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When Apple (AAPL) unveiled its App store in 2008, it revolutionized the phone industry by providing users with all the functionality they never knew they always wanted. Google (GOOG) hopes its new service, Google TV, will resonate with people in a similar fashion and change the way we interact with our TVs.

The company has some pretty significant obstacles to overcome before it can accomplish that feat, though. Ideally, Google wants its users to be able to search for and view any video available on the web through its Adobe (ADBE) Flash enabled Chrome browser, all on a high definition television.

Although video clips on sites like YouTube and facebook will be fair game, many TV content providers have blocked Google TV from showing full episodes of TV shows that can normally be watched anytime on individual channel websites. Representatives from CBS (CBS), NBC Universal, and Disney (DIS – Free Analyst Report) owner of ABC and ESPN have confirmed that they are denying access to full length episodes. FOX, which is owned by News Corp. (NWS), has not yet reached a decision, but that broadcaster (along with NBC and Disney) contributes content to Hulu.com which is also blocking the service.

Basic cable heavyweight Viacom (VIA/B) probably won’t get on board anytime soon either considering that its copyright infringement lawsuit with Google-owned YouTube is still ongoing. Therefore, programming from popular channels such as Comedy Central, Logo, BET, Spike, Nickelodeon, MTV, VH1, CMT, and Palladia won’t be accessible through Google TV’s browser.

The main concern of these companies is that they won’t be fairly compensated for their content and that Google would wield far too much power over the TV Industry. Thus far, Google has not publicly expressed any intentions of sharing potential ad revenues with content providers.

A representative from Google had the following to say about broadcasters blocking content, “Google TV enables access to all the web content you already get today on your phone and PC, but it is ultimately the content owner’s choice to restrict their fans from accessing their content on the platform.”

Reuters reports that Google is still actively negotiating with the broadcasters over access to content. Earlier reports indicate that they balked at Google’s request to increase the quality of online content and provide specific information about their programming to help optimize search results.

There has been speculation that one compromise will result in Hulu Plus being available on Google TV. That service lets users pay $9.99 a month for access to all the shows in a current season, as opposed to only the past five or so available on regular Hulu. The picture resolution is also much higher on Hulu Plus.

If that deal does come to fruition, it could provide an important model for other channels. For years people have made the argument that they shouldn’t have to pay for channels they don’t want access to, and would prefer more a la carte offerings. Perhaps once Google TV’s app store gets up and running, smaller niche TV channels like the Outdoor Channel will create apps that deliver all content on demand and through the web.

Turner Broadcasting is already optimizing some websites for Google TV including those for TBS, TNT, CNN, the Cartoon Network, and Adult SwimTime Warner (TWX) owned HBO has also confirmed that its on-demand internet service HBO Go will be made available through Google TV, but only to those with a normal pay subscription with a conventional cable TV distributor.

It seems likely that advertisers would support a web based on demand content application model considering the highly targeted advertising Google is capable of providing. You can learn a lot about someone from the shows that they watch and the ads that they click on. Imagine ads for fishing equipment popping up on the home screen of the Outdoor Channel’s app.

The possibilities are vast and Google’s CEO Eric Schmidt has said that Google TV ads will be a “cash machine” for the company. Mr. Schmidt did not elaborate beyond saying ads on Google TV will be shown through websites or traditional TV programming and that specific channel apps are not going to be included at the service’s launch.  

The company won’t be making any advertising revenues from Google TV if it doesn’t get a mass audience. Due to the limited amount of web TV content Google will initially have access to, it will need to rely on other functionality in order to attract users.

People that routinely reach for their smartphone, laptop, or tablet PC in order to look something up they just saw on TV will likely be early adopters. Have you ever felt the need to find a sports statistic while watching the game or the latest gossip on a Hollywood starlet during that awards show? Maybe you like to read Wikipedia when you watch the History Channel or want the ability to go on YouTube to find that song you just heard during a commercial. Google TV lets you easily do all that without ever having to interrupt your show (a popup window displays TV content while you navigate through the browser). Although it may be difficult to visualize, it seems like web access and subscription TV content would complement each other quite well. That is if you don’t mind reading text from across a room.

The company has been using the advantages of Google TV’s search ability as primary selling points. After typing in the name of a program it will display the next scheduled air time, the show’s website, relevant findings from the Internet, and, if you are lucky enough to be a Dish Network (DISH) subscriber, all the video-on-demand and DVR content available on your system. Google did not say when other cable operators would get the DVR search functionality but we believe it will probably be in late 2011. Notably, users will have to switch back to the old programming guide to be able to browse a list of what is currently playing on TV.

When inputting text, you can use a full keyboard, handheld device with a QWERTY keypad (similar to a video game controller), or your smartphone. This compares to conventional cable providers’ remote controls that uses arrows to navigate an on-screen virtual keyboard. Too, due to Google’s search prowess, we assume results would be more relevant than the competition.

With Google TV running on the Android operating system, apps that are on your smartphone can be shared with your TV. Application developers already have the capability to build Google TV specific apps, which should be up and running along with the Google TV marketplace in early 2011. The native applications Google has shipping with the device include Netflix (NFLX) streaming video service, Twitter, Napster, CNBC real time (for financial news videos, stock quotes, and personalized watch lists) Pandora internet radio, NBA Game time, and Amazon (AMZN) Video On Demand.

It’s important to point out that Google’s hardware partners also stand to benefit meaningfully if Google TV takes off. Logitech’s (LOGI) Revue set top box comes with a keyboard/trackpad controller and will have the software built in, allowing televisions with an HDMI input to connect to the service. Revue’s $299 price tag is far from cheap, and although the functionality of Apple TV is quite different than Google TV, at $99 it still only costs a third of the price. Logitech will also be offering a smaller handheld controller for $129.99 and a video chat camera for $149.99. There are certainly a lot of people out there that have bought a flat screen TV over the past five years, so the addressable market is large. Logitech expects to move 500,000 units by the end of 2010.

Those that are in the market for a new flat screen will want to go with one of the four Google TV ready models Sony (SNE) is bringing to market this month. These range in price from $1,399 for the 46-inch model to $599 for the 24-inch screen. Sony has also released a Google TV Blu-Ray player for $399, only $100 more than Logitech’s box. Depending on what type of Blu-Ray player you have, if you own one at all, it seems like this product may steal some thunder from Logitech’s device. Eventually, both of those products will probably become obsolete as more and more flat screens come with either Google TV, or some other Web TV operating system built in.  

Whether Google TV turns out to be a success right away or not, it’s almost certain that its introduction will push industry players to transition to the Internet/TV experience. The rising popularity of video-on-demand and DVR programming show that many people are fed up with conventional advertising models and linear TV schedules. The potential of targeted advertising may become too much for content providers to ignore. At the very least, Google TV should motivate cable, satellite, and fiber TV providers to upgrade their archaic electronic programming guides by improving search functionality and ease of navigation.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.