I admit to being surprised at last month's Consumer Electronics Show. All the pre-show signs indicated this would be yet another year dominated by the same old new stuff: home AV networking that never, for most buyers, goes beyond linking a few PCs to a network gateway; bigger and cheaper flat-screen TVs that don't make much money for most people who sell them; media-centric PCs and home servers that most people don't buy; the radio non-news that we don't cover here; continuing HD format rivalries; more powerful chips and storage in everything; and everybody waiting for Macworld so they can see what they'll be copying next year.
And we even knew pretty well ahead of time what we'd see at Macworld, though we feared this might include Steve Jobs' resignation after his stock-option backdating was whitewashed by a board of directors scared stiff of losing his leadership genius.
All this did indeed come to pass (except for Jobs' job loss, so far), but so did a major surprise. Not only did we have Apple TV, and a refocused Xbox now pitched as an IPTV box, too, and Slingbox and Akimbo and a hundred other new competitors for Hauppauge Video's and Pinnacle Systems' PC-TV links (and what a huge market that has been), we had Sony, Samsung and other TV set makers announcing they would build Internet access into their TVs. And we had more TV network and Hollywood execs showing up at CES than ever, all promising program content for these Internet TV efforts.
Kind of makes you wonder if CBS, NBC, Disney, Fox, and the other big media companies whose execs made these promises at CES really want to continue in their old broadcast bread-and-butter business.
I think they will love doing so for as long as they can, but they have learned from America Online, the record labels and those who would fight Wal-Mart and Costco that they will not be able to wall in their customers behind their old distribution model. Lucky for the four major broadcast networks, and for anybody else distributing content over traditional TV, there's HD.
It will always be less efficient to send a high-def file over the Internet than a low-def file, and I use those words loosely on purpose. The def of "high-def" will keep moving up, while the Gresham's Law aspect to what files get distributed most over the Net will assure that low-def predominates. It takes longer to send more bits, so the bad will drive out the good. Gresham was talking about coinage in England centuries ago, but Internet files work the same way.
You can get HD over the Internet now, but except for those few with access rates higher than 30 Mbps, who would want to very often? And even for the few super-broadband folks among us, server constraints and other network issues probably make getting realtime HD much less reliable over the Internet than via broadcast. All of which means that the proprietors of servers (whether they are legal content rights holders or illegal file sharers) will not want to distribute very much HD, either.
Meanwhile, HD taxes broadcast bandwidth, too. Many cable operators, satellite providers and broadcasters often choose not to offer the higher-quality standards so that they can instead offer more programming. Let's understand the message of CES 2007: this is a mistake.
For now, much more programming variety is available in the typical $50-$100 per month cable or satellite subscription than on the Internet. But the spigots are already open, and the volume of content pushing through will increase rapidly once Internet video flows easily to most TV sets. There's a lot more musical variety on iTunes and eMusic than on every radio station on the dial combined--video will go this same way. But just as most music downloads are at quality levels significantly lower than CD or even a good FM signal, so with video.
Of course, radio hasn't made much of its quality advantage. You can't see sound, after all. But HDTV that hasn't been mucked up with upconversions and downconversions is so clearly lovelier than 99.9 percent of Internet video that viewers will inevitably prefer it. Unless, of course, the show you want to watch is some oddball one you're unlikely to find on broadcast. And provided the HD technology is used for some show you actually want to watch in HD, such as sports or movies.
The major broadcast and cable networks should, therefore, have no problem coexisting with Internet video. Also-ran cable networks and independent stations without sports franchises or strong local news are, however, likely to lose their reasons for being.
Little cable networks will migrate to broadband-only service, and cable operators will use their channels to give their customers more broadband bandwidth. The also-ran local stations will get rolled up by big multi-station owners and have their operations automated and outsourced. They may even find new life as outlets for the few big cable networks that will continue to have strong audiences (in HD, of course), such as HBO or ESPN. That could even mean we'll have a significant pay-over-air sector, many years after efforts of this sort failed.
My guess: in 10 years we'll have a thriving Internet TV sector and a thriving HD broadcast business, and not much in between.
Neal Weinstock is editor-in-chief of Weinstock Media Analysis. Contact him through www.weinstockmedia.com.
