Two out of five UK Internet users would rather give up their TV than their Internet connection, says a recent survey by London-based research firm GfK NOP. Is it possible that eventually, with TV manufacturers’ upcoming and planned integrated web product enhancements, consumers may never have to choose?
Starting with the 2009 holiday season, companies like Sony, Samsung, LG, Panasonic and Vizio began to market their Web-enabled TV sets, which allow users to stream online content directly to their TVs, without having to connect to a computer or set-top box. The price tag? From $850 (for LG’s 42LH50 LCD TV), and up.
Randy Waynick, SVP at Sony's Consumer Group, predicted to USA Today, "When we all open up the newspapers on Jan. 1, and they talk about the hot items from the holiday selling season, Internet-connected TVs are going to be at the top of the list."
Of course, the dream to marry Web and TV has been around since more than a decade ago, when Microsoft purchased MSN TV (formerly WebTV Networks, a system that allows TV sets to connect to the Internet). The idea, however, finally seems to be gaining traction. In fact, iSuppli, a market research firm specializing in the electronics value chain, predicts that by 2013, worldwide retail sales of Internet-enabled TVs (IETVs) will reach 87.6 million units, compared with 14.7 million in 2009.
So can IETVs really go mainstream? It’s possible, but for now, there’s still a lot to improve on. Most IETVs in the market are not yet Bluetooth- or WiFi-equipped. They use a wired, Ethernet connection so consumers can’t easily connect wirelessly. Also, users cannot surf the Web freely with these TVs, and can only access content through a limited selection of “widgets,” or tiny on-screen buttons representing software apps. Samsung IETV sets, for example, have widgets for Blockbuster On Demand, Amazon On Demand, YouTube, Twitter, Flickr, eBay, USA Today, RallyCast and Yahoo!’s Finance, Weather, Video and News Updates — but not for Facebook, or e-mail services.
If they do catch on, however, IETVs could be a “nightmare” for the hardware “middlemen” who sell devices that enable users to connect their TV sets to the Web, such as set-top boxes like Apple TV and Roku’s Netflix player. IETVs could also threaten other online-viewing services, such as Time Warner/Comcast’s “TV Everywhere/On Demand Online,” which enables cable TV subscribers to access cable programming online for free.
At the same time, IETVs could be a “dream” for developers of “widgets” and similar software programs. Likewise, as iSuppli noted in its research report, IETVs could boost sales for manufacturers and semiconductor suppliers that provide memory, micro-processing chips and other products that enable TVs to connect to the Web.
And there will likely be more opportunities in the future, as TV sets become more affordable and other players in the digital media value chain find a way to exploit the trend. As Michael Greeson, President of consultancy firm Diffusion Group, tells BusinessWeek: "The concept has been validated in the mobile space; the iPhone is a proxy for what can happen in widget-enabled TV," he says. "This is a battle. Internet connection to the TV will redefine the entire television business."
Chalk it up to a bad economy if you will, but more and more consumers are foregoing movie theatres and DVD rentals for online streaming. In fact, a recent survey by Allot Communications notes that HTTP streaming is the fastest-growing application globally, with a usage increase of 58 percent.
That’s good news for companies like Netflix, whose 2nd quarter earnings surged 22 percent. True, subscribers are flocking to the cheapest price plans just so they could stream movies, but the cost of getting and keeping them on board is also less expensive than traditional mail-order subscriptions, so Netflix still nets a profit.
The bad news? Competition is fierce, with broadcast networks, cable networks, Internet-only channels and even companies like Amazon and Apple all vying for online viewership. Piracy is also a problem, with illegal copies of movies and TV shows regularly appearing online, albeit often in lesser quality.
If Netflix is any indication, however, consumers seem to be willing to pay to watch on the Web, so long as it doesn’t cost them an arm and a leg. Hulu, the popular streaming site — a joint venture of NBC Universal (GE), Fox Entertainment Group (News Corp), ABC Inc. (The Walt Disney Company) and Providence Equity Partners — is in fact banking on this, and is considering charging for content in the future.
The bad news? Content is still king. As Forrester Research analyst James McQuivey said in an interview with the New York Times, “Consumers are under the impression that everything they want to watch should be easily streamable.” Which means the cost to license and provide as many titles as possible can minimize profit. This is the reason why Netflix shares fell, after it announced that operating margins would likely remain stagnant for the next several years as they invest in their streaming library.
Good or bad then, when it comes to online viewing, the real issue for content providers and media companies is how best to maximize profit — and that’s something that’s likely to change as technology improves and partnerships are made in the industry.
