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Are we going to get our TV through the internet? Change is coming.

The internet is growing our entertainment choices and when we access it.  Many of the shows people watch on TV can now be found on the internet.  So why do I have a bill over $100 from Comcast for TV service in order to only watch 4-5 channels 90% of the time.  Many other people are asking themselves the same question in this period of economic contraction and cutting off their cable and using the internet for access to entertainment.

People have been talking about video through the internet for a while now.  YouTube was a huge success for its founders who sold it to Google for some astronomical number given that it’s a service that still loses money for Google (I hope they extract value from users in other ways or they have a plan for making money in the future).  Many others have tried to make money in this area with few shining examples.  

Video online can mean a lot of different things, from short clips of a dog skateboarding to a full feature hollywood film. I believe that consumers like to consume the content differently depending on what it is. The best descriptor was one I heard from a former entrepreneur in our network. There is “lean forward” content, like the short YouTube clips, and “lean back” content, like feature films or episodes of TV shows. It’s easy to consume the former in front of the PC at the office and preferable to consume the latter sitting on the couch in front of the TV.    This distinction is important because some confuse the consuming device with the transport medium.  When people talk about internet TV, many tend to thing about TV content consumed on the PC screen, because that’s how we consume most of the other information we get on the internet.  Some of the content (“lean forward” content) may be appropriate for the PC, while we are in an active posture, but much of the traditional TV content is better suited for the TV in front of the couch (unless you are a student living in a dorm in which case there is probably little difference).  No matter the type of content, however, the medium for delivering the content may still be the internet.

So let me focus on “lean back” content, i.e. traditional TV content that may be delivered on the internet but probably best watched on a traditional TV in the living room.  Why would it make sense to ditribute over the internet?  Two reasons: selection and cost.  We are all used to having cable providers choose the packages of channels for us.  Choice in that context meant hundreds of broadcasting channels.  Ultimately the loyalty of the user was centered on the broadcaster who bundles the TV programs in a linear format for us viewers.  The world is changing from hundreds of channels to thousands of shows.  Some like Hulu are arguing that viewer loyalty is moving away from the broadcaster to the shows themselves.  This is the ultimate for TV on demand.  Now the choices are many more.  We as users are in control. Selection in terms of internet TV may then mean getting just the 6 channels I want, and not the 156 that the cable company is bundling with the six I want to really watch.   Off course we still have the issure of the bandwidth into the home or the technology used to stream the content, but cost to the consumer would ultimately be much lower because of the unbundling of channels and the pay by the drink (kind of what iTunes did to the music industry).   

So that is a wonderful world, right?  One in which I plug my TV to the internet and I access only the channels I want to watch or just rent the specific shows I am interested in on demand. Then I cut my cable bill to just the internet cost (maybe I need slightly higher bandwidth) and any incremental content piecemeal/subscription costs I want to pay for.  Why isn’t it happening more on a mass scale?  Because it is not yet possible on a mass scale.  Technology is not yet mature, and structural relationships within the broadcasting industry make it harder to move into that model.  

You still need to be a geek to get your video content from the internet to the living room.  Companies are trying.  Many CE manufacturers are bundling connectivity into their newest Blu-Ray players for example.  Tivo was the earliest example of connected digital video recorder that can access content from the internet.  And other conpanies are innovating by trying to build cheap easy to configure boxes that make it easy to connect your TV to the internet, companies like Roku, Verismo, PeerTV and others.  Better yet some TV manufacturers are building some connectivity capabilities into the TVs themselves.  Ultimately that is probably the most elegant solution, at least for those who are planning to buy a new TV.  Off course once you have a device that can accomplish the task, you now need to find a way to get the signal from your modem to your living room.  In most cases those tend to be two separate rooms.  Wifi is the easiest solution to accomplish this but depending on the wifi technology it does not provide enough bandwidth to effectively stream an HD quality signal.  You can then use less mass-market technologies like powerline networks to try to get the signal between the two rooms at a high enough rate, but your get the idea.  You still have to do a lot of work in order to accomplish that.  A friend of mine who recently bought a new house, asked my advice about setting up a system to accomplish the wonderful world I described above.  When I described what he had to do to get this done, he said he will probably stick with Cable for now.  Until the connection task becomes as easy as plug-and-play, this will likely not be a mass market.  

The other issue confronting progress are the entrenched interests of the established players.  Cable companies have a vested intrest to keep the status quo, naturally.  Broadcasters want to reach the audience any way they can, but currently cable offers the mass scale distribution.  And some of them get a huge amount in distribution fees from the cable companies so it is not easy for them to risk alienating existing partners.  Even the major networks that get most of their revenues from ad dollars have to tread gingerly.  The cable companies, however, have the hindsight benefit of what happened to the telecom and music industries and know that the internet as a distribution medium is here to stay.  It is no surprise then that Comcast is also trying to be a pioneer in this arena with Fancast (better to cannibalize themselves than some other new player eat their lunch).  

So, in spite of all the technology advances and for some of the reasons mentioned above, broadcast TV as we know it is not likely to go away anytime soon.  For one, many consumers like to sit on the couch and channel surf without having to think or do work.  I wouldn’t call that laziness but another way to discover content.  And I am sure there are too many consumers in that category.  Over the long term, however, one can see how innovation in this area is likely to create new business models for accessing desirable content.  (For full disclosure, we have an investment in this area, in a company called TVU Networks, which allows free access to live TV through the internet to overseas and special interest content).