks aggregate contents
into program channels and receive the licensing fee from network operators while granting the rights to
content. The network operator's main activity is to distribute the content to households through the
television sets and receive a subscription fee from the end users. Advertisers take part in the system by
paying ad fees to either programmers or network operators for an advertising slot embedding in the
programming.
Figure 6: Traditional TV Industry Ecosystem
Content
Providers
Device
Manufacturers
Network
Operators
Broadcast
Networks
End
Users
Advertisers
However, factors from 'Trajectories of industry change' (M.Mogahan, 2004) show that television
industry is going through a radical change -- everything is up in the air. The followings are each
stakeholder's core activities, assets and the threats they are facing.
Figure 7. Smart TV Trajectories of Industry Change
Threat
Core
Activi
Non-Threat
Threat
Core
Asset
0 Advertisers
0 Telecom
NonThreat
17
3.1.1
Content Providers
Content providers' core activity, the recurring actions your company performs that attract and retain
suppliers and buyers, are mostly creating content and receiving sponsor from programmers or advertisers.
The threat they face are now the multiple formats of content they have to deliver and how they would
deliver it on various devices. This may also be an opportunity as the content providers gain more
bargaining power over the programmers since they are open to creating their own direct-to-customer
channels through applications, OTT services, and websites.
The core asset of content providers will be the creativity, excitement and knowledge of the content. This
may maintain unthreatened for content providers in high demand, however, the de-bundling of channels
and growing demand for d la carte puts low demand content in a tough position. For example, a
documentary show might not be as popular as 'Game of Thrones', but HBO bundles different genres in
its programming and charges a flat-fee. If it were possible to charge a different fee per show,
documentary shows may not be able to survive. In addition, OTT services like Netflix are moving into the
content creation space, investing and creating shows such as 'House of Cards' bringing upon new
competition.
3.1.2
Broadcast/Cable Networks
Broadcast/cable networks such as NBC, Fox, and CBS aggregate content from providers and receive an
affiliate fee from the distributors, which is the main activity. This is threatened by Smart TVs and OTT
services because the value of content decreases when programs are rebroadcasted through Internet for free.
The content providers can bypass programmers and distribute content individually. In addition, there is an
increase in the de-bundling of channels that puts a major threat on the profitability because a typical cable
network strategy would be to develop one or two hit programs and fill the rest of the linear lineup with
inexpensive content to maintain a relatively low cost. The hit programs attract network operators, making
the channel a "must have" content granting the programmers the negotiation power to ask for fees. The
rebroadcasting and de-bundling of channels risks the core activities of programmers.
Core assets such as control over content and programming television shows are also threatened due to the
various distribution channels the ecosystem provides. The more content is distributed freely or de-bundled,
the less power broadcast/cable networks have, therefore it is harder to charge a premium to distributors.
This explains why NBC, ABC, CBS and Hulu have blocked Google TV-enabled devices from accessing
their Web content since the Google TV launch in 2010. (Miller, 2010)
18
3.1.3
Network operators (Distributors)
The network operators face the biggest challenge when it comes to disruption in the television industry
because the core activities of network operators are to provide the infrastructure and service of video
distribution network to users and charge a subscription fee. However, the threat is that people are "cordcutting" pay TV and increasingly using the Internet content to replace the linear cable television model.
Research from Moffett Research in 2013 (Spangler, 2013) discovered the US pay TV sector as a whole
lost 316,000 subscribers for the 12-month period. Craig Moffett mentioned that, "Cord cutting used to be
an urban myth. It isn't anymore." Meaning that there is a threat that distributors may lose their service
user base to substitutes such as Nexflix, Hulu and Amazon Instant Video where consumers can enjoy
watching d la carte individually tailored shows with a lower cost.
Figure 8. Pay TV Net Additions
1000 800 600
TelCo
400
Subscriber
Net Additions
(thousands)
200
-
s tellit
...
0
-200 -
V..
*
0.
,0
*
-400 -
-600 -
-
0.
*.
.0.
00
e
,*
.
0
0.
0.
.00
00
*
*
Cable
-800 -1000 -
0.,
0
0,
.0,
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13
Source: Bernstien Research
The core asset for network operators is their wide distribution network for millions of users. In addition, a
large part of the network operator's asset is from advertisements. However, ever since the Smart TV
emerged the other players in the industry have the opportunity to go through other distributors, which
wdakens the control over the content. Therefore, programmers have a stronger negotiation power and start
to request a higher affiliate fee for the content. Also, advertisers start to look at other media channels such
as social network services or Smart TV platforms. Network operators try to defend their core activities
and assets in order not to follow the steps of the music industry where companies such as Apple disrupted
the market by de-bundling albums and creating a new platform for the users. For example, Comcast, Time
Warner Cable and other distributors launched a 'TV everywhere' service that allows their subscribers to
19
access their respective content on digital platforms, including video on demand and live streaming of the
channels themselves. (Lasar, 2009) This helps subscribers go through the service provided from operators
and maintain revenue streams. The activities Comcast recently done illustrates the strategic position
distributors are showing. For instance, in 2014 Comcast bided $45 million for Time Warner Cable so it
will gain even more leverage over the country's market place for television, broadband Internet and phone
services. (Comcast, 2014)
3.1.4
Device Manufacturers
Device manufacturers revenue stream is mostly from selling hardware with enhanced features and
technologies that repeatedly attract end users. This model is threatened by the change in industry for both
Smart TV set manufacturers and add-on device manufacturers. In general, the risk is that people are
migrating from television sets and substituting it with other devices such as PCs, tablets and mobile
phones. Specifically for set manufacturers the threat would be that add-on devices provide the end user to
upgrade their conventional TV sets at a lower cost also providing most of the applications and services
the set makers does, therefore the product life cycle for TV sets may extend to a longer period resulting in
decreased sales. Research from eMarketer shows that in 2014 US market, the add-on Smart TV devices
share was 53% and 47% came from Smart TVs. This indicates the television set manufacturers are under
pressure. For add-on devices the threat is coming from network operating firms that have 110 million
subscribers (Spangel, 2014) in the US and Comcast, DirecTV and Verizon are pushing into the hardware
business with set-top boxes to lock-in customers through their services.
The core asset for hardware companies is the technological capability to create hardware innovations such
as new backlight solutions, better design, and seamless connectivity. However, the Smart TV industry
requires capabilities in creating a platform where software, user interface/user experience, and killer
content become valuable assets. This is one of the reasons why players such as Google, Apple, and
Amazon are readily joining the industry to create a platform.
Surveys from Informa based on responses from TV, telecoms and Internet executives on Figure 9 suggest
that broadcasters and network operators will have the biggest negative impact among the stakeholders in
the next five years. Results indicate manufacturers of devices and online content aggregators are likely to
be positively influenced. However, it is easy to see why types of company built on old business models
might be threatened by new Internet players, but with a dynamic capabilities point of view there is no
reason why any individual firm can't use the same technology to its advantage. The threat to the player's
core activities and core assets pushes them to innovate and expand beyond their original business model
creating new growth opportunities. TV expands into creating a platform and new stakeholders such as
20
telecommunication companies, web search engines, and portals enter the ecosystem. All members of the
value chain are trying to have an increased role across the ecosystem to gain leadership over the platform,
content and consumer.
Figure 9. Impact on Stakeholders with Consumer Adoption of IP-delivered Video Growth
N Uncertain
N Neutral U Negative M Positive
Manufacturers of connected devices
Content aggregators (e.g., Netflix, YouTube)
Content providers (e.g., creators and distributors)I
IPTV operators
Network equipment vendors
Social networks (e.g., Facebook)
Mobile operators
Games console manufacturers
Telcos
Broadcasters
Pay-TV operators
Cable operators
Free-to-air TV operators
Satellite operators
0
10
20
30
40
50
60
70
80
90
100
Responses (%)
Source: Informa Telecoms&Media 2012
Eventually, the future of TV will be in the hands of firms that rethink their core activities and core assets
to master the business of next-generation TV, and not just the technology. This leads to firms' developing
or reallocating the resources and capabilities to compete on the basis of platforms, and not only on
products, requiring a different approach to strategy and business models.
3.2
Smart TV Platform Ecosystem
The television industry is no longer a horizontal value chain business relationship between the
stakeholders. Because of the Internet, it has evolved to a multi-sided platform with complex interactions
among the players. The players do not develop stand-alone products, but are involved in an industry-wide
platform. Therefore, there are potential differences in the strategy, implementation, business model and
value capturing. It is important to understand the platform and ecosystem dynamics in order to develop an
adequate strategy.
3.2.1
Smart TV Industry Platform
The Smart TV industry is evolving into a platform ecosystem where there is a platform, complements and
network effects. Therefore, a new challenge is to compete in platform markets within and industry and to
innovate through a broader "ecosystem" of partners and users not under any one firm's direct control. To
understand the importance of creating a platform ecosystem for Smart TVs one must clarify the concept
21
of a platform. First of all, a Smart TV needs a broader application of strategies as it would not be an inhouse "product platform" but would be an "industry platform". Cusumano (Cusumano & Gawer, 2002)
defined an "industry platform" as the following:
1.
Technology or set of components (or services) that creates a common place or foundation,
2.
That brings together multiple parties beyond a single firm ("market sides") for a common
purpose,
3.
Where value can increase exponentially as (a) more users and (b) more "complementary"
products & services are added that make the platform more useful.
Smart TVs integrates the technology of running complete operating systems or mobile operating system
software that provides a platform for application developers. This creates a commonplace or foundation
for the users. In addition, Smart TV platforms or middleware have a software development kit (SDK)
and/or native development kit (NDK) for apps so that third-party developers can develop applications for
it, and an app store so that the end-users can install and uninstall apps themselves. This illustrates the
purpose of bringing together multiple parties beyond a single firm to enhance the viewing experience. In
the case of Smart TVs, the value can increase exponentially because the more viewers/users of the
services leads to more complementary products/services and vice versa. For example, OTT content
distributors such as Netflix and Hulu are offered in most Smart TVs because they are a killer application
and most Smart TVs want the service available on their platform to attract more users. The more users
they acquire, the likelihood of more complementary services such as Pandora and Skype will be added.
Cusumano and Gawer (Cusumano & Gawer, 2002) identified two main differences between an in-house
"product platform" and an "industry platform", which are essential to the success of becoming a platform
leader for Smart TVs. Their definition of an industry platform is a foundation or core technology in a
"system-like" product that had relatively little value to users without complementary products or services.
The platform producer often depends on outside firms to produce the essential complements. In the case
of Smart TVs, without complementary products or services such as applications, content or Internet
services the devices will just be a dummy box sitting on your table. To facilitate other firms and user
communities to adopt the platform technology and contribute complementary innovations, Smart TV
manufacturers provide tool kits such as software development kit (SDK) so that content providers or
application developers can easily access the technology and develop complementary services.
The second essential difference between a product and an industry platform is the creation of network
effects. The smartphone industry demonstrated the power of network effects as Apple's iOS and Google's
22
Android operating system dominated the industry within a few years. However, unlike the smartphone
industry Smart TV is still struggling to create a platform that will create powerful network effects and a
win-win ecosystem structure.
3.2.2.
Smart TV Platform Ecosystem
As mentioned in Chapter 3, the traditional value chain of the television industry is disrupted due to the
change in consuming video content and Internet connection to TVs. The relationship between
stakeholders in the ecosystem is no longer a sequence of activities, but a simultaneous web-like
interaction.
Figure 10. Smart TV Ecosystem
App
D e v e lop e rs
Aggregators
Content
Providers
TV
Broadcast/
Cable
End
S o rc :
e r1s
'y
Network
Operators
E
nUs
Platforms
Device
IneManufacturers
Networks
Advertisers
Source: 2011, Samsung Electronics Conference
New roles and players emerge in the Smart TV ecosystem as the TV expands to provide a platform from
its conventional one-way broadcasting model. Smart TV becomes the focal device in the ecosystem based
on the aggregation of applications, content and closeness to the end-user. Internet-based aggregator
influence broadcast/cable networks therefore the positioning of broadcast/cable networks has changed
from a pure content aggregator to a distributor and creator. New business models such as applications and
OS platforms emerge to create a platform ecosystem, however it is crucial to find a tailored solution for
the TV industry because the TV market is fundamentally different from the smartphone market although
the platform ecosystem looks similar. The biggest difference is that phones are communications devices
and the applications do not affect the operation of a phone call, however, on Smart TVs the separation
23
from content prevents the development of a rich TV ecosystem. There needs to be an intimate relationship
among the content provider, the content distributor, and the device.
3.2.3
Smart TV Ecosystem Overview
To get better insights on the dynamics of the ecosystem it is important to understand the current situation
and stakeholder's strategic moves. The market potential of Smart TVs are huge based on data from
Digital TV Research (2014) in total, there will be more than 759 million televisions connected to the
Internet worldwide by 2018, more than doubling from 307.4 million at year-end 2013.
- Market Outlook
In the United States, Connected TVs will be in nearly 53 million American households by 2016,
accounting for 43% of all U.S. Globally, shipments of smart TVs will reach a tipping point in 2015, when
they will overtake shipments of traditional TVs. It is clear that the growth of Smart TVs will be strong
and there is an attractive market to reach. Many companies are now joining the market to take a part in
the ecosystem not only because of growth in Smart TV devices. Although many users are migrating to
other devices such as PC, tablets and mobile phones, the television still represents the largest consumer
device market with a potential to grow even bigger.
Figure 11. Smart TV Sales Forecast and US Market Penetration
-%
800
673.4
700
583.8
600
43%
397.4
400
307.4
300
45
39%
60
40
5034%
3
29%
486.7
500
200
Of Households With Connected TV
759.3
/%
40
30
30
23
25 0/
18%
20
227.8
114.9
163
100
20
15
10
10 -
-0
50
0
03
0
2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Digital TV Research
2011
2012
2013
2014
2015
2016
Source: eMarketer
First of all, research from Nielsen (2014) indicates that the advent of the web did not cut into TV time
because the average daily TV viewing hours went from 4:06 hours (1991-1992) to 4:51 hours (20112012). In addition the average monthly media viewing, in hours are 145 hours for TV and 28.5 hours for
Internet showing that many people still use TV for viewing media entertainment. Another attractive factor
24
is that 119 million people (41% of total) in the United States who own a TV set have at least 4 TVs in
their household. Value wise, TV still represents the world's biggest advertising market encompassing
roughly $350 billion in global TV ad spending, or 63% of all advertisement spending. (Cattaneo, 2013)
TV is also the centerpiece of the world's most important entertainment markets, including TV, gaming,
movies, and related services and infrastructure. In other words, Smart TV market has a large, captive
audience, spending a lot of money on entertainment, and very attractive to advertisers. However, the
living-room entertainment has tough gatekeepers as a small handful of giant media companies control live
TV content, distribution, and advertising, and they are notoriously slow when it comes to technology
innovation. In addition, there is no dominant Smart TV platform so the TV app system is reminiscent of
the mobile app ecosystem before Apple debuted the iPhone App Store in 2008. Therefore, many
companies are fighting to conquer the space in the living room. The market is fragmented with no main
firm driving the industry; however strategic movements from each player illustrates insights on how the
ecosystem is evolving.
- Competitive Landscape
As mentioned, the Smart TV platform is currently highly fragmented with various players trying to mark
their territory and plant a flag in the center of the ecosystem.
Figure12. Smart TV Players Strategic Moves
Value
Chain
Activities
Aggregation
Creation
Consumption
Music, movies, news,
Provides the video
Render content
sports, television
distribution network
2-way IP communication
programs, and video
aggregation, scheduling,
DTT/Cable/IPTV/IP/
Integrated media
production, adoption to
transcoding, presentation,
conversion
Satellite/ 4G,
ingestion (OTT/Linear)
LTE/Satellite
through devices
web video
Fox, BBC, Disney, MGG,
Paramount, NFL, Warner
Borthers, Sony, BMG,
Universal
Trends
Distribution
r
ESPN, ABC, NBC,
Discovery, HBO, FOX,
CBS, CNN, Amazon,
Google, BBC iPlayer,
H1un
Netflix I tnivorml
bo
Cox, Time Warner Cable,
Comcast, CableVision,
Verizon, AT&T, Dish
Apple, Samsung, LG,
Sony, Google, Tivo,
Roku. Microsoft
Source: 2011, Accenture
25
Content owners or providers are launching Direct-to-Consumer services and are participating in the
industry initiative such as Ultraviolet, which is organized by all major studios (except Disney), electronics
manufacturers and retailers to enable buy-once and view anywhere service with digital lockers in return
for a premium/up-charge. Firms such as BBC is pushing across the value chain to a distributor and OTT
service by launching services such as iPlayer, an Internet television and radio service and software
application that streams video clip content including whole TV shows. Content owners have more
opportunities to distribute their content either directly through their channels or through OTT platform
and VOD platforms.
This loosens the control from the aggregators, which might benefit the content providers but causes a risk
in losing the relationship with aggregators. For example as Figure 11 shows, aggregators are also
expanding horizontally to gain more control over the ecosystem. In the case of Netflix, because killer
content is so important they pay studios large amounts to attain hit content. For instance, Netflix was
willing to pay $300 million (est.) per year for exclusive rights on Disney movies starting in 2016.
However, the increasing cost of content does not create a sustainable business model for aggregators,
therefore they readily invest in creating content independently. In addition, broadcast and cable networks
are offering content directly through their own websites and applications as a distributor. More recently
Amazon expanded from a content aggregator, Amazon instant video, to a player in the consumption area
by launching Amazon Fire TV - an add-on streaming device.
Distribution operators are also moving along the value chain. For example, Comcast is prominent in the
device business with their Xfinity TV box that has on-demand, pay-per view features and apps such as
Facebook, Pandora, and newsfeeds. The compelling position they have is the 22.6 million subscribers (as
of '14. 1Q) locked-in using their boxes. (Comcast, 2014) The US pay TV market is roughly 110 million
subscribers all providing services through their designated set-top boxes, which implies a huge threat on
the device manufacturers. Currently distributor giants are providing the boxes bundled with the
subscription fee and profit from the total subscription fee rather than the value of the devices, but if they
were to aggressively invest in the hardware business the competition would be fierce. Comcast is moving
into the aggregation and content creation business by acquisition of firms such as NBC Universal, E! and
MGM. Owning cable networks/content gives them leverage to negotiate with other cable networks for
their channels. Comcast is also planning to expand vertically by announcing the merger with Time
Warner Cable in February 2014 combining the top 2 US cable networks. The consolidation could help
Comcast to compete with satellite providers like DirecTV, wireless phone companies like AT&T and new
streaming services like Netflix.
26
Device manufacturers such as Samsung and Apple as well as OS providers such as Google and Microsoft
have their own store-front for content distribution. Samsung uses the Smart Hub interface as a gateway to
content, as Apple provides iTunes, Google Google Play, and Microsoft Xbox Store. Channel apps are
individually offered in most devices, threatening the aggregation model and Boxee and Roku have
developed set-top boxes that offer OTT video and live TV broadcast stations. Xbox Entertainment is
aggressively looking for exclusive content partnership with Hollywood studios trying to attract more
users on their Xbox Live Gold subscription program, which replicates the traditional cable network
business model.
3.3
Smart TV Platform Challenges
Although all stakeholders in the ecosystem are rushing to create a common place for the Smart TV, no
firm has "cored" or "tipped" the market mostly because within the ecosystem there are conflicting
business models and ecosystems as well as many alternative paths to the TV. In 2011, former Apple CEO
Steve Jobs said to the author of his biography, "'I'dlike to create an integrated television set that is
completely easy to use, it would be seamlessly synced with all of your devices and with iCloud.' No
longer would users have to fiddle with complex remotes for DVD players and cable channels. 'It will
have the simplest user interface you could imagine. I finally cracked it."' However, Apple still has not
come up with a solution for the Smart TV ecosystem partially because there are so many stakeholders
involved with different interests and because competitors are defensive on Apple disrupting the TV
industry and controlling the content and consumers as it has done with the music and smartphone industry.
This is not only a problem for Apple but it applies to all Smart TV platform players. There is three major
challenges the ecosystem faces: Who will have control over the platform, content, and customer.
3.3.1
Control Over the Platform
The essential goal is for a firm to define and control the platform meaning that the platform will be the
ultimate gateway for users in bringing Internet to the TV. Currently, the Smart TV ecosystem is so
complex and fragmented that each player has its own platform. The ecosystem for the Smart TV is
dependent on content and apps need to be based on "host" video content. Therefore, cable boxes work for
cable TV; satellite boxes work for satellite TV; and AppleTV boxes work with the iTunes store. As
players compete for the living room each platform has a different operating system, user interface and
user experience making it harder to create a common foundation for developers and content providers to
easily build on and extend.
27
Figure 13. Smart TV Platforms
Operating System
Apple TV
Amazon Fire TV
Google Chromecast
LG Smart TV
Roku
Samsung Smart TV
Vizio
1OS
Fire OS
Chrome OS/Android
WebOS
Linux
Linux (Tizen)
Proprietary
Content Access
iTunes (no app store)
Amazon Instant Video
Google Play
Smart World
Channel Store
Smart Hub
Internet Apps
Openness
Limited
SDK
NDK, SDK
SDK
SDK
Limited
SDK
Source: Company Website
Top Smart TV manufacturers all use a dedicated operating system and each have their own content store.
This divides the market into even smaller addressable markets for developers. As a result, it is difficult for
app developers to be productive - time and cost wasted on coding, porting, testing for different platforms.
This leads to an overall less productive ecosystem where compatibility and complementary products
hamper the growth of the industry. There are some industry initiatives called 'Smart TV Alliance' (Smart
TV Alliance, 2013) led by companies such as LG, Toshiba, and Panasonic to align on Web specifications
(HTML5) and on audio, video specifications (DRM, Codec, Streaming, etc) so that it will reduce time and
cost for application development. Although the attempt to create an industry standard platform for
developing apps is a step forward, the core tenet of integration with content is still missing. For example,
a common social environment for sharing, discussing (and ultimately creating) TV programming will be
impossible with multiple format platforms. Cases from the smartphone market show that a fragmented
platform may result in lower quality, lower value apps. For example, Android maintained an open
platform that boosted Android install base higher than Apple's, however Apple makes estimated $5.1
million in revenue per day from app store where Android makes $1.1 million per day. One of the reasons
are that developers seem to prefer iOS because it is significantly less fragmented-78% of iOS users are
running the latest version, compared to the roughly 50% of Android users on all versions of Android Jelly
Bean. (Smith, 2014) Content providers and developers want a large installed base of devices before they
create content for a platform. This may seem like a chicken-and-egg problem, but it is clear that the Smart
TV platform is too fragmented for it to create a sustainable ecosystem.
3.3.2
Control Over the Content
Traditionally, the aggregators and network distributors mostly controlled the content. Content providers
would receive an affiliate fee for the content rights and the aggregators would negotiate with advertisers
on the allocation of ads in the programming and distributors would receive a subscription fee from the
viewers. However, due to the content redistribution on Internet, de-bundling of channels and cord-cutting
28
of cable pay-tv, all players are fighting for the exclusive rights of the content and a vast majority of
studios and even device manufacturers are positioning themselves to have higher control over content.
By looking at the top video apps available on Smart TVs we can see a conflict between businesses and
competition over content. For example, Amazon does not provide Amazon Instant Video services on
Apple TV or Google Chromecast since they are competing with these companies in both the video
content and device segment. By providing the competitors their services, they are reducing the incentive
for consumers to buy Amazon Fire TV products. Netflix's business is based on subscription fee, so they
would like as much exposure as possible making sure their services are available on every device. In
addition, because Netflix has 44 million subscribers they have the negotiation power to persuade content
providers to join their platform, and device manufacturers to preload their apps giving them more access
to a larger subscription base. All Smart TV devices advertise their services with the number and quality of
content they have available on their services. Therefore the partnership with content providers and cable
channels are more interdependent than before.
Figure 14. Available Smart TV Video Content Apps
Apple
TV
TV_
Amazon
Fire TV
FireTV
Google
Chrome
cast
LG
Smart
TV
Roku3
Samsung
Smart
Vizio
Xbox
TV
Netflix
o
Amazon Instant Video
01
iTunes
0I
Hulu Plus
HBOGo
0
le
YouTube
W
0I
W1
0
Crackle
o
Showtime Anytime
I
III
WatchESPN
b
I
Pandora
o
or
Source: Company Website
HBO's hit show "Game of Thrones" highlights the importance of owning the rights of the content and
controlling it as it refused to sell it's program as an individual channel, making it highly anticipated as a
premium cable channel bundled in a subscription package. HBO is a very profitable part of Time Warner
Inc.; therefore "Game of Thrones" was never sold as a subscription on iTunes as it airs, and never offered
its content to Netflix. Cable realizes that HBO is a way to sell people and its valuable benefit made even
29
more attractive by the emergence of HBO GO app and smash hit originals. In Apr.2014 HBO and
Amazon signed a $300 billion extensive, multi-year agreement that brings many of the premium channel's
greatest shows including The Sopranos, Six Feet Under, and The Wire to Amazon Prime Instant Video.
(Stelter, 2014) The deal also includes "early" seasons of Boardwalk Empire and True Blood. Newer
shows like Girls, The Newsroom and Veep will be made available to Prime subscribers, but not until
three years after they've first aired on HBO. Even though hit series like Game of Thrones will not be on
the list; this will be an advantage for Amazon over Netflix as HBO adds 17,00 new titles to Amazon
through a single content licensing agreement and HBO receives $300 billion for content that was aired 3
years ago.
3.3.3
Control Over the Customer
The last challenge is who will control the access to the customer. As seen in Figure 12, all players in the
ecosystem are expanding their role in accessing directly to the end-user. The logic behind it is simple -the less intermediates, the less cost. Cable providers are providing apps and websites so users can stream
video content on any device, but they still require a login with the user's cable subscription ID so they can
control their subscription base. Firms such as Apple, Google, and Amazon each own a content/app
marketplace, which gives them leverage in building an ecosystem around their platform using their own
interface to seamlessly integrate users from their smartphone platform to their TV platform. However,
with the current model there is a disproportionate share of revenue, profits and multiple monetization
opportunities that make it difficult for customers to choose one single platform. The biggest challenge is
to functionally integrate the apps and OTT services with television programming service and content
being offered to the consumer. Creating a unified content portal for a simple search, navigation, discovery
and social experience -
that will enable personalized programming and advertising for the viewer is the
optimal ecosystem. Problems between systems and proprietary standards make it that in order to access
the ecosystem and earn the benefits of targeted advertising and interactivity, advertisers have to negotiate
individual agreements with both television manufacturers and broadcasting distributors, a complex and
costly process. Device manufacturers are having difficulty in finding a way to monetize their platform
since the profit from content goes to the content providers or distributors, and because the platform is so
fragmented the app market is still small to gain any influential network effect. Therefore, the profit of the
apps is not beneficial. Even OTT service providers, such as Netflix are struggling to find a revenue
growth factor as the prices of content rights increase, and the influence of network operators remain
strong. Digital content creation, delivery, and monetization are complex multi-sided markets, like
smartphone platforms and are very difficult for one firm to dominate.
30
CHAPTER 4: Case Study - Strategic Direction for Samsung Smart TV
There are many scenarios in creating the Smart TV ecosystem - which firm will create a common
platform, control the content and be the ultimate gateway to the consumers? This chapter reviews the
strategic direction for device manufacturer, Samsung, to create the best platform and tip the market.
4.1
Samsung Smart TV Development
As a television set manufacturer Samsung is leading the industry for 7 consecutive years by developing
innovative Bordeaux red design TVs, ultra slim LED TVs and 3D TVs. Within the years of technological
development, Samsung also has a history of Smart TV development starting from 2007. (Kim, 2011)
- The first Internet connected TV from Samsung launched in 2007 as service called "Infolink", which
integrated real syndicated services such as weather and stock updates. This feature launched in 15
countries, mostly where they have advanced Internet broadband service.
- By the next year Samsung renamed the service to "Power Infolink" and added preliminary multimedia
services, the first attempt to bring Youtube to the screen.
- In 2009, "Internet@TV" was the new name of the feature and added upgradable service and released the
first SDK to developers.
- The next year, Samsung added an app store with paid apps and launched the service in 107 countries.
Eventually, in 2011 Samsung renamed the feature as a TV category calling it "Smart TV". By then, the
service supported full web browsing enabling you to search the Internet like you do on your laptop. In
addition, they developed a content recommendation service based on the users viewing preferences and
habits similar to the Netflix algorithm.
- In 2012, Samsung launched voice and gesture recognition features to enhance the search interface for a
richer experience. Samsung also partnered with Dish Networks that acquired Blockbuster to provide
thousands of Blockbuster's movies to Samsung's smartphones, tablets, Smart TVs and Blu ray players.
Samsung also announced that they would focus their business model on device sales, app sales and video
on demand sales and add a placement in their interface for advertisers to attract ad sales.
- However, in June 2013 Samsung changed the strategy and offered all the apps for free because most
video streaming app providers preferred to bypass Samsung's payment system layer and directly have a
subscription fee from the users. In July 2013, Samsung acquired Boxee, a hardware set-top box for digital
video streaming, to enhance its cloud-based social networking, video streaming technology.
31
- Instead, Samsung focused on improving the user experience by providing a true lean-back experience. It
strengthened the voice/gesture recognition sensors and added a 'Multi-Link Screen' function, which
enables users to watch live TV with 4 other contents targeting the multi-tasking user habits. In addition,
Samsung announced that it would provide more UHD content with Amazon and Netflix.
4.2
Competitive Landscape
Competitors for Samsung were usually large consumer electronics manufacturers such as Sony, LG, and
Panasonic. However, as the Smart TV industry evolved competitors from software industry, retailing
industry and even small start-ups are threatening Samsung's dominant position. Figure 15 illustrates the
various ways users can now connect their TVs to the Internet. The most common channel is through game
consoles (19.3%), and Smart TVs combined with Connected TV (add-on devices) is 16.5%, which is
lower than Blu-ray players, however Smart TVs are the most preferred channel to watch OTT services on
TV therefore if television manufacturers find a way to integrate cable channels, apps, and OTT services
they might have an advantage over other devices.
Figure 15. TV-Internet Connections and Preference of Device for OTT Services
Preference to Watch OTT services on TV
Ways to Connect TV to Internet
" Smart TV
" Smart TV
" Connected TV
" Set-top Box
1 Game Console
* Media Center Box
" TV/PC
* DVD/Blu-ray
" TV/Smartphone/Tablet
* Cable/Satellite STB
" Game Console
Laptop
1 Don't know
"Desktop PC
Source: Apr.2013, DisplaySearch
Source: Apr.2013, Accenture
Others
Among the Smart TV manufacturers Samsung has a strong position in the global market and US market.
South Korean rival LG electronics is also strong in this category and Japanese competitor Sony is losing
share over the years.
Figure 16. Global Smart TV Market Share
1. Samsung
2. LG
3. Sony
4. Panasonic
4Q.'12
25.4%
11.9%
15.7%
7.7%
4Q.13
26.4%
14.4%
14.3%
7.0%
Change Y/Y
1.0%
2.5%
-1.4%
-0.7%
32
5.6%
33.6%
5. Sharp
6. Others
4.9%
33.0%
-0.8%
-0.6%
Source: 2014,Strategy Analytics Connected Home Devices (CHD)
In the US, more people use streaming devices than television sets, and Apple TV has the highest share
followed by Roku and Chromecast.
Figure 17. Streaming Device Market Share in US
U.S. Share Of Connected TVs By
Tivo
6%
Chrome
cast
47%
14%
Source: Hillside Partners, BII Estimates
4.2.1
Sony Bravia TV
In May 2010, Sony partnered with Google to launch the Google TV, the first Google Smart TV powered
by an Android OS with Chrome browser, running on Intel Atom processor with Sony providing the TV
devices, Blu-ray players, and PlayStation consoles. However, due to the poor intuitive user interface and
lack of supported content the Sony-Google partnership ended as a failure. In 2012, Sony announced they
would reduce the number of TV models by 40% for 2013 attempting to turn around the business by
focusing on high-end products and not engaging in the low cost, price war. However, in February 2014
Sony announced that it would spin off the TV business that has lost $7.8 billion over a decade. (Martin,
2012)
Sony focuses its Smart TV strategy on cloud-based music and video content through a hub named
"Qriocity" sourced by Sony Entertainment Network. However, it uses Yahoo-powered app store creating
two layers of interfaces to go through for content. In addition, it applies a cross media bar (XMB) UI
making users click through all the menus with their remote control. Through Sony's Smart TV, PS3, and
PCs, it focuses on creating a N-screen device line-up and has an advantage of abundant content from its
Sony Entertainment subsidiary.
33
4.2.2
LG Smart TV
LG launch the Smart TV using a Netcast-based propriety platform and also joined Google TVs Android
platform in 2010. In addition, LG has partnered with LG Uplus in South Korea to provide IPTV set-top
boxes. Instead of focusing on Smart TV sales, LG is more focused on expanding its platform so general
television users can also access Smart TV features and create a market place for the Smart TVs. In 2012,
LG formed the "Smart TV Alliance" with Philips and Sharp to create an industry standard platform using
the HTML5 technology for web based SDKs.
Figure 18. Smart TV Alliance Members
Companies
Functionality
TV
LG, Philips, Sharp, Panasonic, Toshiba
Smart TV manufacturer
Set-top Box
Abox42, Technisat
Global set-top box manufacturer
Hardware
Qualcomm, Mstar
TV chip set manufacturer
Software
Obigo
HTML4 Web platform technology
YuMe
Digital video ad platform
SpecificMedia
Ad platform
IBM
IT cloud infra and solution
Ad Platform
Infrastructure
Source: 2014, Smart TV Alliance
In 2014, LG announced a new operating system based on the mobile platform WebOS. This operating
system provides a simpler user experience by having a 'Live menu (content menu) bar' on the bottom of
the screen and seamlessly transferring between live TV, OTT services and apps. LG provides a Magic
Motion Remote that uses a pointing technology to enhance the convenience when searching through the
menus and also embedded voice and gesture recognition.
4.2.3
Google
Google's business started from Internet to mobile and expanded to the TV industry. In 2010, Google first
entered the Smart TV market with an Android platform built on television sets manufactured by Sony,
Logitech and others. Google already built a strong platform with their Android on mobile phones and
wanted to expand the exposure to television sets to enhance their ad revenues by attracting more people to
go through their Android platform. Google attempted to leverage its search engine and YouTube features
to attract the TV ad market and provided chrome web browsers, Adobe flash player 10.1 to create a
unified search for content such as Live TV, DVR, and Internet. Google blocked the competitors by only
licensing 'Google search service' on devices that had the Chrome OS. Google was not competing on the
34
set picture quality and specifications, but more to expand Android platform to access users. The successor
Chromecast, which is not a fully integrated television set, proves this point.
Figure 19. Google's Business Model
Cloud Service (Data)
o
Offer compelling free services
_-
Service Platform
(Search, Gmail, Google+, YouTube, Google Maps etc.)
(Subsidized by ad revenue)
- Build network effects to attract traffic
- Sell ad space bidding options
- Create platform layer users go through
Android (SW Platform)
Devices (User Access)
(Smartphones, Google TV, Chromecast, Nexus Tablets etc.)
Source: 2011, Samsung TV Conference
By 4Q.2013, the $35 thumb drive was Google's best-selling product and was named 2013's No.1 device
for teens in Time magazine. (McCracken, 2013) Google provides a Google cast SDK for app developers
in order to have more online content such as video, TV programs and music available on Chromecast. In
addition, there are movements indicating that Google might launch a Nexus branded set-top box to
expand its TV platform. Google is targeting the home entertainment market and rather than sticking to its
Google TV strategy, it seems to be creating an ecosystem around its Android OS. For example, in South
Korea Google provided Android 4.0 as an operating system for Cenix and Valueplus set-top boxes. (KDB
Bank, 2012)
4.2.4
Apple TV
Apple has evolved from a computer manufacturer to an industry creator by launching iPhone and iPad.
By 2007, Apple has entered the Smart TV industry by launching set-top box type Apple TV, but was not
able to disrupt the market. In 2012, Apple launched the
3 rd
generation Apple TV at $99 in a smaller size
with an upgraded AP chipset. Unlike Google, Apple is targeting to create an ecosystem around
iTunes/appstore by locking in users with content and benefiting from the sales of the devices. Apple has
the advantage of their user base of iPhone and iPad, which can be used as remote controllers or
compatible N-screen devices for the Apple TV ecosystem. Moreover, recently Apple has been negotiating
with cable networks such as Time Warner Cable to get exclusive Apple video content. This would
enhance the user experience and exposure to content by adding more than 300 channels compared to the
individual channel apps Smart TVs provide such as ABC, ESPN and HBO. Comcast, however, has not
favored OTT services because of the threat of losing it subscription base and the negotiation on Comcast
35
buying Time Warner Cable might cause the Apple-Time Warner Cable deal to fall through. However,
Apple has built a strong relationship with users through the 575 million iTunes accounts (Sep. 2013)
giving them a competitive advantage in providing a seamless transition to a TV platform, enabling iTunes
users to have secure access and commercialization of digital content. Apple's combination of hardware
and closed software is an ambitious effort by Apple to establish a platform in the digital space. However,
as Apple moves towards delivering an integrated user experience across all video content combined with
innovative product design, the competition for leading the Smart TV platform get fiercer.
Figure 20. Apple's Closed Ecosystem
Platform
Content
Network
Apple TV
Cable/Satellite Network
Internet Content
End User
iOS
Distribution Operator
iPhone
iPad
iTunes Content
Bold: Apple Proprietary Technology
Samsung's Platform Strategy
4.3
In order for Samsung to position itself as a platform leader, it must consider several options. Cusumano
and Gawner identified 4 levers of platform leadership. (Cusumano & Gawer, 2002)
-
Scope: Scope comprises the amount of innovation the company does internally and how much it
encourages outsiders to do. Managers of companies that are platform leaders (wannabes) -
or that want to be
must weigh whether it is better to develop an extensive in-house capability to
create their own complements, let the market produce complements or follow a middle road.
*
Product technology: Platform leaders and wannabes must make decisions about the architecture
of a product and the broader platform, if the two are not the same. In particular, they need to
decide how much modularity they want, how open their interfaces should be, and how much
information about both platform and interfaces to disclose to outsiders who might become
complementors -
*
or competitors.
Relationships with external complementors: Managers must determine how collaborative or
competitive they want relationships to be between platform producers and complementors.
*
Internal organization: The right internal structure can help platform producers manage external
and internal conflicts of interest.
In the case of Samsung, the 4 levers must create a base for the company to then overcome the challenge
the industry is facing. For scope, Samsung must identify what to do internally and allocate externally. For
36
example, in the case of smartphones Samsung tried to create an ecosystem around its operating system,
Bada, but failed to do so because of the lack of support on content and fierce competition from system
such as Android and iOS. Eventually, Samsung became the main supporter of Android OS and developed
high-tech phones to partner with Google. However, for Smart TVs Samsung is striving to create a
platform with its own operating system by leveraging its dominant market share and advanced technology.
When Google launched the Google TV and was seeking for OEMs to partner with them Samsung was
reluctant to join the process, as it would be replicating the smartphone model. The Smart TV industry
requires a different approach from the mobile phones since the usage of Smart TVs are mostly to use OTT
services or Internet browsing more than SNS and chatting. Therefore, Samsung should create a platform
that facilitates OTT services, online gaming and Internet browsing more accessible across devices. By
creating an opportunity for other services to easily build on and extend is crucial for Samsung to create
network effects. Therefore, Samsung should invest in creating a better viewing experience such as picture
quality, intuitive user interface and integrate content searching in its platform, but support the market to
produce complements by building an architecture platform that third-parties can join.
Figure 21. Features used Once/per week by US Smart TV Owners
Video Call
App Download
Online Game
App
SNS
Paid OTT Service
Internet Browsing
Free OTT Service
23%
24%
29%
31%
34%
50%
60%
61%
Source: 2013, Business Insider
Second is the issue of creating an open ecosystem or a closed ecosystem. Many studies compare Google's
Android to Apple's iOS in terms of openness. Apple is considered as a closed ecosystem as Apple's
model is end-to-end control over the iPhone process, as only Apple devices run iOS and users can only
buy software through the App Store. Apple must approve mobile applications developed by third parties
before they go for sale on the App Store. On the contrary, Google's Android runs on many mobile
devices and the OS is completely open for developer to create apps. Google's model has been to distribute
the Android system for free to the developer community and let thousands of apps freely go on sale. This
openness helped Google gain massive market share and lead the global mobile OS space in just five years.
However, profit wise Apple makes $1 billion per month on device sales and more on its App Store sales
because of the value of its products and quality of its tailored applications. For Smart TVs, since the
37
applications depend on the host content, it is more important to have control over the app development in
order to create killer applications/content. For example, unlike the smartphone industry, having thousands
of instant messaging apps or camera apps would not be as beneficial to the ecosystem. Instead, creating a
solid platform that delivers personalized, on-demand video content would attract more users. Therefore,
it is necessary to maintain a partially closed ecosystem where Samsung can have control over what apps
are developed and sold on the platform, but offer the platform on multiple devices and make an industry
standard to give incentive to the developers.
Third is the relationship with external complementors. For Smart TVs, it is especially important to
develop partnerships with multiple stakeholders because the key to creating a successful platform depends
on content. Users want to explore on-demand and connected services, such as social networking, while
watching video content without compromising the traditional live TV experience. A platform leader must
offer an extended and consistent offering to the end user: content, service and device. Therefore, the
power to negotiate premium or exclusive content deals and the commitment of developer communities are
essential.
In an interview with Min Lee, Samsung's Smart TV Product Planning Director, he said, "Samsung is
negotiating with multiple cable operators to collaborate on making a better, simpler viewing experience
for the end-users. We are investigating in making add-on devices that include a cable subscription service
with the network operator's content, but on our operating system. This kind of discussion is possible
because Samsung does not have any conflict with the operators in terms of business model. For example,
Apple, Google and even Amazon are in a position where they own the distribution of content and the
giant operators do not approve of it so would not be willing to freely negotiate terms."
Enabling Samsung's platform with technical capabilities linking in real-time TV apps with live TV would
attract developers and end-users, creating a virtuous cycle. For example, if Samsung were to partner with
major cable companies to provide the devices with features such as DVR with the partner's interface, but
integrating real-time TV apps based on Samsung OS, this would attract the pay TV industry as there
business model is not threatened and they have a larger viewer base with Samsung's TV potential buyers.
In addition, content providers will be able to have more real-time social networking activity around their
content, which targets advertisers. A social TV analytics start-up called Bluefin Labs identified that
millions of people talked about television content on SNS websites. For example, Bluefin Labs research
says that the 2013 Super Bowl was the most commented-on TV telecast of all time, with 28 million
tweets about the game and 3.5 million tweets about brands and ads on the show. (Deighton & Kornfeld,
2013) This shows the market potential and needs for an integrated live TV content and social TV feature.
38
The next step would be to attract game developers and think of the degree of collaboration Samsung is
willing to invest in. Smartphones transformed that gaming experience by creating an environment for
simple, touch-based modular games. Games available from a Smart TV app store will definitely be a
killer content and reinvent the way gaming is experienced on TV. Samsung must think of a strategy to
attract gainers and developers, at the same time either compete or collaborate with game consoles such as
PlayStation and Xbox. In addition, a platform also needs to be collaborative from the end-user
perspective. A key differentiation point would be the integration of social networking services to content.
Smart TVs have the ability to benefit from content discovery and recommendations meaning that by
Samsung can use viewer data and analyze the patterns of each viewer to create a customized, user-centric
portal, which can attract target advertisements. Samsung must converge the ways to access content and
charge for that content by creating a Smart TV that combines ease of use with a winning killer application
through partnerships with various stakeholders across the value chain.
Last is the organizational structure of the company to manage external and internal conflicts. In 2012,
Samsung changed is Visual Display division's organization structure mainly in three ways. First, the role
of area managers was expanded to oversee the profit and product strategies of the TV line up in addition
to their responsibility of managing the sales in each subsidiary. Second, the Product Planning group was
separated from the being under the umbrella of Marketing Division to an individual unit reporting to both
Marketing and R&D executives. Third, the head of R&D was replaced with an executive experienced in
software development, putting more emphasis on software and user interface/ user experience rather than
the hardware itself. In 2013, a new group called Future Innovation was formed being in charge of new
growth products and technologies. Despite the efforts, the organization structure does not empower teams
to better negotiate with stakeholders or solve internal conflicts. In the case of Smart TVs, Samsung needs
a designated team to focus on growing the Smart TV platform instead of having a product manager just
focus on cost and profit. In an article in Harvard Business Review, Tushman (Tushman & O'Reilly
III,
2004) introduced the 'Ambidextrous Organization' as a recommended tool for exploratory businesses.
This structure helps different alignments connected through senior team integration, common vision,
values and common senior rewards. Samsung's approach to creating a Smart TV platform should adapt
features of the ambidextrous organization in order to foster breakthrough innovation, new business
models and partnerships.
39
Figure 22. Ambidextrous Organization
Alignment of:
Exploitative Business
Exploratory Business
Strategic intent
Cost, profit
Innovation, growth
Critical tasks
Operations, efficiency, incremental
innovation
Adaptability, new products, breakthrough
innovation
Competencies
Operational
Entrepreneurial
Structure
Formal, mechanistic
Adaptive, loose
Controls, rewards
Margins, productivity
Milestones, growth
Culture
Efficiency, low risk, quality, customers
Risk taking, speed, flexibility, experimentation
Leadership role
Authoritative, top
Visionary, involved
Based on the 4 levels, the strategic direction for Samsung's Smart TV can be specified into a detailed
platform-based architecture. Based on the needs of end-users and trends in the industry, there are two
outstanding needs to modify the current industry architecture. First is the technical aspect of integrating
all video, audio content in one simple interface. For example, providing a platform that users can easily
use traditional live TV with DVR functions and have the option to watch re-runs on the OTT services as
well as user generated content from YouTube. The current platform requires multiple logins and accounts
for subscription in addition to set-top boxes with various remote controllers for each device. The key is to
create a unified interface that enables users to seamlessly go through their content not only through TV,
but also through Samsung's mobile phones, PCs and tablets. Comcast and Time Warner Cable executives
have said they're open to new program guide interfaces as long as cable subscribers keep paying them.
Cable subscribers could be "authenticated" through Samsung's Smart TVs to prove they're subscribers.
The second vision is a business aspect, which is to connect the video content to social networking
platforms so users can easily interact with each other while viewing the content. The user scenario is that
the user watching a TV show on HBO Go could easily capture a part of the video clip with through
Samsung's technology and posts it on Facebook with their comments to share with friends. The friends
can click on the video clip and it would automatically direct them to HBO's streaming service. This
benefits the content providers as it attracts more traffic to their site and users can conveniently stay
connected while watching TV.
40
Figure 23. Samsung's Smart TV Platform Architecture Vision
Integrated gateway for content
Content ProvidrE
EndUser
Aggregators7TVtform
SNS
Sites
Distributors
*
Adapted/interactive UI
*
Connected devices
e
Seamless social networking
e
Video analytics
*
Closed OS
Advertisers
Samsung can use the viewing data to attract advertisers and incorporate ads to subsidize limited viewing
time of video content such as the YouTube video model does. In addition, the platform should be opened
to third-party firms such as the content providers and social network services so that companies can build
on the platform to create integrated products. However, too much openness may make it easy to imitate
and replicate the technology, therefore it is essential to close the core operating system licensing it to only
Samsung devices or Samsung partnered cable set-top boxes. Overall, the most compelling aspect would
be to create a simple, integrated and interactive user experience such as program guide interfaces, video
recommendation services and connection with social network services. These experiences will attract
users to the platform as it helps personalize the user profiles, which potentially builds network effects
around the user base by attracting more complementary services.
CHAPTER 5: Conclusion
This research work started with the key question about how to address the underlying challenges and
opportunities manufacturers face in the robust Smart TV industry. The connection of Internet to the TV
set initiated a battle for the center of the living room from traditional TV manufacturers to companies
from other industries because the potential market size for Smart TV is expected to be huge. Not only in
device sales but also targeted television advertisements and TV app market place is speculated to be the
next profitable ecosystem after the smartphone industry. Over the years, the technological change and
consumer behavioral change triggered the industry to transform from a value chain based ecosystem to a
multi-sided platform ecosystem. Based on Cusumano's definition of industry platforms (Cusumano M. A.,
2012), Smart TVs have a strong platform potential as it is:
A device with integrated Internet capabilities with advanced computing ability that brings Internet video
services streaming into the living room, solving essential problems for actors in the industry. The existing
41
platforms allow app developers to connect or build-upon the operating systems to expand the user base. In
addition, even with the growth of smartphones, PCs and tablets that are threatening to substitute
televisions, the value proposition that a Smart TVs has such as being a shared device (not personal device)
with a large screen size and lean-back experience will be hard to substitute.
However, due to the radical change in the industry all players' core activities and assets are threatened
therefore, this requires firms to rethink their strategy to create the best platform and develop business
models around core components and complementary products and services.
Especially in the case of Samsung, the key is to leverage the existing assets such as technology that
enhances the viewing experience (picture quality, user interface, N-screen etc.) and position itself as a
partner rather than a threat to operating networks because this is a competitive advantage Samsung has
over competitors such as Google, Apple and Microsoft. In addition, to create a platform that facilitates
killer applications and premium content Samsung must have control over the app development leading to
maintain a partially closed ecosystem, but offer the platform on multiple devices and make an industry
standard to give incentivize the developers to join the ecosystem. In addition, Samsung must reallocate its
resources and organization structure to transform from a hardware platform company to software, cloudbased platform company.
However, even if Samsung cored the market and created a common platform for the industry the next step
to consider will be whether the Smart TV market can become a winner-take-all or winner-take-most
market and if not, the issue is how to get the market to tip more in Samsung's direction. Even the
smartphone market where strong industry platforms exist still remains a fragmented market with 2-3
major players. If Samsung were to create a unique platform with a partially closed ecosystem, there could
be more room for platform differentiation especially for game consoles because the core activity of these
devices is different. The Smart TV platform will have strong network effects between the platform and
complements, but because of various consumer preferences and needs the unlikelihood of users buying
more than one platform will still be uncertain. Therefore, Samsung must prepare to continuously fight to
dominate the center of the living room.
42
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