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December 4, 2008 Provided by System Dynamics Inc.

The Internet TV Maze

Remember the early days of DVRs? We weren't sure whether to call them DVRs or PVRs and most people didn't have a clue what they were. The US cable industry was initially less than thrilled by the idea. At the December 2002 Western Cable Show, Comcast CEO Brian Roberts said " TiVo is the Napster of our future".

Lots has changed since then. In the US, MSOs are now the major supplier of DVR capabilities as part of their set-tops. A 2007 study by The Carmel Group showed that fifty-two percent of DVR penetration was held by cable operators, with direct-broadcast satellite-provided recorders at 38%, retail purchased products like TiVo in the single digits and telcos also single digits since their IPTV penetration was still in its infancy.

It seems like "over the top" (OTT) video is repeating that history. Initially it was geeks and technophiles that figured out how to connect their PCs and broadband pipes to their TVs. Cable operators were concerned that OTT video was an evil way for consumers to increase the cable operators' costs by using lots of data services bandwidth, while taking away their revenue from subscription fees and pay per view. As more media adapters, alternative settops and other methods became available, consumers made it clear they were interested in electronic delivery of premium video content to their TVs. With the genie out of the bottle, MSOs are busy exploring ways to incorporate Internet video into their offerings.

Here the story starts to overlap with DVRs. DVRs are now standard service provider offerings and could connect to the data broadband pipe to integrate OTT with subscription video--as TiVo has done for years.

The verdict is still out on which scenarios for getting Internet video to the TV will become prevalent. As a recent blog posting ( ) on the New York Times Bits blog pointed out, ordinary consumers want a "drop-dead simple interface" for getting video content from both service providers (cable, telco and satellite) and from the Internet. Meanwhile, the current fragmented state of the market clearly qualifies as one of the top ten ways to confuse the consumer ( ) (a designation we first used in 2001).

We've written several articles about online and electronic delivery of premium video content--a recent example is Video: Who's In Control? ( ) after the CES show earlier this year. Research studies--such as Internet Video:Direct to Consumer Services ( ) from Parks Associates--detail many of the possible hardware elements as well as a wide variety of content sources and aggregators.

With the myriad of possible combinations of hardware, software, services and content, consumers face a hodge-podge of choices. Consumer studies are very clear that consumers will act when asked to pick from a couple of different solutions, but will become confused and delay when the number of possibilities is in double digits.

As a consumer, how would you differentiate between the following solutions and their promises? Here is a small selection of recent press announcements.

  • "Verismo Networks and Netgear are collaborating on products that will enhance TV entertainment by giving consumers the ability to access and enjoy Internet video directly on the TV without a computer."
  • "Sezmi Corporation announced...its new television service, marking a significant milestone in the company's breakthrough efforts to dramatically improve the way consumers experience television and Internet video."
  • Roku's "Netflix Player makes it easy to instantly watch movies and TV episodes over the Internet on your living room TV, or anywhere you have a TV and an Internet connection. Compact and lightweight, inexpensive but powerful, simple to set up and use".
  • "Xbox LIVE is the first and most comprehensive unified online entertainment network seamlessly integrated throughout the entire console experience...there is something for everyone. Examples of television shows and feature films that will be coming to Xbox LIVE include" [followed by a long list]
  • "Apple TV redefines what your TV can do. Rent HD movies. Buy HD TV shows. Listen to your iTunes music. Watch podcasts. Even show off your photos."

Meanwhile, content sources keep proliferating -- although with the following, you have to figure out how to get the content to the TV if you want to watch on a big screen.

  • "AOL Video has millions of free, high quality videos including music videos, news clips, movie trailers, viral videos, and full-length TV shows".
  • "Veoh features millions of online videos including free TV shows, movies, indie vids, and more."
  • ..and from MSO Comcast: "Fancast | Watch Full TV Shows and Movies Free Online - Visit and see the latest TV show episodes, movies, celebrity interviews, and more!"

Today's market for watching Internet content on your TV is very confusing. There will always be a relatively small group of geeks and technophiles who want to do it their way and can select and assemble their particular configuration of hardware, software, services and content. But this will remain a niche market until consumers can buy fully-integrated solutions.

TiVo has one of the most promising approaches in its retail boxes. A TiVo box bought today provides a guide within its TV-based menu system through which a user can record select Web video sources, and can order movies from, Walt Disney Studios and TiVo also has a deal with Netflix which will place the Netflix Watch Instantly streaming-movie service on TiVo’s HD-compatible set-top boxes.

Just as the cable industry initially resisted DVRs and then became a leading provider of them, it seems likely they will do the same with some form of integrated Internet to the TV. Some retail boxes with Tru2way will most likely include integrated Web video. Their telco competitors are planning to offer it, so they probably will too.

Which solutions will emerge as the leaders as the market sorts itself out? We believe the service providers are in the best position, if they don't mess it up!

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