Internet-Connected TVs Could Change Multichannel Video Business Models

By Gary Kim, Contributing Editor

It would have been hard to miss the "Internet-connected TV" theme at the recent Consumer Eletronics Show, any more than the tablet, smartphone or "3D" TV angles. The 2011 version of the Consumer Electronics Show highlighted many Internet-connected TVs, Blu-ray players and other devices.

That leads some observers to argue that TV manufacturers now own the relationship with the customer. That probably overstates matters too much. 

It might be more accurate to say that the application and service providers featured as part of TV menus will increasingly be in position to try and do so, but that it is not the TV manufacturer but the application providers that will be able to contend for viewer loyalties. But most of that potential shift of gatekeeper control lies in the future, so long as the Internet apps featured on connected-TV menus provide much less than the variety of popular programs normally associated with cable TV, telco TV or satellite TV.

That noted, the growing installed base of Internet-capable devices, ranging from TVs and Blu-ray players to game consoles and even smartphones and tablets, increases the likelihood that content owners will someday come to financial terms with one or more distributors able to substantially replace the expected lost revenue from other distribution channels. 

Game consoles have in recent years become important gateways to Internet-delivered video. IMS Research forecasts that over 2.1 billion connected devices will ship globally in 2011 for example. This includes a forecast of 592 million fixed entertainment devices such as TV sets and game consoles, nearly 2 billion portable devices such as smartphones and tablets, and 268 million home network devices such as residential gateways.

But Internet-connected TVs are likely to drive the sales volume over the next several years. Internet-connectable TV device sales will grow to nearly 350 million units worldwide by 2015, according to Parks Associates (News - Alert). Growth will be driven by Web-enabled TVs and Blu-ray players, though, not game consoles or other digital video players. 

Still, until the major suppliers of professional video decide to risk their multichannel video distributor revenue streams, even the installed base of Internet video gateways will not change as much viewing as some expect.

But there could be some other effects, if subtle at first. Cable operators in the United States do not typically, if ever, "overbuild" in another cable operator's territory. But Internet-connected TVs potentially could change the nature of at least some competition at the edges of the cable TV business. 

When "Xfinity" or similar offerings become an "app" accessible on an Internet-connected TV, it might be possible to grab that programming from any location. But that does mean at least a potential breaking of the historic territorial nature of cable service, where service was to a discrete set of homes and other locations. 

Verizon (News - Alert) Wireless, for example, recently reached an agreement with Slingbox to support full access to Verizon FiOS (News - Alert) TV programming from some Verizon Wireless devices run on the new Verizon 4G network, as reported by TMCnet. To be sure, there remains a "territorial" link: a Verizon Wireless (News - Alert) user of the Slingbox service still has to have Verizon FiOS TV service. 

But conceptually, if the contracts could be worked out, the "Verizon FiOS TV" could be sold virtually, anywhere, without requiring a "home" FiOS TV service. 

Local governments aren't going to like that state of affairs, if it leads to reduced tax money from local cable franchises. The likely result is higher local franchise fees, which will be reflected in -- you guessed it -- higher video bills. Combined with the ever-climbing cost of linear video service, that is going to increase appetite for alternatives.  

(source: http://iptv.tmcnet.com/topics/iptv/articles/133547-internet-connected-tvs-could-change-multichannel-video-business.htm)