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Nearly every week from last February until mid-May, Google trotted wide-eyed visitors into a small room at its colorful headquarters in Mountain View, California. Inside were a comfy couch and easy chairs, a tall fabric houseplant in a corner, and a large high-definition television set atop a credenza. Under the watchful eyes of engineers and product managers on the other side of a mirrored window, the visitors would settle in with a wireless keyboard. They would search for and tune in to All My Children on ABC, catch a Glee episode on the Web, watch a recording of The Daily Show from a digital video recorder, or surf over to those witty Old Spice ads on YouTube—all on that nice big TV screen.

The company was testing one of the boldest bets in its 12-year history: Google TV. It is software that aims to give people an easy way to access everything available on regular television channels and the vast sea of content on the Internet, all on the biggest screen in the house—a bid to reinvent television for the Internet age. The initiative was set for its first public demonstration on May 20, and Google’s geeks had to make sure the product would appeal to the average viewer, who watches about five hours of television a day. So week after week, the Google TV team would try out countless variations on everything from the look of the search results to the background colors for the screen, hoping to learn what worked best.

Google had good reason to sweat the details. Since the mid-1990s, several costly efforts to bring the Web to the TV have fallen flat. Hybrids such as WebTV Networks, which disappeared into Microsoft in the late 1990s, suffered from myriad problems, including poky network connections, underpowered hardware, and clunky user interfaces. But even if they had worked better, these earlier endeavors would still have suffered from a bigger problem: their developers seemed to forget that most people hadn’t bought their televisions to browse the Web. They just wanted to watch TV.

They still do. But now new technologies and an increase in TV-friendly Web content are swelling the variety of programming choices well beyond what’s available through their coaxial cable, satellite dish, or DVD player. As the Internet makes inroads into the last great mass medium, millions of people are starting to program their own niche television experiences. For as little as $60, new devices and software from TV makers, startups such as Roku and Boxee, and giants such as Apple have made it a snap to deliver online content to any set. In addition to what’s available online at no charge, programming can be streamed to TV sets from Netflix for $8 a month or from Amazon Video on Demand starting at $1 per episode.

The Google TV software, which is available on Sony’s line of “Internet TVs,” on a $400 Blu-ray player, and on a $300 set-top box and keyboard controller from the peripherals maker Logitech, goes further than most other technologies on the market. For now, Google TV is essentially a way to find and view video in a setting that’s more comfortable than sitting at a computer. But it also offers a full-fledged Web browser so viewers can reach any website. “All of a sudden, all that content out on the Web, all those millions of channels, are now on your TV,” says Rishi Chandra, lead product manager for Google TV.

Even without Google’s contribution, the consumer electronics industry has already transformed the TV set into a computer that can be connected to the Internet. That means the future of television is now up for grabs: the screen, the industry, even the meaning of the word. Just as the Internet tore through newspapers, magazines, and music, it’s now poised to make television the media battleground of the coming decade. That’s why Google knows it has to be involved. If it wants to protect its leading role on the Internet, maintain its prime position in online advertising, and grow into emerging markets, then it can’t risk letting other companies control the online experience on the living-room TV. But getting the technology right is only part of what Google needs to do.

The company’s rise online was easier in some ways, because the Internet is a completely open platform. Television is not. Moreover, television is run by executives who are loath to change lucrative business models built over decades. U.S. cable and broadcast networks, local broadcast affiliate stations, and cable and satellite operators take in more than $60 billion a year from advertising. In addition, millions of monthly cable and satellite TV bills deliver $80 billion a year in revenue in the United States to operators such as Comcast and DirecTV, according to analysts at the Diffusion Group. Those companies turn around and pay about $23 billion annually in fees to cable networks like ESPN and HBO, which is why pay TV is the largest profit engine for media companies such as Walt Disney, Time Warner, Viacom, and News Corp. Increasingly, the Big Four broadcast networks—ABC, NBC, CBS, and Fox—are demanding, and getting, such fees as well.

Both revenue streams—the one from advertisers and the one from viewers—could be threatened if the medium is fully opened to the Internet. The ability to scour the Web for programming to suit any interest could fracture the audience further, and that would diminish the main attraction TV has for advertisers: its enormous reach. And the more content that is available free, the less incentive viewers have to pay for cable.

In theory, Google might offer a better business model to the television industry, but it has revealed few clues as to its plans for advertising on Google TV. In the absence of definitive plans, the networks have tended to imagine the worst: they fear that the company is out to steal their advertising or disrupt their deals with cable operators. Neither of those things seems likely to happen in the near future, and millions of people already view TV shows on their PCs. But if the TV industry’s fears seem excessive, they’re also understandable given the travails of publishing in the Google age. As the Internet company tries to please consumers and navigate the TV industry, Google TV could suggest how the battle for the soul of television will play out in 2011 and beyond.

BEYOND A HOBBY
Google TV began with a vision Vincent Dureau had when he joined Google in August 2006 from OpenTV, a maker of set-top-box software, where he had been chief technology officer. His new job was to help run Google TV Ads. That’s an initiative, still active, to bring to TV the self-service, auction-style system used in Google’s AdSense program, which places ads on mostly smaller websites. For now, the TV Ads system isn’t generating substantial revenue for Google or doing much to change mainstream TV; it mainly allows small advertisers to place ads in unsold time slots, such as late at night, or on less popular stations. But Dureau also wanted to fulfill a longtime dream of creating a TV platform that could be improved faster, like a PC or a mobile phone. That would require bringing Web applications and services to the TV. Problem was, the Web and the TV still weren’t ready for each other. Even when the first Apple TV device launched in March 2007, for instance, it was mainly for playing video and music from iTunes or a networked computer: it was a “hobby” for Apple, as CEO Steve Jobs called it.

By mid-2007, Dureau saw that this situation would soon change. Home broadband speeds had improved sufficiently to handle video, and wireless home networks were becoming more common, providing Internet connections throughout a house. There was more to watch on the Web, too. ABC had just started streaming some high-definition episodes of shows such as Lost and Grey’s Anatomy online. And YouTube, since bought by Google, was a phenomenon, with visitors watching about 2.5 billion amateur videos and clips of TV shows, some of them illicitly uploaded, every month.

So Dureau, a soft-spoken but intense Frenchman whose palms bear black calluses from propelling his wheelchair, decided to go for it. In October 2007, he made a pitch for Google TV to the company’s operating committee, or OC. That’s the group of about a dozen executives, including CEO Eric Schmidt and cofounders Larry Page and Sergey Brin, who decide which major projects Google will pursue. Dureau pointed out that there are four billion TV watchers worldwide—a billion more than the number of Web and cell-phone users combined. Reaching them had obvious potential for Google’s search ads or YouTube’s video ads. The OC gave a thumbs-up. Dureau immediately began recruiting engineers, and the project got under way in earnest in early 2008.

Millions of Channels
No longer must viewers depend solely on what their pay-TV providers offer for entertainment. Click through these six examples of services or devices that bring video and other Internet content to the TV.

Since most standard Web pages look awful when viewed on a TV from 10 feet away, Dureau and his team initially assumed they would need to create a “walled garden”: TVs would show a subset of the Web tweaked through a custom interface or through curated apps like those offered by previous Web-TV hybrids. In late 2008, about a year into the project, Dureau changed his mind. He had his Apple MacBook connected to a projection screen in a Google conference room before a meeting, and the group started watching YouTube videos. The picture quality was so decent, he recalls, that “we started thinking, ‘How is that not television?’ ” That convinced him: a good chunk of the Web was ready for prime time. So he reversed course and decided to offer the option of using a full Web browser.

As luck would have it, the company was working on one, which it launched as Chrome in September 2008. That gave Google TV a ready-made way to access the Web. It wouldn’t be perfect for many Web pages, which can still be hard to read and navigate from the distance of the couch—but then, neither was the iPhone’s version of the Safari Web browser. Yet the prospect of using a mobile device to go anywhere on the Web was so appealing that iPhone users didn’t mind the limitations, and Apple had a runaway hit. Google hopes the same will happen on the TV—a typically Googley long shot.

At the same time, Dureau knew Google TV would need a lot of apps, to provide couch-friendly, one-click experiences. Another stroke of luck: just a month after he got the okay for Google TV, the company released its Android operating system, which lets anyone offer applications for mobile phones and other consumer electronic devices. The ability to piggyback on Android makes Google TV more promising than many other Web TV schemes that would bust open television to be remixed, reprogrammed, and remade.

Google made yet another key decision that would set its product apart and get the attention of TV industry leaders. The devices offered by Roku, Boxee, Apple, and others are often described as “over the top,” because they offer content over and above what people can get on pay TV. These devices connect to a TV with an HDMI cable, and in order to get the extra content, viewers must switch from the cable feed to a different input. By contrast, Google TV runs right on the television, if you have the Sony model; otherwise, it runs on devices that plug into both a cable or satellite feed and the TV. That allows viewers to search for and access TV and Web content at once. “We didn’t want users to have to choose between the Web and TV content,” says Dureau. Google touts this design as an example of its effort to place the Web within the TV experience. But it could also wrest control of the main TV screen from cable operators.

By early 2009, using generic Intel desktop computers and full-size keyboards from Best Buy, Google began producing prototypes to show prospective electronics manufacturers. It also worked out a partnership with Dish Network—its first and, so far, only deal with a satellite or cable distributor. That was a breakthrough, because it lets Google TV provide a more comprehensive and personalized TV experience. Dish customers can use the Google product to seamlessly search for content on TV, the Net, and their own DVRs.

Other partnerships came about with the help of Intel, which ended up becoming the microprocessor supplier for Google TV devices; the company had been touting “smart TV” for years in hopes of getting its chips into new kinds of electronic gear. Logitech, in the midst of a big push into universal TV remote controls, was already talking to Intel about a video-calling device for the television. Executives at Intel, realizing that they might coördinate efforts with Google TV, set up meetings between the two companies in mid-2009, and Logitech soon signed on to create a Google TV set-top box. Intel also connected Google with Sony, which became Google TV’s other electronics partner. In September, as Sony and Logitech began hiring more engineers to work on their products, Chandra joined the Google TV team to accelerate the push to the finish line.

GIVE PEOPLE WHAT THEY WANT
Now it was time to turn Google TV into something tangible. That meant Google and its partners had to design a user interface that would work for the TV, without any of the glitches and impenetrable error messages that plague computers—something that has consistently eluded Silicon Valley’s engineers.

They also had to figure out how to anticipate the expectations of an everyday video viewer. Part of the dream for Google TV and similar services is that Internet-connected TVs could make television a social experience again, as it was when families gathered around their sets to watch programs together. The next-generation TV could eventually become a big-screen hub for the house; while you relax on the couch, you could video-call your mother during an ad or show full-screen high-definition videos of your children to your friends, whether they’re sitting next to you or on their own sofa in another country. One early tester used Google TV to shop for a car with his whole family—something that wouldn’t work well on a little laptop.

Already, Nielsen has found that a lot of viewers—60 percent!—use the Internet while they watch TV. In fact, on average they spend three and a half hours a month doing those things at the same time, up 35 percent from the previous year. Often people are texting friends or posting on Twitter about the shows they’re watching; during MTV’s Video Music Awards in September, artists getting awards were the subject of 2.3 million tweets. Now some adventurous content creators are embracing this trend: in October, actor Seth Green launched a reality Web series called Control TV in which viewers voted in real time on such questions as what the main character should eat for breakfast and whom he should date. In time, the technology could even learn what you’d like it to show you. Why not, for example, a TV that can recognize your voice when you walk into the room and deliver video and other services utterly different from those your spouse would see? Or an app that brings up your fantasy football stats during a game?

Google TV can’t do such tricks yet. But by May 2010, the company felt it was time to go public with the concept, if not a finished product. When Chandra took the stage for a demonstration before thousands of people at Google’s annual I/O conference for software developers, the company showed how much the TV project mattered. Onstage with its own chief, Eric Schmidt, it assembled a star cast of partner CEOs, including Howard Stringer of Sony, Paul Otellini of Intel, Charles Ergen of Dish, and Brian Dunn of Best Buy.

Through the summer, Logitech’s 40-person Google TV team in Fremont, California, hunkered down in a sea of cubicles known as the Pit to refine the design for its Google TV product, which is called the Revue. One wall was lined with printouts of all the Google TV setup screens, on which engineers would plaster sticky notes suggesting fixes or improvements. Meanwhile, Chandra was wrapping the Google TV prototype gear in towels and cramming it into a suitcase to demonstrate to other potential partners across Asia, Europe, and the United States.

Finally, on October 6 at San Francisco’s Clift Hotel—as it happens, just a mile and a half south of the lab where Philo T. Farnsworth transmitted the first electronic television image in 1927—Logitech and Google debuted the first Google TV product to the press and the world. Sony’s TV would soon follow. But the glow of accomplishment wouldn’t last long.

Millions of Channels
No longer must viewers depend solely on what their pay-TV providers offer for entertainment. Click through these six examples of services or devices that bring video and other Internet content to the TV.

VERSION 2.0
Slumping into a chair in a cubicle where he often shows Google TV to potential partners, Rishi Chandra sighed. “Every day is a new fun day,” he said with a weary sarcasm. The previous day, October 21—just days after the products from Logitech and Sony hit the stores—ABC, NBC, and CBS had started blocking Google TV users from viewing shows on their websites. That exposed a stark reality of TV’s business model: if people were going to watch programming on a fancy television, the networks wanted them to watch through cable or satellite, because that’s where the real money flows. Sure, the networks show ads when they run programs on their websites, but online ads aren’t yet as lucrative as TV ads, because they can’t promise the massive audience reach of TV. Even more important, cable operators might rethink those juicy fees they pay to run the networks’ shows if they’re available free on Google TV. “There’s no constitutional right to get NCIS: LA through the Google TV box,” Zander Lurie, senior vice president of strategic development at CBS, told a TV conference this fall.

It was a big blow. Without access to the latest shows—which often appear on the networks’ websites exclusively as soon as a day after being broadcast—Google TV might look crippled to prospective buyers. And the company had few options for fixing the situation on its own. It could go the same route as Netflix and pay the networks for the rights to their online content, but then Google would become a provider of shows, not an independent conduit. Chandra had to deal with the fallout. Google TV respects TV’s established business dynamic, he insisted. It was a statement he had clearly recited many times—and one that might sound familiar to publishers struggling to contend with Google’s impact on print media. “Our product is designed assuming you have cable,” he said. “The best content is on cable. People are relatively satisfied. What we’re trying to do is take that experience today and enhance it with a whole lot of other content you just can’t deliver through cable technology.”

Some cable networks—such as Time Warner’s stable, which includes TBS, TNT, and HBO—are at least tentatively embracing Google TV. “We don’t want to be in the device-blocking business,” says Jeremy Legg, senior vice president of business development and multiplatform distribution for TBS. “We don’t think that’s what the Internet is about.” However, HBO has a measure of protection: to reach HBO’s shows online, Google TV users have to log in and “authenticate” themselves as cable subscribers. In other words, Google is asking its users to prove that they are still putting money into one of TV’s main revenue streams rather than getting most of their video online and cutting the cable cord.

Bypassing pay TV is precisely what more than a few people seem to be doing. U.S. cable and satellite TV companies together lost 119,000 subscribers in the third quarter of 2010, according to the market research firm SNL Kagan. That’s a minuscule drop compared with the approximately 100 million subscribers overall, and no doubt it was chiefly because of the poor economy. But it was the second drop in a row, after a first-ever decline in the second quarter. Meanwhile, Netflix added 4.7 million new customers in the first nine months of 2010.

These subscriber losses may not be over for cable and satellite companies, either. A September survey of 2,000 Americans by the market researcher Strategy Analytics found that 13 percent of them planned to drop their cable in the next 12 months. “My kids think I’m crazy for being in the pay-TV business, because they don’t pay for TV, and [they] watch a lot of TV and movies [online],” Dish Network’s Ergen complained during a conference call with financial analysts in November.

Even customers who still have cable are rapidly altering their behavior in a way that represents a fundamental challenge to the television business. Already, with help from DVDs and the DVR, many viewers have decided they’d prefer to pull in content when they want it, where they want it, rather than glue themselves to the couch for appointment TV. As Internet TV devices give viewers even more choices, says W. Russell Neuman, a professor of media technology at the University of Michigan, “push technology is shifting completely to pull.” Yet the TV advertising model still assumes that people are watching live content and ads pushed out to them.

Through Google and other players, interactive TV, like the Internet, could offer better targeting for advertisers. People could be shown an ad that their viewing habits indicate is probably relevant to them—and networks could thus command higher ad prices for smaller audiences. (In the advertising industry, this is called “efficiency.”) Hulu, a joint venture of the parent companies of NBC, Fox, and ABC that streams episodes of many network shows online without charge, boasts that Nielsen research finds people much more likely to recall the messages they’ve seen through targeted ads on its service than they are when the same ads air on prime-time broadcast TV. “We’re charging higher rates for more targeted ads,” Hulu CEO Jason Kilar said recently.

But Google has offered no specific plans of its own yet, and ad buyers and ad sellers each have reasons to be suspicious of targeted advertising. Brands that do the most TV advertising doubt that targeted ads will reach a big enough audience to be effective—the key reason they’re continuing to spend on television. Networks worry that the Internet’s emerging method of targeting people according to their interests or online activity—a growing alternative to the traditional media model of buying space on sites or shows that promise a particular audience—could turn their ad slots into lower-priced commodities.

Having observed the effects of more efficient advertising in media like magazines and newspapers, networks and pay-TV companies are experimenting with new business models, mostly subscription-based. Hulu has blocked access from Boxee—and now from Google TV. It’s rolling out an $8-a-month service in hopes of creating a new revenue stream beyond ads. Cable networks are also exploring versions of the authentication model that HBO requires on Google TV. The cable companies call their version TV Everywhere, but the point is the same: it will let viewers get shows online once they prove they already subscribe to cable.

Such efforts may well keep most people watching conventional cable and broadcast TV for some time to come—especially if products such as Google TV fail to appeal to the mass audience. And initial reviews have been mixed: for all Google’s research and user testing, critics say it’s still too much like a computer. Moreover, Google TV and its rivals have few made-for-TV apps to offer, and there’s only one killer app for interactive TV so far: Netflix. More could come in the first half of 2011, when Google will invite outside developers to create Google TV apps and offer them on its Android app marketplace. For now, says Vivek Khemka, Dish’s vice president of customer technology, “it’s definitely not a product that I can market with a tag line.” Google’s Chandra concedes, “This is very clearly a Version 1.0 product.” Google and Logitech are working on 2.0, which is likely to come out in 2011, although neither company will disclose its plans.

But in the meantime, it might be easy for TV’s beleaguered leaders to lose sight of the bigger picture. Disruptive technologies nearly always beget new ways to profit, sometimes even for the incumbent players whose business model is being upended. Some of them do recognize that potential. “This is a terrific time in the living room,” says CBS’s Lurie. “People are consuming more video. So there’s more opportunity for content providers to get paid.”

The upshot, says Chandra, is this: “Your TV is going to get better every day.” Google TV and its ilk may look like threats to the TV business right now, but odds are that ultimately—one way or another—they will help make television an even more pervasive part of our lives.

Robert D. Hof, former Silicon Valley bureau chief for BusinessWeek, is a freelance writer in Palo Alto, California. He blogs about the Internet, media, and new technologies at RobHof.com.

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Credits: Camerique/ClassicStock/Corbis (photo); The Heads of State (GoogleTV logo), H. Armstrong Roberts/Corbis, Technology Review

Tagged: Computing

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