Telecoms extranet

Smart TV: Too smart to win over consumers?

By Jean-Baptiste Coumau, Thibaut de Laval, Jean-Frédéric Kuentz, and Jean-Hubert Lenotte

The high-tech industry is looking for the next big wow to excite the market. If the buzz that Internet-enabled televisions (smart TVs) have triggered and the space they occupied in the 2011 and 2012 Las Vegas Consumer Electronics Shows are any indication, connected television is no doubt a potential candidate. But beyond the hype, the maturity level of this new technology and the consumer appeal of its value proposition are questionable.

Based on extensive research conducted in two test markets (France and the UK) that combines insights from over 40 hours of ethnographic observations with quantitative analysis across 18,500 respondents, McKinsey has assessed the smart TV opportunity and determined how TV manufacturers, media/content providers, and telecoms operators should prepare for this new battleground.

TV manufacturers regularly innovate with new features in an attempt to energize their sales and avoid commoditization in a highly competitive TV set market with long purchase cycles. In the past five to ten years alone, manufacturers have rolled out flat-screen, HD, and 3D technologies to the mainstream, with varying degrees of success. Now with smart TVs, manufacturers not only hope that consumers will have enough of an incentive to replace their old TV sets, but that they can also expand their reach beyond the product itself (the screen) toward more value-added services to open up new revenue and profit streams.

On the supply side, the shift seems unstoppable. Embedded Internet connectivity in TV sets is slowly but surely becoming a mainstream feature. Most TVs from leading manufacturers (e.g., 50 percent of Philips’ and over 80 percent of Sony’s) are already Internet-enabled. At the expected pace of TV sales, various forecasters expect the installed base of Internet-enabled TVs to grow 70 percent each year to reach over 500 million devices by 2015.

With smart TVs, an array of interactive services—music, video, news, apps, widgets, social networking, etc.—theoretically becomes directly accessible from the household’s main screen in the living room. Thus, smart TVs compete directly with other personal devices—smartphones, tablets, PCs, and other connected TV solutions—to give access to a multi-billion-dollar market (much more if e-commerce is included). Facing this prospect, the TV ecosystem is in turmoil. Players are looking to federate around early technology standard alliances (e.g., HbbTV, DLNA), develop home-grown services (e.g., Google TV) or make early moves on the value chain (e.g., based on acquisitions). Some countries, such as France, have already launched large-scale consultations to assess the potential impact of smart TVs and propose new regulations.

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