FUTURE WATCH

Internet TV: A Million Channels, Zero Cable Networks

Within five years, cable and satellite television providers will be facing a formidable competitor in their market: the Internet.

By 2011, TV programming delivered over consumer broadband connections will be a “viable alternative to cable,” according to a report released Wednesday by Forrester Research.

At that time, however, the market penetration for Internet delivery of programming — what Forrester calls “over-the-top TV” (OTT-TV) — will only be around 5 percent, according to the report.

Over-the-top delivery “has the potential to completely shift the way the TV industry works,” it says, “connecting consumers and their pocketbooks directly to content providers while disintermediating traditional cable and satellite operators.”

Net Neutrality

Although potential competition with the Internet could spell dramatic consequences for the cable and satellite TV industries, it was played down in the recent “net neutrality” wars waged before Congress last year.

“The cable companies did not want to say, ‘The reason we’re against net neutrality is because we don’t want MTV to get directly to consumers,'” the author of the report, analyst Josh Bernoff, told the E-Commerce Times.

“And MTV,” he continued, “didn’t want to come right out and say, ‘The reason we’re in favor of net neutrality is that we know we will be able to get directly to consumers.’ Everyone wanted to couch their motives in all sorts of other issues. Nobody wanted their naked commercial interests to be revealed.”

Stuff of Dreams

Internet delivery of programming is the stuff of dreams for broadcasters, noted Michael Wolf, a principal analyst with ABI Research.

“This idea of cable bypass is something that content providers have dreamed of for a while,” he told the E-Commerce Times. “To the extent that they can do it, they’ll do it. But they know they’re never going to completely extract themselves from delivery over private networks. What you get there is hard to beat compared to the Internet.”

Before over-the-top TV can gain traction, it must overcome some significant challenges, maintains the report.

Quality Issues

Since most video on the Internet today is designed to be displayed on a personal computer, new devices need to be developed to move video from the Net to the tube.

“Unless it gets to that big TV screen, online video is a sideshow that will have little effect on the economics of cable and network TV,” the report opines.

Another challenge facing OTT-TV is the quality of video on the Web. Blurry and artifact-riddled video may be fine for YouTube, but it can’t compete with the quality of existing delivery systems, the report notes.

The quality of Internet video will improve as bandwidth to homes increases, it observes. The needed increases, though, are at least two years away.

Building From the Bottom

Even when quality video is delivered to the homes through the Internet, programming economics will still favor traditional delivery systems. That’s why Forrester expects the OTT-TV revolution to creep into homes from the bottom of the market.

“Mainstream content is most efficiently and most profitably delivered in exactly the same way it always has been,” Bernoff said.

“There are a lot of other programs which have much smaller audiences, audiences that wouldn’t allow them to get on television the way that it’s currently set up. It’s those niche types of programs that will become available over the Internet most quickly,” he predicted.

“This is going to eat away at the lower-rated programs on cable,” said Bernoff. “If you’re not watching something on CBS, you’re less likely to be watching TNT or Oxygen if you have thousands of choices on the Internet.”

Internet delivery of video will move from niche programming to more mainstream offerings over a period of years, he believes.

Lost in a Sea of Programming

One of the biggest challenges facing OTT-TV is navigating the thousands of programs that will be available on the Internet.

“The elements of a better navigation system have been invented, but getting the hardware and software systems integrated to deliver on their value could take five years,” the report observed.

What might the state of navigation be in five years?

“It will address the world of digital media in a non-linear way,” Mike Fidler told the E-Commerce Times. Fidler is the CEO of Digeo, a maker of TV navigation systems in Kirkland, Wash.

“It will be an environment that easily organizes content for you, lets you quickly assess it, and has the ability to deliver that in more than one room in the house,” he predicted.

Consumers will need all those capabilities if Forrester’s divinations about OTT-TV come to fruition.

“Over-the-top TV distribution will, when it finally gets here, be far better than regular TV,” the report predicts. “Every show will be on-demand, searches will be far easier, and the 500-channel universe will be replaced with a five-million-video selection.”

2 Comments

  • I agree that there are challenges to OTT-TV for acceptance by mainstream audiences. However, I would counter that America is country of immigrants from Europe, North, Central, & South America, and Asia. The internet and global telecommunications allow immigrants to stay connected to family and their culture. By way of an anecdote, my father was depressed and gravely ill. I decided to take him back to the land of his birth Trinidad. It was like returning back to the fountain of youth. When we came back the local TV Station in Trinidad by the name of Gayelle started streaming their programs on the internet. I bought a laptop with S-video output and an S-video to RCA cable and connected the laptop to the Television. Even though it was 20 degrees Fahrenheit outside with the heat turned up and TV from my father’s homeland in his room at the assisted living facility we were both back at home in Trinidad. TV from Trinidad gave my father and me a few more years of life together that he would not have had without that connection to home. At the assisted living facility the night watchman would tell me that his wife rented Korean Soap Operas every week from the Korean Grocery store. From what I gather Korean Soap Operas are very popular in Asia. What I AM saying is that there is already a market for Over the top tv. From what I can see the real drawback is that what I call the bundler of OTT-TV does not market to local businesses at the source of programming or the destination. In the U.S. there are Korean Super Markets, Latin American Grocery Stores, and International stores that cater to immigrant communities. These stores carry brands that are advertised in their country of origin. If the OTT-TV bundler inserted the name of the local store carry a brand of noodle at the end of the commercial or in a caption underneath or beside the video. Foreign manufacturer could drive sales to local stores and communities in the U.S. In other words a Foreign company with the local retailer buying advertising and Foreign Company paying for or encouraging their native TV content providers to upgrade their internet streaming equipment and bandwidth could increase U.S. sales. And if Closed Captioning in English was offered for the 1st and Nth generation immigrants and their English speaking friends the foreign companies could expand there markets in the U.S. even further.
    I hope I have demonstrated in this long and rambling email that one simply does not want to sacrifice the good at the alter of the perfect especially when people are desperate for content in almost any form from their native country.
    For completeness, if the OTT-TV content bundler does not keep track of addresses the content provider could ask users to register(opt in i.e. ask for zip code and capture the IP address from the web request) and then build a regional profile or a database subscribers and Content Providers. Use Census data find areas that would most likely be interested in foreign programming.
    Then find businesses in that area that cater to a particular community, research local newspapers to find businesses that advertise and ask those businesses for a portion of their advertising budget. Do a promotion of the OTT-TV service at the business targeted to a particular community.
    Ask the retailer to do Internet Streaming Specials if possible once the retailer sees results. Next Step approach the retailers importers or distributors and show them what OTT-TV can do for them. Finally, approach the Foreign manufacturer and show their management the value of OTT-TV however to increase their market share in the U.S. their local providers must invest in their internet infrastructure or in other words foreign manufactures should ask their local providers to sell them internet advertising slots for commercials.

  • I already look at some TV programming at wwitv.com and the major TV stations and networks supply some very high quality clips of news and promotional shorts. The best streaming quality I have seen so far has been from CBS News, but that may be a local phenomenon. (using DSL, Frontiernet, Rochester NY) There are other TV Portals, and they vary from lower quality than YouTube, to better than the regular TV signal.

Leave a Comment

Please sign in to post or reply to a comment. New users create a free account.

Related Stories
More by John P. Mello Jr.
More in Entertainment

CRM Buyer Channels