Sony's gadget wizardry has enabled it to come up with a simple Internet-to-TV bridge, but it will need more content deals to really hook viewers
Every minute, six hours of new video gets posted on Google's (GOOG) YouTube site. And that's just one Web site. Countless other companies, ranging from media giants Time Warner Cable (TWC), NBC (GE), and MTV (VIA) to small fries with names like Rocketboom and Joost, are offering their own stash of videos for PC users to watch, save, and pass on to pals.
Here's a thought: What if you could flip through those Net videos the same way you would channel surf on a TV with a remote? The fact is, Sony's (SNE) Bravia Internet Video Link already lets users do just that. To make the service accessible to anyone who isn't Internet-savvy, Sony bypassed the PC and avoided having to add a keyboard.
A Potential Gold Mine
The service, which launched in August, is free but the hardware is not. Nor is it cheap—$1,200 at the very least. Consumers first have to buy a $300 gadget the size of a VHS tape, which attaches to the back of a liquid-crystal-display TV and connects to a broadband line. That's what lets users stream video and other material from the Net. But the gadget is only compatible with Sony TVs, so you would have to factor in the cost of a TV. The good news is there are lots of sets to choose from—25 models—ranging from a 26-in. LCD TV that sells for $899 to a 70-in. rear-projection TV for about $6,000. Sony declined to disclose how many people have signed up for the service.
The online video business for TVs is still in its infancy, so there is not much reliable market data. What's more, most consumers are unaware that the technology even exists. In a recent survey, research firm NPD Group found that roughly 45% of U.S. consumers were clueless about Internet-to-TV services.
But analysts and industry executives say the market could be a potential gold mine for Sony and not just because of its new Bravia service. One advantage the company has is its expertise in gadgets and entertainment. "Sony has a great opportunity to use its Internet-connected devices," says Mark Kirstein, president and co-founder of MultiMedia Intelligence, a research company in Scottsdale, Ariz. One day, he says, Sony's video cameras might be able to upload footage directly through the TV or PlayStation 3 game console—all without a PC.
Besides streaming online videos and shows, Sony could sell video downloads and rent them on-demand, or open its service up to MySpace (NWS), Facebook, or other social networking sites. "The service is not aimed at replacing network television, but rather supplementing it with more choice for the consumer," says Nick Colsey, who leads TV development at Sony's U.S. subsidiary, Sony Electronics.
Jockeying for Media Tie-Ups
A lot has to happen before Sony's service gets anywhere near critical mass. Convincing the TV networks to free up Web-only content will be the hard part. Many have been running their own trials to see what works best. NBC, for instance, has NBC Direct as well as a tie-up with News Corp.'s Fox for an online video service called Hulu. Others are forming alliances with tech makers to have content available on certain set-top boxes and game machines.
Among tech companies, the competition for eyeballs is fierce. Sony is up against Microsoft (MSFT), Hewlett-Packard (HPQ), Apple (AAPL), Netgear (NTGR), TiVo (TIVO), and Sling Media, all of which have plans to deliver Internet content to TVs.
Sony officials say they have approached several major TV studios and media companies but so far only Yahoo! (YHOO) and AOL have signed up for video streaming to Sony's TVs. Initially the bulk of the heavy lifting will be done by Sony's own businesses, which include Crackle (formerly Grouper), Sony Pictures Entertainment, and Sony BMG Music. That means mainly short clips, such as movie trailers for Juno or Transformers, Super Bowl ads, music videos, amateur animation, and home videos, but few movies or hour-long shows. Nobody expects this to win over viewers accustomed to cable or satellite TV programming, says Ross Rubin, the NPD Group's director of consumer electronics industry analysis. "Short video clips…are more of a differentiator than a draw."
Copyright Issues Lurk
Sony's two biggest roadblocks to enlisting the help of major media companies: figuring out how to divvy up the revenues if Sony decides to charge fees and what the content can be used for. "Operating behind the scenes are the issues everyone faces over digital rights," says David Carnevale, iSuppli's vice-president for multimedia content and distribution.
Clearly there's a demand to see Internet videos. That's obvious to anyone who has ever checked out a video on YouTube. But much of what's available online looks bad even on a small laptop screen. A giant, high-definition TV screen would only magnify the flaws.
To improve quality, Sony plans to let content providers use advanced data compression and video-enhancing technology. "In the past, they did not need to encode at higher quality because the difference was not discernible on a PC," Colsey says. But that might not solve everything. The frustration of watching the ticks and pixel-smearing on Comedy Central's The Daily Show won't go away until consumers get faster Net connections. In 2007 only a quarter of all U.S. households will have a broadband connection, and by 2011 a third, according to research company Ovum's estimates.
Focus It, and They Will Watch
Sony's drive to raise the standards of online video poses a dilemma for the company. Negotiating individual deals lets it maintain tight control over the content—a relief for a company obsessed with copyright protections. "Outside this 'walled garden' there are no guarantees of quality," says iSuppli's Carnevale. But the library suffers because it can only expand as fast as deals are made. By creating an open platform that would let any content provider offer videos to stream, the library would grow exponentially and users would have more choices. Carnevale thinks consumers would pick higher-quality videos, encouraging content providers to work closely with Sony.
Still, whether consumers buy into the idea will depend largely on how easy it is to use. Sony's Bravia link simply adds an extra icon to the TV's software menu, so it seems like a snap. Click on the Bravia link icon and it pulls up snapshots from each video arranged in rows and columns. But as more videos and other content are added, it could get tougher to find what you're looking for, especially without a keyboard to input search terms. That's a problem that Sony would love to have.