Google recently announced Chromecast with Google TV, a bold effort to overtake Roku and Amazon in connected TV. The concept is a reimagined hardware and software experience meant to iterate and refine the existing CTV experiences currently offered by Google.

The CTV Opportunity

Roku and Amazon have dominated streaming on connected TV recently, with their CTV platforms commanding a combined 70% market share of streaming media players. Roku earned $742 million in ad revenue in 2019 and may rake in over $1 billion in 2020.

Before the COVID-19 pandemic, when Google must have decided to build Google TV, eMarketer projected total US CTV ad spend to grow to $9 billion in 2020, representing 28% YoY growth.

Google CTV History

Google has not ignored this rapidly expanding market opportunity — they released the first Chromecast in 2013 and have sold over 55 million units as of 2017. But unlike the original Chromecast, the 2020 Chromecast with Google TV includes a dedicated remote, allowing a user to use the new device independent of a smartphone or other device to initiate a cast.

The new Chromecast with Google TV offers a more “lean-back” experience and permits a user to browse content directly on the device rather than the device initiating the casting session. Even though this is the first time Google manufactured a device with a remote themselves, its Android TV software has powered devices that have included a remote.

Android TV is a TV version of the mobile Android operating system that is used by third-party OTT devices like the Nvidia Shield or to power connected smart TVs from Sony. Downloads of the Android TV version of the YouTube app indicate that there may be close to 50 million Android TV accounts worldwide activated at some point in time since the app is pre-installed on every new Android TV device.

Despite Google’s seemingly massive reach worldwide, the company has not manufactured their own full-featured streaming media device until Chromecast with Google TV. But why is Google releasing this product now?

Why create Google TV?

There are multiple reasons why Google may have chosen to build their own CTV device.

Control the entire experience

For decades, Apple has demonstrated the benefits of manufacturing the hardware running its operating system. Producing the hardware and software allows companies to own the entire experience top to bottom and tailor the hardware to the software and vice-versa. This control can allow Google to create the best possible user-experience.

Additionally, this gives Google a way to push out its Google TV operating system without negotiating with third-party connected TV or OTT device manufacturers to pre-install Google TV.

Smart Home

Google made a hard push into home automation and control with its $3.2 billion acquisition of Nest in 2014, and as a result, has pushed out a parade of smart home devices like the Nest Hub.

The new Chromecast with Google TV can control smart home devices using its built-in Google assistant. The device can display video from Nest cameras, control lights, and even display a slideshow of your Google Photos, essentially turning your TV into a giant Nest Hub.

Google TV creates another hub for a user to access and manage a Google-controlled home.

ACR Data

The impending death of cookies will create a dearth of data on the web to power behaviorally targeted ads. Google can fill this void with ACR (automatic content recognition) data collected on Google TV. Google can offer ACR data to advertisers to target users based on content viewing behavior.

YouTube TV

Cable and Satellite TV subscriptions continue to decline. Traditional pay-TV providers lost 6 million customers in 2019, representing a 7% YoY decline. Even though the total number of pay-TV subscribers is decreasing (3.8% in 2019), some customers are turning to virtual MVPDs like YouTube TV.

“Virtual” TV providers subscriber base rose from 7.52 million at the end of 2018 to 9.96 million last year. Hulu Live TV boasted over 3.4 million subscribers in Disney’s Q3 2020 Earnings Report, and YouTube TV claimed 2 million subscribers in early 2020.

Naturally, Google TV is directly integrated with YouTube TV, offering seamless live content recommendations within its UI along with live-previews of YouTube TV channels. Google can continue to sway customers to the YouTube TV service by offering unique features and integrations into Google TV.

Hardware sales

Analysts project the streaming media device market to reach $90 billion by 2026, and Google can earn incremental revenue from device sales. Even though the recurring revenue of live TV and advertising presents a more intriguing prospect to investors, hardware sales can represent a nice cherry on top.

How can Google win?

Google has reasons to continue to invest in Google TV, but how can they topple both Roku and Amazon?

Sign more hardware partners

Google has indicated that they will upgrade Android TV to Google TV eventually. So existing TVs and devices running Android TV will gain the new benefits of Google TV. Google must continue to foster these relationships and push out its operating system wherever possible.

Some point to the integration of Roku OS into cheap yet well-received TCL smart TVs as a primary growth factor of Roku’s majority market share. TCL recently overtook Samsung as the top smart TV manufacturer in the United States, and Google inked a deal to pre-install Android TV on TCL TVs shortly after they claimed that top spot.

Disallow access to YouTube

Notably absent from Roku’s ad revenue earnings is any revenue originating from the YouTube app on Roku, which is owned by Google. Google negotiated a way to exempt itself from the Roku distribution agreement, and in a 2019 quarterly report, Roku notes:

For certain channels, including YouTube’s ad supported channel, we have no access to video ad inventory at this time, and we may not secure access in the future.

In the same quarterly report, Roku notes that “Netflix and YouTube accounted for more than 50% all hours streamed.”

The popularity of YouTube means that shipping a connected TV device without the app would make it dead on arrival, and Google understands that — which is why they can opt-out of any rev share agreement with Roku.

Google has the right to pull YouTube from any platform, which could drive customers toward a Google TV device. Yanking YouTube is probably an unlikely scenario any time soon, as Google would lose out on up to 80 million current users on both Roku and Amazon Fire.

Allow all apps on Google TV

Roku and Amazon both had a very public dispute with NBC Universal over how to split ad revenue, leading to the delayed launch of the service on the platforms. AT&T is still enduring negotiations with the streaming giants to make HBO Max available on their platforms.

Google does not currently have a revenue share agreement in place and can gain some market share by making all apps available on its platform. If users are wary of future services not being available on their platform of choice, they may look towards a platform that does not have a history of disallowing apps.

The Path to Domination

Google has several paths they can take to dominate CTV. Amazon and Google have the luxury of playing the waiting game, as they can sit back and fund their burgeoning CTV businesses on profits from their other business groups.

Roku needs to create profits in the near-term solely through device sales and advertising to continue to drive its stock price up. We can see that this sometimes results in a detriment in experience to users, evidenced by the Peacock and HBO Max disputes.

Expect the battle for your TV to heat up in the next year. Google has already entered a deal with Netflix to credit users for six months of the service with a purchase of the new Chromecast, indicating that they are willing to take a loss for the chance to serve as a user’s primary streaming media device.

Google has the resources, time, and money to chip away at the market share of its competitors, which means the existing CTV duopoly of Amazon and Roku will likely soon turn into a triopoly.