Are Android STBs a step towards true Web-enabled TV?

Google (NASDAQ:GOOG) and satellite television provider Dish Network (NASDAQ:DISH) are in the process of testing Android-based set-top boxes (STBs), according to a report today in the Wall Street Journal. With the addition of the Android operating system (OS) coupled with Google’s search prowess, the partnership could be one of the first to really blend the open Web with traditional broadcast TV.

Google and Dish are aiming to let consumers more easily search and discover TV shows, as well as content from Internet video sites, like Google’s own YouTube. The WSJ said that Dish will supply the STB and Google will bring the Android OS, featuring Google’s ad-brokering business, Google TV, to target individual consumers’ search and viewing habits.

This wouldn’t be the first time that Dish and Google have teamed up. Nearly two years ago the two announced a partnership to introduce an automated system for buying, selling, delivering and measuring TV ads on the satellite TV service. Google got access to a portion of Dish’s ad inventory, and Dish got more accurate viewer measurement and online reporting to offer its advertisers. The WSJ made sure to note that this time, the trial is limited to a very small number of company employees and could be discontinued at any time. Neither company would comment on the report.

Google has also been eyeing the consumer-electronics market for awhile now as a way to extend the reach of its ad business. CEO Eric Schmidt said in January that it just makes sense for people to use Android as the OS for STBs, buddy boxes and TVs.

It also makes sense for the hardware manufacturers to explore this approach as pay TV providers look for ways to incorporate over-the-top content into their traditional TV service. According to In-Stat analyst Michelle Abraham, Motorola, especially, would be a good candidate, considering the equipment maker’s focus on Android and plans to spin off its combined STB and handset business.

“[Companies] are always very interested in new technologies,” Abraham said. “They would be open to this and experimenting with multiple different ways to bring in applications and search. There is also a movement to bring in over-the-top video, and you need a good search engine for that, otherwise consumers won’t bother using the capability and might go elsewhere.”

Both STB makers and operators do, however, have other options to choose from. Apple may be one step ahead with its own OTT content service and hardware, Apple TV, but even it has admitted that it’s just a “hobby” for the company. Search competitor Microsoft’s Mediaroom platform powers TV services for IPTV providers like AT&T, which is also looking to incorporate web content, along with interactivity, to its software. Also adding to the competition is TiVo, whichy announced plans to create its own STB in partnership with Virgin Media in the UK. Its service will also be positioned as one geared towards personalization and blending the web with broadcast TV.

At the same time that operators and software companies are exploring the space for TV, the market for online search and discovery is heating up as well. SetJam announced today it has closed on a $275,000 bridge investment, including from The Hudson River Angels, an investment group made of former Google employees. The funding will go towards improving its online metric system and Web TV search engine, a market that several start-ups are targeting right now, including NDS’s consumer-facing service LocateTV.

LocateTV was formed two years ago to power PC-based search across broadcast, online TV and on-demand content. Brian Margolis, LocateTV’s director of business development, said once the company proves itself online, it will look to form deals with pay TV operators to make it the default search engine on TVs as well. It will be up against the likes of Google and other native OS offers, but it also means operators that are increasingly embracing OTT content will have even more options to blend the OTT world with broadcast TV.

“There is no question that operators are looking to work with the Web,” Margolis said. “We hear that from our own customers. They see what consumers are interested in and more and more of us are online as there’s more content online. They need to find a way to work with that. There’s no question it will become more and more of an issue of how integrate it and make it work for them.”