Coming to a TV set near you: broadband Internet video, says Emerging Media Dynamics president

Company president Cynthia Brumfield, author of the new “Delivering Internet Video to TV Sets” report, forecasts that in 10 years nearly 73 million U.S. broadband homes will be able to watch Internet videos on their TV sets.

By the end of this year, 12 million U.S. homes will have the ability to connect their television sets to a broadband Internet connection and watch video from the comfort of their living rooms or bedrooms, according to a new report from research firm Emerging Media Dynamics.

That could be a significant step in transforming what’s been called the “lean forward” experience of watch video on a computer screen into something more akin to the “sit back” experience of watching television. While the ramifications of that transformation are unclear, it’s likely that watching Internet video on home TV sets will help to further mainstream this emerging medium and bring a new level of interactivity to the mainstay of home entertainment in America.

IPTV Update spoke with Cynthia Brumfield, president of Emerging Media Dynamics and author of “Delivering Internet Video to TV Sets” to learn more.

IPTV Update: Your report identifies five major hardware types seeking to bridge the Internet to the living room or bedroom television. Could you briefly describe each?

Cynthia Brumfield: Part of the role of being an analyst is trying to categorize these very complex media developments in a way that people can come to grips with them. When we came to this issue of Internet to TV sets, the first question was how many ways are there to get Internet video to the TV set. We came up with five categories, and they are all in play today in some fashion.

The first and the biggest are gaming consoles. You’ve got the Xbox 360, the Sony PlayStation, the Nintendo Wii and other platforms that connect to TV sets that also have the capability in some fashion — either now or very soon — of connecting to the Internet.

The second category I characterize as special appliances and extenders. This is a very diverse category in the sense that the kind of appliances and technology providers that fall into this general rubric are very different. We have companies as diverse as Tivo, which pioneered the PVR in the digital video recording realm. You have Apple TV, which is something designed specifically to enable you to watch your PC-based video on a TV set. Then you have Sling Media’s SlingCatcher, which is causing a lot of buzz and apparently will be launched in September or October. It serves very much the same kind of specific purpose as Apple TV, which is to help you watch Internet video on your TV. So the special appliances and extenders really cover a wide range of different kinds of devices and pieces of hardware.

Then you have a category that is somewhat controversial, but we considered it to be very important. It is video distribution over IP. You’ve got Verizon and AT&T both trying to deliver video signals over an IP or Internet Protocol-based network that really uses the same technology and, in some cases, actually uses the Internet for distributing video to home users.

But what they are doing for the most part is delivering what you might expect from a satellite provider or cable provider: multichannel video services. It’s not the kind of Internet video you would expect to watch on You Tube or any other user-generated site or any other broadcast network video programming site. It literally is cable television or satellite television, but over Internet-based protocol platform.

The reason we included that in there is that both Verizon and AT&T are experimenting with ways, since they use IP protocol-based technology, of delivering video from the Internet to the TV set in parallel with or along side the multichannel video services that are like cable or satellite services.

The fourth category we call all-purpose digital TV set tops. This is a new category. It is something that has come about as a result of a federal mandate that requires operators to remove the security technology in standard set-top boxes so that consumer electronics manufacturers can make boxes people can buy. They can buy them and take them from cable system to cable system. The fact that these boxes can be available at retail has spawned a new concept of boxes that are all-in-one, that not only enable the delivery of multichannel video to your TV set and personal recording, but also can connect you to the Internet or wirelessly to your PC.

There is a box that is creating a lot of buzz called the Digeo Moxi Multiroom, DMR. Digeo was founded by Microsoft co-founder Paul Allen, and they are looking to sell these boxes, which are very high end — in the $600 to $800 price range — that will give you everything from HD reception and translation to Internet connectivity, to personal video recording to all kinds of advanced interactive program guides.

The fifth category is all-purpose high-end TVs, which takes this concept of the set- top and plug it directly into the TV set. HP has something called the MediaSmart TV that is on the market and is an example of the kind of device that can bring Internet to your TV set.

Then there is a sixth catch-all category called “other,” and there certainly are random pieces of hardware and software and technology that are under development and don’t fit these previous categories. You may be familiar with SanDisk’s USBTV device, which literally is a USB device that can enable you to copy video from your PC and plug it into your TV. You transfer content by Sneakernet from one device to another.

IPTV Update: I find it interesting that you lump video distribution over IP into the list of Internet video delivery to TV set options. Many have tried to create a distinction for IPTV from Internet TV pointing to its “walled garden” architecture. Are those sorts of distinctions simply semantics?

Cynthia Brumfield: You know, it isn’t really a semantic distinction because IPTV is a term that has somehow become applied solely to what the phone companies are doing. The term Internet Protocol TV can actually apply to everything. You Tube is

Internet Protocol TV. Amazon Unbox is Internet Protocol TV. iTunes is an Internet Protocol TV for that matter because they use some form of Internet Protocol technology to get you video programming.

So generically, IPTV should really refer to everything, but it has in practice come to apply to only what the phone companies are doing, and that is for the most part the walled garden experience. They are trying to replicate and compete head to head with cable operators and satellite providers, and they are mimicking very much what they’re providing, which are multiple linear channels of cable network programming.

They are packaging it in bundles, and they are selling it in basic and advanced basic and video on demand configurations and premium channel configurations. It looks exactly like what cable has. But the difference between what the walled garden approach that a cable operator is doing and what AT&T is doing is that with the use of Internet Protocol technology, AT&T and Verizon actually have the ability to deliver Internet-based video services and are beginning to experiment with that.

AT&T’s HomeZone service for example, which is a hybrid technology, doesn’t really fall into the category IPTV. HomeZone is a little bit different. It’s where they are using satellite network and DSL service, and they are integrating the two in a special set-top box. But basically what they are doing with this technology is offering content, not from a walled garden perspective with linear channels, but they are offering it directly through the Internet. For example, with AT&T Homezone service, you can download movies off the Internet using a DSL connection and watch them on your TV.

They have movies on demand through their deal with Movielink, which was just purchased by Blockbuster. They have a deal with Akimbo, which is another Internet- based video provider. So they are blurring the lines between the Internet to the TV through one set-top box on a TV set. They are also attempting to deliver traditional linear channels using their IPTV platform for consumers to watch on PCs. They are experimenting back and forth adding services to their linear walled garden service offered strictly over their ADSL2 platform or their fiber to the node configuration that allows AT&T to mix into the walled garden content, content that is made only

available on the Internet. So that’s why we included IPTV providers in this framework that we analyzed.

IPTV Update: Were you surprised that today there already seems to be a sizable number of TVs capable of displaying Internet video — one in five — and that in a decade, two out of three, or about 73 million, will be able to do so?

Cynthia Brumfield: Yes, I was surprised. In fact, we went over those numbers again and again. Some clarification is in order. One of the things is our term Internet capable. It doesn’t mean in fact that these devices are actually being used today for the download from the Internet or for the wireless receptivity to the Internet. For example, Tivo has a series of boxes that are broadband enabled that allow you to connect to the broadband Internet and watch video and do so wirelessly. A lot of consumers don’t use their Tivo that way. They don’t even know it’s there. They may not even have a WiFi connection in their homes.

That doesn’t negate the fact that they have a device in the home that tomorrow. If somebody came up with a very clever campaign to try to bypass traditional video providers and give consumers enough information about how they can use their various devices to access the Internet, it doesn’t mean they couldn’t.

So there is a basic infrastructure in place. The same thing is true with a lot of the gaming platforms. Most people don’t use Xbox 360 devices for video downloading. They use them for gaming, but that doesn’t mean they couldn’t, nor does it mean that in the future, for example, that a lot of people wouldn’t end up buying and Xbox 360 if some compelling package of video programming were offered over the Internet.

The basic point is, there are a lot of devices out there that with just a little bit of tweaking, a little bit of promotion, and a little bit of flipping the switch on perhaps some sort of video aggregation package that 12 million people wouldn’t be able to watch video over the Internet.

Said differently, there’s an infrastructure out there to do that that by the end of the year will reach one in five broadband homes. That’s a pretty astonishing stealth

bypass capability that I think people don’t realize is available and will continue growing rapidly.

IPTV Update: You say in your report, “Microsoft truly pushed the Internet video-to- TV business ahead on Nov. 6, 2006 when it announced deals wit a slew of TV programmers to reach viewers directly through the Xbox 360 platform and Xbox Live service, bypassing altogether the tradition distributors of video to the TV set.” Then you identify some of the top networks and studios that tied up with Microsoft. This is only one example of traditional program distributors seeking out Internet TV distribution. Coupled with your 2017 projection of 73 million households with access to the Internet through their TVs, what will become of the traditional TV network- affiliate relationship?

Cynthia Brumfield: That’s a very interesting question. I think that’s the $64,000 question. That’s the big threat from Internet video. Internet video is a destabilizing development for everybody in the television business, in the entertainment business, in the Hollywood industry, because it is a way of taking power away from the aggregators, the networks, the studios, the motion picture theaters and letting consumers have far more endless choices than they ever did before.

And it sort of destabilizes the market. It fractionalizes everything, and it allows control to slip away from what previously had been a very few number of players involved in getting video — news, entertainment and sports — out to consumers.

The problem is that Internet video really today can only be watched on PCs. Most consumers don’t consider that to be a satisfactory experience, so you have to make that leap from the PC to the TV. Once you do that, the concept of a network and the concept of a channel dies. And it is already dying. Certainly pay per view, video on demand, and the DVD and the VCR before that started nibbling away at this concept of an aggregated, edited channel put out by a fairly powerful intermediary in the entertainment, news and sports business.

Bringing the Internet to a TV set ultimately demolishes the concept of a channel. We’re not talking about the short term. We’re not talking about five years. No, I don’t think you are going to get rid of linear channels or networks or the existing

model in five years, but you’re going to weaken it. Then 10 years from now, you are going to very substantially have weakened it. Twenty years from now, the notion of
a channel will seem as quaint to children as the notion of broadcast stations seem to children now. I don’t think they know the difference between a FOX cable channel and a FOX broadcast channel. In fact, the concept of an over-the-air TV station is not one a teenager today grasps. And I think 20 years from now, the concept of a channel might have that same aura about it. Children will have grown up with a lot
of program choices, but plopping down and watching — according to somebody else’s schedule — program after program, and it might not be one you’d choose to watch, will not exist.

IPTV Update: It seems that the local affiliate is the most threatened in this scenario, not the network that produces programming.

Cynthia Brumfield: There’s no question the local television station is going to have the hardest time of every player in the food chain, and they already are. Local broadcasting is already suffering fairly dramatically. They are already being bypassed by their network suppliers. FOX, ABC, NBC and CBS all put their prime-time programming on the Internet. What does that do to the local affiliate? Kind of leaves them in the lurch if they don’t happen to be owned by one of those entities.

I think as time goes on, the channel aggregator, the local channel not the network, is going to be in a tough spot. The network is in far better shape because they are the brand and they have the relationship. The local XYZ station doesn’t have that ability, and its previous role existed to pick and choose among content providers’ line-ups so its viewers could watch on a chronological basis hour by hour. That idea is going away, and they are the ones who will have to morph into some other sort of entity.

Radio stations had to morph into dramatically different entities over the last 60 years. Local TV stations are going to have to serve some other purpose, and they are at the bottom of the heap when it comes to bearing the brunt of all these changes.

IPTV Update: Will the Internet be able to sustain such a large number of Internet TV users — i.e. bandwidth requirements, switching, etc.?

Cynthia Brumfield: The Internet itself, I don’t think there are any capacity restraints in the backbone. The issue is the last mile and even the last 50ft. WiFi is not the ideal medium for distributing high-bandwidth content. A lot of the devices we cover in the report connect to the PC or the Internet, but mostly to the PC, through WiFi. So you have that issue.

Then you have the issue of the broadband connection itself. This is a very theoretical issue because I don’t think we are anywhere near it, but if suddenly everybody is watching video on their TV using some form of Internet connection, the 1.5Mb/s DSL connection is going to be inadequate. Even a 7Mb/s cable connection or perhaps even a 15Mb/s FiOS fiber connection to the home may be inadequate. So the real work will have to be done in the last mile and last 50ft.

IPTV Update: Is there anything else you’d like to add?

Cynthia Brumfield: There certainly is this alternative of accessing your TV set in terms of an alternate infrastructure, and broadband providers and television video providers are probably not quite aware of the Trojan Horse capability that some of these devices really hold.

All it takes is one smart entrepreneur or one very successful box, let’s say the Xbox 360 or the Sling Media SlingCatcher. All that really has to happen is for one device to capture consumer imagination, and suddenly there will be a platform in place that completely bypasses cable, satellite and telco to the consumer. It’s not going to happen anytime soon, but the groundwork is certainly being laid.

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