Android TV Could Drive Google Earnings

  • Google is set to release Android TV.
  • The TV market is declining, and is in dire need of innovation.
  • Sony is likely to partner with Google, and it’s likely to drive bottom line results for both companies.

Google Android TV

Android TV is set to be another set-top box look-a-like that has a moderately improved user interface. Many believe Android TV will look similar to Amazon Fire TV.

From what I understand, Google (NASDAQ:GOOG) is trying to offer an alternative user experience that can be used on top of the standard Smart TV interface various OEMs are offering. This runs counter to Google’s successful integration of Android onto a vast majority of smartphone devices.

I don’t understand why TV OEMs even bother to create their own operating system. The bill of materials for a high-end system on a chip cost $50. A standard mobile CPU/GPU would be compatible with a standard ecosystem of mobile applications. That alone would allow the TV to compete with other devices like tablets, and computers, and could even reduce the excruciatingly long refresh cycle of TV sets.

According to the Global TV Replacement Study, “the TV replacement cycle decreased on a global scale, from 8.4 to 6.9 years.” The replacement cycle of a television is so drawn out; it diminishes the profitability for TV OEMs considerably. If TV OEMs improve the user experience, consumers will find more value in replacing their TV. A higher TV replacement rate will turn around the declining TV industry.

None of the OEMs by themselves operate at the same scale of Android, Windows, or iOS. So perhaps, TV OEMs need to look at other options, because what they’re doing clearly isn’t working.
Currently, the market for TVs is shrinking, according to IHS:

Shipments worldwide of televisions in 2013 amounted to 225.1 million units, down sharply from 238.3 million in 2012. It was the second straight year of contraction after a 7 percent loss in 2012, contrasting with the market’s big 11 percent surge in 2010 and a more modest 1 percent uptick in 2011.

Google TV
Source: The Verge

Maybe, Google really does have a solution to the declining TV market. At least, according to GIGAOM:

Android TV’s key focus will be on simplicity, which will be reflected in the user interface. Key to that is something the company has internally been calling Pano. The idea behind Pano is that apps can surface individual pieces of content right on the home screen in a card-like fashion so that users can browse movies, TV shows and other types of media as soon as they turn on an Android TV.

Furthermore, by offering more features and options, consumers end up using their TV even more as indicated by the daily minute spent for consumers with only a TV, versus multiple devices.
Average Minutes Spent TV Versus PC
Source: KPCB

I think that given enough time, TV OEMs will embrace the idea of a smarter TV. I say “smarter,” because current smart TVs use an operating system that’s not as refined as Android, Windows, or iOS.
TV Sales And Operating Income: Sony
Source: Sony

Sony likely to partner with Google for Andriod TV

Making TVs more computer-like seems to have worked for Sony (NYSE:SNE). The company reported sales growth in its aging category, and expects to ship 16 million in 2014. However, the company only expects to generate 10 billion yen in operating income, when translated into dollars that’s somewhere around $100 million in profit. That’s not bad, but it could be significantly better.

Sony TV
Source: Sony

Sony has an application library for Sony Bravia TVs, but it’s rather limited in scope when compared to Android. Furthermore, Sony Entertainment Network centers on multimedia content like video, and music. It’s not as complete of an entertainment experience when compared to iOS, and Android.

However, to address this issue, Google plans to launch Android TV. A more unified ecosystem, paired with a simplified user interface, may accelerate the consumer friendliness of televisions. After all, Sony has been a partner with Google’s ecosystem in the past through its Sony Xperia Z smartphone and tablet lineup. It’s likely that Sony will partner with Google in this aspect as well, especially because Sony doesn’t have as good of a platform.
Number of Smart TVs Sold  Chart
Source: KPCB

Andriod TV will drive bottomline for Google

Currently, smart TV shipments have reached 80 million or so. Assuming the historical growth rate of 39% continues, in 2014, TV shipments should reach 110 million or so. Assuming 110 million new connected devices use Android’s operating system. Google will generate $693 million, assuming each additional user contributes $6.30; the revenue per user figure is based on BGR statistics.

$693 million is a drop in the bucket when compared to Google’s total annual revenue. However, the average revenue figures per user is trending higher, paired with total users, so over time new product categories will contribute significantly more. Analysts anticipate Google to generate 15% earnings growth per year over the next five years. However, new product developments may put Google well over analyst estimates.

To see Google’s latest stock price movement, click here (NASDAQ:GOOG)

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