The Battle for Your TV
Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The battle lines have been drawn in the TV industry.
On one side are the traditional service providers such as the cable and satellite companies and on the other are some of the biggest tech heavyweights in the world.
A dose of real innovation will have to overcome big infrastructure and content provider advantages that the incumbents currently enjoy, especially in live events such as sports.
Google (NASDAQ: GOOG) just entered into the fray with a new product called Chromecast. For just $35 you can buy a simple plugin device and wirelessly stream a variety of content from your tablet, smartphone, Mac or PC to your TV. Google Glass will likely interface with Chromecast too. For now, the device only works with a few apps, including Google's own YouTube service.
The Chromecast hardware itself probably won't make a big impact on Google's bottom line. The goal is to draw (or keep) users to Google in much the same way the company's Android operating system does today.
If Chromecast is as successful as Android expect it to add incrementally to the already solid performance that is the norm at Google. The company has been growing revenue and earnings at a brisk 20% pace over the past few years and its market cap has soared to nearly $300 billion. Google is now the third most valuable company around.
The chipmaker Intel (NASDAQ: INTC) is also dipping its feet into the water with a bunch of TV-related offerings. It has been hiring and investing capital to market its vision of the TV watching experience to consumers.
Intel is facing significant headwinds as the PC industry continues its collapse (and most likely demise at some point in the not-too-distant future). Any bounce from TV can only help the company offset lost revenue there. A saving grace for Intel are sales of chips that power Cloud-based servers. Recently the company reported revenue and earnings that both dropped by double-digits.
Time will tell if the Intel TV bet will pay off. For now, I'd take a wait and see approach with them.
Apple of your eye
The world's biggest tech company, Apple (NASDAQ: AAPL), has had a similar device as Chromecast, Apple TV, available for a few years now. It is a bit larger and more expensive (at $100), but right now has more capability. Expect that to change over time as more apps are developed for the Google offering. Apple TV also plugs into the HDMI port of your HDTV and collects content through WiFi from various types of its devices like the iPhone, iPad and Mac.
Like Google, Apple is not making a ton of money off of the hardware but it keeps users firmly in the IOS ecosystem when watching TV. Overall it probably is a positive for the company, but not a game changer.
Apple could use a pickup from TV too, as the margins and earnings from the iPhone continue to drop along with its stock, down over 40% from the all-time high reached last September. The company has been using financial engineering methods such as stock buybacks in order to right the ship. The strategy seems to have at least stabilized share prices somewhat.
However, what Apple really needs is new products. I'd like to see some sort of "iTV" (Internet TV) if it can reach agreements with the major content providers (like it did with the music industry with iTunes a decade ago) within the next few years. That could be the innovation that turns TV in their direction.
Still on top
The top players in the delivery of TV services remain the cable companies. They have a 30-year head start in infrastructure and experience.
They won't go down without a fight but will their level of innovation (or at least evolution) be able to head off Google, Intel and Apple in the long run? The tech titans have an enviable record there, so the cable companies have a disadvantage.
One company that would like to stay on top of its internet-based competition is Comcast (NASDAQ: CMCSA). The wired cable TV business represents about a third of the value of its stock. It wouldn't want that to be affected by the upstarts.
Comcast, whose other business units include entertainment (it owns NBCUniversal) and broadband internet/digital telephone (through the same wires used for cable TV), has been performing phenomenally both over the long and short term with growth rates of 20% to 50%. The stock price has followed suit, significantly outperforming the market and even its high-tech rivals (except for Apple) over the last five years.
Comcast plans a rollout of its updated TV interface, called X2, later this year. While not a true innovation in and of itself, X2 may allow some breathing room for the company. Stick with Comcast until the TV picture at Apple becomes a little clearer.
So the battle for your TV is heating up a bit as Google and Intel enter on the side of tech innovation against the current regime of cable companies like Comcast.
While Chromecast looks like a good product it probably is not the magic bullet that can turn the tide. Intel probably doesn't have the right product mix yet to make an impact.
Therefore, it is up to Apple to supply the needed innovative spark. However, the company has a bit of work ahead in order to do that. In addition to developing new TV hardware it must partner with the major entertainment providers like it did with the music industry a decade ago. In the meantime, the company is banking on the iPhone and iPad and stock buybacks to hold the fort.
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Mark Morelli owns shares of Apple. The Motley Fool recommends Apple, Google, and Intel. The Motley Fool owns shares of Apple, Google, and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!