Google Inc (GOOG): Can This Tech Giant Win the Pay TV Game?

Google Inc (NASDAQ:GOOG), the global online search giant, is now stepping up its efforts for a pay TV offering. Google Inc (NASDAQ:GOOG) has been contacting media companies for content and is following other technology giants in this pay TV race, including Intel Corporation (NASDAQ:INTC), Apple Inc. (NASDAQ:AAPL), and Sony Corporation (ADR) (NYSE:SNE). However, this is not the first time Google Inc (NASDAQ:GOOG) expressed its interest in pay TV. Google has been financing original programming for its YouTube, launching cable services on its Google Fiber network, as well as developing TV software for cable TV set top boxes.

Competitive landscape

Google’s new Internet TV service will be streaming traditional TV programming and will be competing with existing online video providers for contents, such as Netflix, Inc. (NASDAQ:NFLX), Amazon.com, Inc. (NASDAQ:AMZN), and Hulu, owned by The Walt Disney Company (NYSE:DIS), Twenty-First Century Fox, and Comcast Corporation (NASDAQ:CMCSA).

Amazon.com, Inc. (NASDAQ:AMZN) has signed a multi-year digital video licensing agreement to bring content from Viacom to Amazon.com, Inc. (NASDAQ:AMZN)’s Prime Instant Video. Netflix, Inc. (NASDAQ:NFLX) has been developing its own content aggressively after it has ended its agreement with Viacom. Besides producing its own content, Netflix is also signing up other content providers to compensate for its Viacom termination. Netflix has just expanded a multi-year licensing agreement with PBS Distribution, mainly to boost its content offerings for kids. Netflix, Inc. (NASDAQ:NFLX) will become the exclusive SVOD home of Super Why!, the award-winning PBS KIDS hit preschool series, in 2014. On the other hand, the owners of Hulu has rejected the $1 billion offer to sell Hulu and will instead invest $750 million to expand Hulu’s content offerings and marketing budget.

Can Google make it?

Unlike Amazon.com and Netflix’s on-demand content offers, Google is aiming for cable TV-style packages of network, allowing users to flip through channels. Google Inc (NASDAQ:GOOG) will also be competing with traditional pay TV providers, which are competing in a mature market already. On the other hand, Intel Corporation (NASDAQ:INTC) is aiming to launch its own Internet TV service by the end of 2013, and Sony is also said to be working on an Internet-based TV service. All new players into the pay TV market are facing the same barrier, as content providers are trying to protect their current lucrative deals with existing distributors; thus, new players, such as Google Inc (NASDAQ:GOOG) and Intel Corporation (NASDAQ:INTC) will need to pay higher rates for content.

Intel is seriously dedicated to the TV service and has launched an independent unit, Intel Media. With over $2 billion committed to TV programming licensing deals, Intel has agreements in principle with CBS, News Corp, and Viacom for the Internet-video services, paying a 50% to 75% premium over industry-average rates. Intel is betting on more attractive interface and personalization features to lure consumers. Google appears to follow the same mind-set as Intel, eyeing a better overall user experience to capture the market.

Another major challenge for new players is the distribution issue. While neither Intel nor Google Inc (NASDAQ:GOOG) has control over broadband into the home, delivery cost remains a major challenge for new players to compete with existing cable service providers.