The revolution will be televised: Apple's plan to reinvent the box

As the big electronics firms (and Google) show off their latest wares at the world's largest tech show, rumours that Apple is to enter the television-set market are casting a digital shadow over the industry.

This is one revolution that must be televised. Extraordinary changes in our viewing habits will occur this year as the biggest names in the global technology and broadcasting sectors compete to redefine the way that we watch our favourite shows.

At the International Consumer Electronics Show (CES) this week in Las Vegas the talk is of a coming struggle between Google and Apple, which is rumoured to be building a 55in-screen television with all the sleekness of design and ease of use which the company's devotees have come to expect.

Apple is not expected to be ready to come to market until 2013 and by that time Google seems sure to have stolen a march on its great rival. This week, the South Korean company LG Electronics launched its first "smart" TV to run on Google's Android interface. Google already has partnerships with Sony and Vizio and, according to a Google blog published last week, Samsung will be unveiling a new device later this year. It explains why Eric Schmidt, the Google chairman, felt confident enough to comment recently that "by the summer of 2012, the majority of the televisions you see in stores will have Google TV embedded on it".

Google TV offers access to 150 apps developed for television and a "more TV-like" YouTube experience. The 55in LG set, which will arrive in the UK next year, will come with 3D glasses.

Karl Havard, chief strategy officer at Wunderman, describes himself as an Apple devotee but admits that Google is in pole position. "The barrier to entry for Google will be a lot lower because it's a normal TV set [and] all of a sudden it's going to open up a whole new world to people and that's a smart move," he says. "The barrier to entry for Apple will be much higher, especially with the rumours saying the cost could be double that of a normal TV."

But those rumours of an Apple TV are growing, compounded by a claimed sighting of a 50in set in the offices of the British-born Apple design chief Sir Jonathan Ive. The company's vice-president of consumer applications, Jeff Robbin, is said to be heading a team building a prototype set. Before he died, the Apple founder Steve Jobs told his biographer Walter Isaacson of his dream of creating "an integrated television set", saying: "It would be seamlessly synced with all of your devices and with iCloud. It will have the simplest user interface you could imagine. I finally cracked it."

The intention would be that consumers can use any Apple device to buy TV shows, films, games or music via iTunes and play them on whichever Apple product they chose – including a 55in television set. It's likely the system would offer a touch-screen interface and the Siri voice-recognition system featured on the iPhone 4S. The company's co-founder Steve Wozniak has alluded to the company's plans to break into the television sector: "I do expect Apple to make an attempt since I expect the living room to remain a centre for family entertainment, and that touches on all areas of consumer products that Apple is already making." These developments come as the surge in sales of giant television screens appears to have tailed off. Research firm GfK's October figures showed the worst value decline in the UK consumer electronics sector for more than a decade, driven by a slump in television sales. "We see that the jumbo segment [43in plus], which has been steadily growing in recent months fell by more than 7 per cent and the super-large segment [33 to 42in], which has the largest share of the overall television market value, dropped by nearly 30 per cent since last October."

But the digital strategist Nic Newman says that smart TVs "failed to excite mainstream audiences in 2011" partly because of "a lack of compelling interactive experiences". Although 10 per cent of UK consumers already have smart TVs, they still prefer to catch up on shows over the internet on their laptops or handhelds because of the superior user interface.

That is set to change in 2012, Newman believes. "The disruption of TV starts here," he says, pointing to the impact of digital switchover and the marketing of major sporting events such as the Euro 2012 football championships and the Olympics (which the BBC will cover with 24 additional live video channels). In addition, there is likely to be product innovation this year from Virgin (which already allows viewers to catch up on shows they've missed), Sky and the long-awaited internet-connected version of Freeview, YouView.

Newman expects the "cosy world" of the traditional television businesses to be transformed by "cut the cord" companies, such as Google, Apple and Netflix which are looking to create a new viewing model. Netflix, which has revolutionised the way films are watched in America where it has 20 million subscribers, launched this week in the UK and is expected to sign deals with Sony, Disney, Channel 4 and ITV and will be available on games consoles including Xbox 360 and PS3. Its rivals will include Sky, Tesco's Blinkbox and Amazon's LoveFilm, which has reacted to the challenge by announcing new rights deals with BBC and ITV for showing new and archived shows including Doctor Who and Prime Suspect.

Meanwhile, Microsoft's Xbox 360 is increasingly used to watch film and television content, while Havard says he is impressed with the recently launched Zeebox service, which incorporates social media into the viewing experience.

The BBC is happy to work with any partners, provided they uphold a quality standard for consumers. Aaron Scullion, the BBC's executive product manager, says: "VOD consumption on connected TV devices is growing significantly – though small compared to the web, it has fantastic potential. Usage of the services we've already launched – BBC iPlayer and BBC News – shows clear demand from audiences to have more control of what they watch, and when they watch it." But British commercial broadcasters such as Sky and ITV will be wary of giving away too much control to Google and other arrivistes.

Hulu, the subscription-based internet TV service established by an alliance of big US networks, has restricted the growth of Google TV in America. Newman warns British broadcasters against complacency. "The TV industry generally says look at our audiences, they continue to grow and people still watch live [television]", he says. "But that's partly because of ease of use, which is the game changer – such as you saw with the iPhone. We will get to a tipping point."

Apple and Google have the potential to drive change in television just as they have influenced the mobile phone sector. The global market in internet-linked TVs is expected to grow from $68bn (£44bn) last year to $122bn by 2016, according to IMS Research. After a slowing up in the buying of big new television sets, retailers are preparing for a new wave of interest powered by the seemingly endless potential of new content.

John Mitchell, category manager at Dixons Retail, says: "Smart TVs are a key technology trend in the global TV market which allow customers to take total control of their home entertainment content. One in every three TVs sold by Dixons Retail is currently a smart TV [and] we are forecasting that will increase to two in every three by the end of 2012."

Change the channel: The new smart televisions

LG Smart TV with Google TV

This tie-up with Google was one of the major attractions at this week's Consumer Electronics Show in Las Vegas. Featuring an Android interface, the system has on-demand film and TV and a new Qwerty version of LG's motion-control remote.

Samsung and LG OLED TVs

This week's CES has seen the debut of two huge 55in OLED (organic light emitting diode)TVs. They're ridiculously thin – LG's is 4mm thick – but feature HD cameras, smart internet options, voice and motion controls. Yours for around £10,000.

The 'Apple TV'

Expected in 2013, a possible iTV is already overshadowing the release of existing smart TVs. Expect it to sync with your other devices (an iPhone instead of a remote?) and have a TV version of Apple's iOS operating system.

Sony Crystal LED

As LG and Samsung focus on OLED – their Japanese rival's screen technology of choice is Crystal LED – now in its concept stage. The technology creates an image as clear as the Oled but is expected to be much cheaper.

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