When Google (GOOG) CEO Larry Page thinks about Google TV, he should remember the old joke about boats being bottomless holes in the water that their owners keep throwing money into.
Indeed, Google TV isn’t just a bad idea. It’s a god-awful one of epic proportions that should raise red flags among investors. There are many reasons why I believe this to be the case. For the sake of space and reader patience, I have culled them down to five:
- Vagueness: The Wall Street Journal story that broke the news was notable for its lack of specifics. No one knows (or is willing to talk about) basic details about the service, such as how it would work and how much it would cost. Perhaps that’s because Google’s talks with media companies are going so poorly that the Mountain View, Calif.-based company hasn’t figured out how it can take on incumbents such as Comcast (CMCSA) and DirecTV (DTV) and even newer players such as Netflix (NFLX). They already have huge head starts on Google thanks to their millions of customers and considerable infrastructures — which also is part of GOOG’s next issue …
- Timing: Google’s timing is terrible. Comcast, Disney (DIS) and 21st Century Fox (FOXA) recently called off their plans to sell Hulu and instead are planning to invest $750 million in the business. So why on earth would they have the slightest interest in striking a deal with Google TV? Moreover, these companies are eager to bolster their own online operations, such as HBO GO. Let’s not forget that Apple (AAPL) and Intel (INTC) are pursuing similar services and appear to be much further along than Google — which, by the way, has tried and failed before to make a foray into the TV business. Indeed, media reports on Google TV all pointed out that no deals are imminent.
- Strategy: What little that has been said about Google TV isn’t encouraging. The New York Times noted that Google “is taking a different tack” than Apple, which is seeking to collaborate with content owners and distributors. Google, for its part, seems to be trying to reinvent the wheel. The company might sell a library of television shows, which everyone else does, or stream a live channels, much like the cable and satellite companies, according to the Times. “A cable service delivered via the Internet would most likely have to compete on quality — say, superior features like more space for digital video recording — rather than on price,” the paper says. Easier said than done.
- Costs: The search engine giant will need to shell out big money (e.g. billions of dollars) for exclusive content. It will need to pay fees to carry the channels. In fact, Google TV very well might need to carry bundles of channels of popular and unpopular channels much like cable and satellite providers. This raises the question of how much Google will charge for this service. Will it offer it for free like the Android operating system? That would be a huge risk for Google to take. Moreover, unlike its cable and telecom rivals, Google doesn’t control the broadband pipeline into the home, creating a hurdle toward profitability.
- Consumer Inertia: Despite all the talk about cord-cutting and other changes to the television “ecosystem,” most Americans are happy enough with their cable and satellite service that they might not want to bother making a change. It’s not worth the effort for other consumers like me. In my case, I stick with Comcast because it’s the best way available to catch all the games of my favorite baseball team, the Philadelphia Phillies. Most of the games are shown on Comcast’s regional sports network. Going to satellite television in my case would save me loads of money, but I wouldn’t get the Comcast channel. Verizon (VZ) doesn’t offer FiOS, which offers the Comcast sports network, in my neighborhood, so I am stuck. How many people are in a similar situation? Thousands? Millions? I have no idea. But getting people to leave their technological comfort zones can be harder than it’s often made out to be.
Google has a market capitalization topping $303 billion and oodles of cash, so it can afford to throw lots of money at Google TV in the hopes that it will figure out how to make the service work for customers and make a profit.
Unfortunately, that might take years … and Wall Street might not have the patience to wait that long.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities. Contact him at @jdberr.