Google TV and YouTube — Google’s 1-2 Combo to Take on Television

Advertisement

This is how an industry changes: An old technology butts up against a new technology, and the businesses controlling both distrust one another until the dividing lines between the technologies blur and ultimately disappear. Here at the end of 2011, it’s television that’s going through this metamorphosis. Cable companies are becoming streaming video companies, broadcast content is becoming web content, and computer technology companies are becoming television manufacturers.

Google (NASDAQ:GOOG) made strides to ease this process along in late 2010 with its ill-fated Google TV project. It failed miserably, but now Google is refreshing the project. Google TV’s rebirth might do more than just secure Google’s place in the television business, though — Google TV might be the key to finally making YouTube the profit driver it hoped for when Google purchased it five years ago.

Google TV is a platform, used in Sony (NYSE:SNE) televisions and Logitech (NASDAQ:LOGI) set-top boxes, that lets users search for television shows. Results come from the web, broadcast and the user’s cable service in equal measure. Google TV was, at release, a complete failure, savaged by critics, ignored by consumers and bombed by content providers like News Corp. (NASDAQ:NWS), who blocked the platform from accessing its web-based content.

The new Google TV update, announced by Google on Friday, looks to remedy many of the basic problems that plagued it in 2010. Improvements include a streamlined user interface that doesn’t obscure shows or movies, as well as a superior search feature that pulls results from services like Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN) and Time Warner‘s (NYSE:TWX) HBO Go. The new Google TV also supports the Android App Market — a feature that should enthuse the huge population of Android-powered smartphone users that would like to enjoy the same entertainment at home.

The most significant feature of the update, however, is the changes it brings to YouTube. YouTube content is emphasized in Google TV’s revamped search tools, but the YouTube app itself has been rebuilt for viewing on HD television sets. As Venture Beat‘s Devindra Hardawar wrote on Sunday, Google is going to closely tie its new, original YouTube content to Google TV — content it has invested some $100 million into.

Google’s plans for original YouTube content originally came out in April when The Wall Street Journal reported the company was developing regular television-style channels for the world’s most popular web video hosting service. The company is aggressively incentivizing original content development for these channels as well, offering 55% of ad revenues to content providers, according to another WSJ report.

The strategy should help grow both services. With Google TV still limited to just two device manufacturers (the aforementioned Sony and Logitech), its reach is truncated. But the wealth of new and exclusive content coming from its second-most powerful brand, YouTube, should at least help improve Google TV’s visibility amongst consumers.

For YouTube, Google TV is a stepping stone for realizing the promise of Google $1.65 billion acquisition of the company back in 2006: YouTube finally will come to television properly. Google CEO Larry Page said during the company’s second-quarter earnings report that for YouTube to finally be profitable, it required more investment. The $100 million poured into original content fit for living room television viewing is the start.

Citigroup expects YouTube to pull in $1 billion in full-year revenue for the first time in 2012 (representing just a fraction of Google’s $30 billion in revenue last year). Comparatively, cable TV providers like Time Warner Cable (NYSE:TWC) pull in around $5 billion in revenue per quarter from their television operations. Google has brand power on its side with YouTube and Google TV. With content and access in place, it might be able to match those old leaders of the TV business.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.


Article printed from InvestorPlace Media, https://investorplace.com/2011/11/google-tv-youtube-goog-sne-logi-twx/.

©2024 InvestorPlace Media, LLC