For Internet TV use to grow, some landmark event is needed

Before the Thanksgiving holiday, reports coming from South Korea indicated that Korean telco KT would allow consumers to access its MegaTV IPTV service via their Sony PlayStation 3 game devices.

While this application is strictly “walled garden IPTV,” the use of a gaming device to access video content seemed to coincide with a forecast from Emerging Media Dynamics that upwards of 75 million households in the United States will be able to access broadband Internet video content from their living room TVs by 2017.

At about the same time as the PlayStation 3 announcement, In-Stat released survey findings indicating that about 30 percent of respondents said they would be willing to drop subscription TV services such as satellite, cable or IPTV and access TV content via the Internet.

Given both announcements, it seemed like a good time to touch base with Cynthia Brumfield, president of Emerging Media Dynamics, to see if her forecast is on track.

IPTV Update: I immediately thought of your research when I read that KT would let consumers access its IPTV service via the Sony PlayStation3. Even though your research focused on devices like game machines becoming access points for living room TVs to connect to broadband Internet video content, what’s the significance of this step as it relates to your report and forecast?

Cynthia Brumfield: I think particularly in Asia, the kind of device services is quite different than they are in a good portion of the rest of the world, because they are broadcast-based — even the cell phones. So it’s a different creature than something offered over an Internet connection.

But Sony will indeed be getting a lot of experience with the video world on the PlayStation with this — no doubt. It’s highly probable that they’ll get some sense of consumer behavior and how they interact with video over PlayStation, and that is going to be invaluable for when they actually do introduce this kind of service over a true broadband connection.

IPTV Update: Will Sony let the market for broadband video content delivered via a game device evolve independently, or will it direct this outside of Asia?

Cynthia Brumfield: Sony has publicly stated that it has plans to develop the PS3 and the PlayStation Portable to be much more robust video content delivery systems. Speaking at E3 in the spring, a top Sony executive confirmed they are working on at least a movie download service for both of those devices and intend to compete with Xbox and other gaming platforms that are much more video-friendly. But as of now, I don’t think they’ve really announced any substantial plans, but they are working on it.

IPTV Update: The last time we spoke, your research had indicated 75 million homes in the United States would be equipped to watch video via broadband on their TVs by 2017. Does that forecast still stand?

Cynthia Brumfield: Yes, sets with the technical capability. But there is a big difference. For example, the PlayStation 3 is physically configured to be able display and receive video. Sony hasn’t pulled the trigger on it yet and certainly within the realm of gaming platforms there are about 12 million out there that are capable of receiving and transmitting and being an intermediate device for watching video.

We estimate that figure will increase to about 73 million by the end of the year 2017. There are other devices besides gaming platforms, such as Apple TV’s unit and other devices that are capable of receiving video. So there are a lot of them out there, but not all of them are actively being used like that. Not all of them are actively connected to services. Even in the case of the Xbox, in which Microsoft has included the capability for a video download subscription service, not all the users use their devices to purchase movies or TV shows or to watch them.

So, the maximum number of devices to allow Internet video to be watched on TV sets is very large, but of that maximum, only a small percentage actually do.

IPTV Update: In the past, you said that for this use to develop, a concerted effort in the marketplace would be required. Do you see the PlayStation/KT news as a precursor of such an effort?

Cynthia Brumfield: There has to be a galvanizing event. It doesn’t have to be the case that all of these device manufacturers get together and coordinate efforts to make sure this market occurs.

There has to be something that occurs that drives home the value of watching Internet video on a TV set that hasn’t happened yet that is kind of a breakthrough development, such as, for example, when HBO launched a satellite. That was a breakthrough event where people said, “We can use our cable to watch all other kinds of things, and the market rapidly grew.”

We need something similar that’s equivalent to the landmark development of HBO launching a satellite in the Internet TV device sector for people to really suddenly want to get these devices or for TV set manufacturers or technology providers to make sure all TVs or set tops are capable of receiving Internet video. That really hasn’t happened yet. No one has seen the dollar signs yet for that to occur. I just don’t know when or what that development will be.

IPTV Update: Time and time again, the availability of software — i.e. programming — not hardware, has driven consumer acceptance of a new technology. Will it take some company like Sony, which actually has the consumer hardware and a vast library of films and television shows, to drive this?

Cynthia Brumfield: It’s funny you mention that, because Sony actually has a vast reach into the content world. It owns a major motion picture studio, and it has a lot of TV content ownership stakes. It has a music company. It is a major player in the entertainment world. Ironically, Sony hasn’t leveraged those assets when it comes to PlayStation. But look at Microsoft, which really doesn’t have that reach into the entertainment business, and it has.

I don’t know when it comes to this that vertical integration among the providers is necessary. Look at what Apple did with the music business. Apple did not have an ownership stake in a music company, but it revolutionized the music business, galvanized the portable music business and forever changed the economics of the music industry by producing a device.

I think it is conceivable that a hardware manufacturer could come along and do a kind of iPod market shift when it comes to video as opposed to having a vertically integrate company do it. It’s a question of who hits the market first and how well they do it.

IPTV Update: Won’t the use of video game machines or other types of devices that could provide a convenient gateway from the home TV to video content delivery via broadband Internet require a change in marketing? After all, many of these devices tend to be sold based on utility — time shifting or place shifting?

Cynthia Brumfield: Yes, these other devices tend to promote other functionality. Look at the TiVo. Most people really don’t have the concept that TiVo has a service called TiVoCast, which is capable of delivering broadband video to the TV set. I don’t think TiVo markets it too heavily, because the primary value of TiVo in consumers’ minds is time shifting and to some degree better guides. But for the most part, TiVo definitely has the capability of service in the player to offer Internet video to the TV set.

The problem is for a lot of devices, it’s not always easy to configure them to do it, and it’s not necessarily something the companies want to promote because it just invites more customer service calls and complaints. For another, there seems to be no sharp market demand for it because they don’t really know it. So it’s still forming and will be defined over the next few years.

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