Shiny Chromecast Could Dim Cable TV; Chromecast offers a window into Google’s vision of making the Internet a platform for TV

August 4, 2013, 4:59 p.m. ET

Shiny Chromecast Could Dim Cable TV

Chromecast offers a window into Google’s vision of making the Internet a platform for TV.

MIRIAM GOTTFRIED

Even a simple innovation can sometimes help tip the scales toward revolution. Google, GOOG +0.26% along with technology peers like Intel, Apple and Microsoft, is vying to shape the future of TV. Its latest gambit: the introduction of Chromecast, a $35 device that plugs into a TV and allows users to view content from mobile devices or computers on the big screen. On its own, Chromecast won’t suddenly upend the bundled-TV business model. For now, only Internet content and video from YouTube, Netflix NFLX -1.18% and the Google Play store can be watched via the device. And it doesn’t include sports or live programming.Still, Chromecast offers a window into Google’s vision of making the Internet a platform for TV. And its efforts could accelerate a shift toward Internet video already under way, especially among viewers most coveted by advertisers.

The TV industry so far has managed to buffer itself from the kind of disruption that roiled the music industry. But the pressure is building. At the least, media companies, broadcasters, pay-TV providers and advertisers will have to change the way they relate to each other, with those that can’t adapt to Big Tech’s presence being pushed to the margins.

 

Pay-TV penetration stands at 86% of U.S. households and is likely to decline by one percentage point a year, according to Macquarie. Meanwhile, Netflix has nearly 29 million paying subscribers. And technologies like Aereo, which lets users watch broadcast channels through the Internet, have sprung up.

The conventional wisdom has been that getting big media companies, such as Walt Disney, Time Warner, Viacom and CBS, to put content online is a necessary precursor to Internet TV. They have been loath, though, to disrupt relationships with cable and satellite operators because they want to maintain the practice of bundling popular and less-watched channels, allowing them to charge higher fees to pay-TV providers.

But as more people start watching video via the Internet, content companies and advertisers may follow them. The 18-to-24-year-old demographic, a vital segment for advertisers, already spends the most time watching online video of any age group tracked by Nielsen. They likely will spend more time doing so as they age and as Internet TV improves.

Media companies must hope they can respond gradually, perhaps unbundling offerings show by show or channel by channel, so as not to cut off the pay-TV revenue stream too soon. But if media companies gradually began to circumvent pay TV in favor of the Internet, that could hurt cable and satellite providers.

Cable companies have one defense: They deliver broadband service. If their video business is diminished, they could try charging more for Internet. Indeed, Internet video has been a big driver of consumers upgrading to faster, more expensive broadband packages. Still, this might not forestall margin pressure.

Meanwhile, satellite-TV providers DirecTV and Dish Network, which don’t have a broadband offering, wouldn’t fare so well.

Cable companies have another arrow in their quivers: usage-based broadband pricing. Instituting such a system could nip the growth of Internet TV in the bud. That threat may be one reason why Google is expanding its ultrafast Internet offering, Google Fiber.

But Google may prove a formidable threat in another way. Chromecast will give it data about users’ viewing habits. It can then help advertisers target audiences more efficiently, potentially giving it access to traditional TV ads.

Big Tech has yet to establish a firm foothold in the living room. Chromecast shows, though, that Silicon Valley’s leviathans are intent on getting a seat on the couch. If Internet TV gains ground, media and cable companies may have little choice but to make space for them.