As the CES show in Vegas kicks off this week, the buzz and announcements around broadband enabled TVs is starting to heat up. Netflix (NASDAQ:NFLX) and LG (LGERF.PK) announced that come later this spring, a new line of broadband enabled LCD and plasma TVs will be capable of streaming content from Netflix without the need for any type of external box. While this is not the first broadband enabled TV that will be capable of streaming content, both Panasonic (PC) and Sony (NYSE:SNE) already have models, it is the first TV manufacturer deal for Netflix.
The CES show also brought announcements from Adobe (NASDAQ:ADBE) and Intel (NASDAQ:INTC) who are looking to bring Flash to Intel's Media Processor CE 3100, which Intel hopes will be used to bring web content to digital TVs before mid-2009. In addition, Intel plans to announce with Yahoo! (NASDAQ:YHOO) support from TV manufacturers to sell sets that come with widgets that allow you to watch web content on your TV using the TV's remote control.
While the idea of broadband enabled TV sounds like a great idea and catalyst for helping to bring more IP video directly to the TV set, the reality is that these devices won't have any major impact on the industry for many years to come. The poor economy has killed the sales growth of new TV sets, let alone new LCD and plasma displays like LG's where the broadband enabled versions cost an estimated $300 more than ones without the functionality.
But of course, that's not stopping the companies building these sets and analysts to say things like, "I think this will be a big, growing sub category in TV" or "Streaming video from the Internet and other means of direct digital delivery are going to put optical formats out of business entirely over the next few years.” It all sounds nice, but it's wishful thinking on their part, especially the idea that broadband enabled TVs and streaming will make the DVD obsolete in a few years time. The real question is how quickly will these new sets be adopted when Netflix says that most research data shows that the average consumer holds onto their TV set for at least a decade?
Parks Associates predicts that by 2012, about 3.6 million broadband enabled sets will be sold in the U.S., or about 14% of total new TV sales. If those numbers are accurate, three and half million sets in three years is not a very big impact on the market considering devices like the XBOX 360 and PS3 sell that many devices in one or two quarters alone.
Broadband enabled TVs could be the future, but the impact they have on the market will not be felt in any major way in the next three years. And while most in the industry are talking hardware, the real question in my mind is what the user interface is going to look like that allows viewers to find and control how they get web content to their TV set? The software layer is going to be the most important factor in the success of broadband enabled TVs and not the actual hardware itself. Building added hardware functionality into a TV set it the easy part, providing the software overlay that will control and operate the new user experience is where the real challenge comes in.