Smart TVs And STBs Fuel Android TV Expansion

As Android TV devices increase, so does Google’s clout in the pay TV market, according to Greg Potter at S&P Global Market Intelligence.

“Google could gain increased clout in the pay TV market as interest from operators in Android TV picks up and creates a resulting surge in shipments of Android TV set-top boxes, or STBs. Operators launched many Android TV STB trial deployments in 2016 and 2017 and many OEMs are beginning to offer devices with the operating system, or OS. Smart televisions and STBs are expected to be the two dominant product categories for Android TV through the end of the forecast period. Worldwide shipments of all Android TV devices, including STBs and smart televisions, are projected to increase from 7.6 million in 2016 to 40.1 million in 2021.

Android TV was not the first OS for the living room released by Google. Google originally launched Google TV in 2010 to widespread criticism, often being labeled as too complex and better suited to a personal computer-type of environment. By 2013, though there were still a few products shipping, it was clear that OEMs had given up on the OS. Kagan, a media research group within S&P Global Market Intelligence, estimates that Google TV-based device shipments totaled only 600,000 units during the three years it was available.

In order to further its aim of conquering the living room, Google made another attempt in mid-2013 with the Chromecast. Chromecast has proved immensely more popular than the original Google TV platform, selling 17 million units in its first two years. Chromecast runs on a simplified version of Chrome OS, but relies on an external Android device for processing and content, serving merely as a conduit to the television for those devices.

Android TV was released in June 2014 as a replacement for the by-then defunct Google TV platform. Google TV had failed to take off and Android TV was Google’s (now Alphabet) second crack at an OS for the living room. Unlike Google TV, Android TV is based on the Android mobile OS, making it much easier for developers to port apps from the mobile version of Android to Android TV.

Consumer electronics, or CE, vendors choosing to use Android for their products gain the advantage of an ecosystem that is supported by a huge number of developers without the development costs. Additionally, the operating system is upgraded at a regular cadence, and security updates come as needed. Tradeoffs abound of course. Losing control of the OS means that any potential revenue generated by the OS, notably revenue from advertising, viewership data and app stores, is lost as well.

Android TV recently added new features as part of the 6.0 update released earlier this year. As part of the upgrade, support for Google’s home automation platform, Google Assistant, was added, allowing the platform to include the television as part of its toolset. Using Google Assistant, one can change what is playing on the television, power it on and off, view security cameras, and potentially more as new devices and abilities are added to the Google Assistant ecosystem.

Android TV can be found almost primarily in devices that can connect to a television as well as televisions themselves. This currently includes set top boxes, streaming media players, and micro game consoles. Tablets have also been seen with Android TV, though those are being phased out.

Set Top Boxes
Android TV has been succeeding most recently in the STB market due to the increased flexibility that operators are finding in its operator tier. Unlike regular Android TV released to other devices, the operator tier allows pay TV providers to customize the look and feel of the OS to a minor degree. Operators still have to deal with the pros and cons of an open ecosystem like Android TV, but are now able to put their content front and center.

The advantages to using Android TV are numerous. It gives operators the flexibility to offer popular OTT apps like Netflix and Hulu, as well as the other apps that are found in the Google Play store. Other popular types found on Android TV include gaming, social media and weather apps. Importantly, Android TV also allows for integration with the most popular mobile OS in the world. Smartphones and tablets with Android can stream video and photos to as well as control an Android TV device.
Disadvantages to using Android TV are still present, and more significant in the STB market than other CE device types. Using Android TV could cannibalize revenue for VOD services, even if there is a profit sharing agreement with Google. It can also be an invitation for users to trial other operators’ OTT services found in the Google Play store. And finally, the integration with Google Assistant could cannibalize revenue from home automation/security services already offered by the operator in favor of cheaper services offered by Google’s own Nest division.

Some notable movement in the STB market was seen this year. Both DISH and DIRECTV, major satellite providers in the U.S., announced Android TV boxes in 2017, Bouygues Telecom announced a new 4K Android TV box to be released in 2018 to supplement the one it released in 2015 and NTT DoCoMo announced an Android TV-powered box for its IPTV service to be released in 2018. Besides, the professional end-to-end solutions provider SDMC Tech's 4K HDR TV Box DV8219 wins Android TV certification.

Initially, most Android TV deployments were by smaller IPTV (and some cable) companies in Europe and parts of Asia. This seems to be changing though, as operators in North America begin to look at Android TV as a legitimate competitor to Comcast’s RDK. Those companies may be anticipating a more competitive pay TV landscape in the near future, where operators are able to serve customers outside of their traditional footprint via multichannel video programming distributor, or MVPD, services. In that scenario, being entirely dependent on an organization controlled by a direct competitor would not be the best situation for those operators.

Accordingly our forecast shows tremendous growth for the Android TV-powered STB market. Unit shipments are expected to grow from 1.2 million in 2016 to nearly 12 million in 2021. However, revenue will lag as the ASPs for these devices are below $100. Revenue in this segment should grow from $97 million in 2016 to $730 million in 2021.