The Internet is Coming to Your Television

In the late nineties I bought a WebTV set-top box, one of the first services that promised to integrate my TV and the internet. Looking back I can now understand why the experience wasn't great ...

1. The set-top box had limited processing and memory resources (just a 112 MHz MIPS CPU, 2 megabytes of RAM and ROM)

Xbox 360 Game 2011

2. The set-top relied upon a connection through a 33.6 modem dialup to connect to the WebTV Service.

3. WebTV reformatted pages to avoid sideways scrolling, a problem when trying to reformat PC-sized web pages into the 560-pixel width of a United States NTSC television screen.

Thirteen years on the promise of TV and internet convergence is finally a reality, fueled by consumers changing media consumption patterns, cheaper and faster broadband andimprovements in video streaming technology.

One significant change from the early days is a shift from "device convergence" to "on demand" services and content. Networks and ISPs are focusing on delivering video on demand services including Telstra BigPond Australia TV, Hulu in the United States and the BBC's iPlayer in the United Kingdom. Gaming console manufacturers including Sony and Microsoft are making the push to deliver unique content video downloads and online-in fact Sky subscribers can view movies and live sports on Microsoft's Xbox 360 over the Internet, without a satellite dish. Television and set-box manufacturers are focusing on televisions that are ready to connect to the internet straight out of the box. Futuresource Consulting forecasts that one in five flat-panelTV's shipped in Europe next year will be ready to connect straight to the internet. By Christmas 2010, the first TV equipment based on Project Canvas, the BBC's internet-TV joint venture should be available.

On demand services such as video on demand (VOD) presents a whole new set of challenges for broadcasters, who have never dealt with the costs of distribution. The dual pipe costs of internet video into the home and licensing content from producers might-both paid out on a pay-per-view basis-will challenge long term profitability and even survival. Every time a program is viewed online through video on demand (VOD) services broadcasters have to pay companies such as Akamai and Level 3-in the UK one half-hour programme costs between 2 p and 5 p to stream which forbroadcasters such as the BBC which registered 60 TV shows adds up in November to over £ 1 million a month!

The added difficulty that services for such broadcasters in Hulu and BBC iPlayer are free, setting the tone that makes it harder for everybody else to charge. Broadcasters will have plenty of time to figure out the economics of on-demand internet video services, given is likely to account for 5 to 10 percent of total TV viewing by 2020 according to Enders Analysis.

The subscription model should not be ignored. My prediction is that Hulu will start charging users for premium access to programs in early 2011. Why? Comcast, the top U.S. cable company, today launched Fancast XFINITY TV to web based video on demand service. Weeks ago Comcast agreed to take a controlling stakeat NBC Universal (which partly owns Hulu) from General Electric. Fancast is part of a cable industry initiative called TV Everywhere to make popular shows available over the Web to paying subscribers.

Advertising seems to one way of clawing back the costs of distribution, presenting interesting opportunities for marketers. Case in point, Time Warner Cable launched a video on demand (VOD) service called Promotions on Demand that will allow viewers to browse a range of long-format on-demand advertising (organized into such channels as "Automotive on Demand") and in less than a week, receive coupons and other promotional material by mail or email for the product or service whose advertising they have just watched.

The Internet is Coming to Your Television