Room for Net video?

Purveyors of pay TV lack incentives to allow full marriage of TVs, PCs for video content

By Mike Hughlett - Tribune staff reporter

January 1, 2007

Internet video had a big year in 2006, and there's no better evidence than Google's $1.65 billion purchase of YouTube. This year should be even bigger, and not just for homemade video clips.

Web sales of TV shows and movies are expected to hit $1.5 billion, making 2007 the year online video finally becomes a "real business," according to market research firm Strategy Analytics.

So, with Web video's ascendance, can the long-sought mating of the PC and the TV be far behind? That will be the day when a devoted viewer can flip from Comedy Central to YouTube without moving from the couch.

"They will merge, and you will see video content on the Internet delivered over the television," said Adi Kishore, a media and entertainment analyst at the Yankee Group.

People prefer watching TV together in a living room, not crowded around a computer. But just how much the Internet video will meld with the TV is uncertain, and convergence will take time, perhaps years, said Kishore and other analysts.

Pay-TV providers, the prime distributors of television programming, will have to be convinced Web video is more than just a niche.

Each day, hundreds of thousands of videos are uploaded to the Web, compared with thousands of posts just six months ago, said Gary Baker, head of California-based ClipBlast, a Web video search engine.

"Video is being uploaded to the Web in numbers that are just staggering," he said.

The sources of that content vary widely. Amateurs armed with digital cameras post so-called user video. TV studios sell shows for $1.99 on iTunes. News organizations, from networks to local affiliates, rush video reports to the Web.

One in 10 online consumers watch TV broadcasts via the Web, according to an October report by The Conference Board, a research group. That said, online TV watching is not a widespread phenomenon, the report said.

Tech companies, particularly Microsoft Corp., have worked for years to join the PC with the TV through in-home networks. But to create a network "you have to be really technologically savvy," Kishore said. "There's no easy way for the mass market to do it."

There is one way to rather easily integrate Web video and the TV, and that's through a cable TV set-top box.

"Technologically it's very possible," said Ken Tysell, executive director of entertainment services at AT&T Inc., which launched a television service this year. "The question is, do customers want it?"

The answer seems to be no, he said, pointing to Microsoft's WebTV venture. That service, which flopped a few years ago, allowed people to surf the Web on their TVs.

Of course, speedy broadband Internet connections had not taken root during WebTV's heyday. Now, broadband is pervasive, and it has been a primary driver in the rise of Web video.

But pay-television purveyors, be they phone companies like AT&T or cable operators like Comcast Corp., don't have a good economic reason to offer unfettered access to Web video on the TV set, analysts said.

"I don't think there's an incentive for pay-TV service providers to push that business right now," said Mike Paxton, a broadband analyst at In-Stat, a tech research outfit.

First, Web video on user-generated sites like YouTube can bring up thorny intellectual property issues, Paxton said. Copyrighted material gets posted without permission, a potential legal headache, he said.

Second, the quality of Web video remains lacking.

"You need content online that's worth the effort, and it's really not there yet," said Mike Arden, a broadband analyst at ABI Research.

And third, TV providers don't want to steer customers away from programming they distribute to watch videos that other firms distribute via the Web.

Say a couch-bound channel surfer wants to quickly hop from the TV to the Web, intent on downloading a video. Any revenue from that download would flow to the Web site from which it came, not the pay-TV provider.

In fact, such a Web video purchase might take revenue from TV operators, since the Comcasts of the world offer their own video-on-demand services.

It will be very difficult for pay-TV companies to allow customers to freely navigate the Web for video, Arden said.

But there will be some melding of pay TV and Web-based video, analysts say. In fact, the crossover has begun.

Take AT&T's new Homezone service, which costs $9.99 per month in addition to regular monthly TV charges. (AT&T's TV service comes via EchoStar's Dish Network).

Among other things, Homezone offers access to about 1,000 films for sale at Movielink, a Web site owned by several major studios. In early 2007, Homezone customers also will be able to tap about 5,000 videos at Akimbo, another online site. Akimbo offers individual TV shows as well as Internet TV "channels" like the Anime Network, which is dedicated to Japanese animation.

Homezone customers don't actually venture onto the Web; they hit a button on their clicker, calling up a menu bar that in turn steers them to content from Akimbo and Movielink.

The process remains firmly under the control of AT&T, which gets a cut of sales at Movielink and Akimbo that are generated by Homezone users.

AT&T also is exploring bringing homemade video, the stuff on sites like YouTube, from the Web to the TV screen, said AT&T's Tysell.

Comcast has taken that leap, though not in a partnership with an existing Web site. The cable operator last month launched its own user-generated site called Ziddio, and some clips posted to it are available on Comcast's video-on-demand service.

Comcast, partnering with Sony and Lions Gate Entertainment, also this fall launched another Web-meets-TV project called FearNet.

The Web site features videos and movies, along with news and forums for horror-flick fans. Some of the same movies for sale or rent on the site also are available on demand through the FearNet channel on Comcast television.

Phone companies may have more of an incentive than cable operators to bring Web video to TV, said Kishore of the Yankee Group. They only recently got into television in order to counter cable's incursion into telephony, so they have less business to lose to the Web than do cable operators, and they need fast growth, he said.

"The difference is [the phone companies] are the attacker," Kishore said. "They are looking to be the differentiator."