Internet TV Is Finally a Reality Show

After years of build-up, it looks as if content, computers, and consumer electronics are all finally converging

If you missed Stephen Colbert's hilarious use of a confusing flow chart to explain the equally confusing history of AT&T (T), Sharp (SHCAY), and other big-name manufacturers are accelerating rollout plans and expect to deliver new TV sets in the second half of the year that can connect to the Internet and deliver digital content at the press of a button.

The Simple Life

Meantime, Apple (AAPL), Microsoft (MSFT), Hewlett-Packard (HPQ), and other companies traditionally seen as big players in the computer industry have announced products that bridge the gap between the PC or Mac and TV. "The digital decade is happening," Microsoft Chairman Bill Gates told the audience at the Consumer Electronics Show in January as he unveiled the company's own IPTV offerings. "People want to do things with their content across multiple platforms."

At least Gates and other digerati are convinced that will be the case with a new generation of tech gear, software, and services. This time around, however, both consumer electronics companies and computer companies such as HP, SanDisk (SNDK), and Netgear (NTGR) have learned an important lesson from Apple: Keep it simple.

Each company is taking a different approach to delivering IPTV, but the one thing they have in common is a new emphasis on delivering compelling content in a way even the most tech-phobic user can understand. "The company that has made it simpler for people is Apple. It's a lesson the rest of us have needed to learn," says Martin Kono, president and chief operating officer of Panasonic Consumer Electronics. Or as, Steve Jobs might put it: It's the software, stupid.

Speaking the Same Language

So far there's been scant consumer interest in Internet TV. Indeed, two-thirds of U.S. homes that have gone to the trouble of setting up wireless networks and Ethernet routers still only use them to share Internet access and have no other devices connected—not even printers or other PC peripherals, according to researcher In-Stat. Even though prices for such products are low, most consumers still consider it too complicated to network all their electronic gear.

To make the technology as simple as possible, Sony, HP, and other vendors are finally creating software that can be used across all their devices—be it PCs, TVs, or set-top boxes. Consumers for the first time won't have to learn new tricks for using different products from the same company. And third-party software vendors will have a common set of development tools for a particular company's products, helping speed time to market.

"It's a new world, where we have a new generation of consumers who care more about the experience than what a particular device's technical specs are," says Jen Hsun-Huang, CEO of graphics chipmaker Nvidia (NVDA), which empowers 3D graphics on many computer and consumer devices.

Internet-Enabled Optimism

Even the king of consumer hardware has realized the need for user-friendly software. Take the Cross Media Bar, an interface Sony created that uses simple icons spread horizontally across the screen.

It was originally created for Sony's failed PSX, a combination game console and media center PC capable of recording TV programs.

The consumer electronics giant rescued the software from obscurity and put into the PlayStation Portable, PlayStation 3, stereo receivers, and, now, its Bravia flat-panel LCD TVs.

For consumers, mastering the interface is like learning to drive a car. Once you have a license, it doesn't matter which model you drive.

These moves are receiving enthusiastic applause from analysts, who believe that's what's needed if Internet TV is to thrive. Across the combined markets for video game consoles, set-top boxes, DVD players, and TVs, iSuppli projects more than 180 million Internet-enabled consumer devices will ship in 2010. That points to 65 million IPTV users by 2010, the researcher foresees, up from a mere 5.3 million in 2006. Microsoft is even more optimistic, expecting 70 million subscribers by 2009.

The battle for dominance is expected to be bruising. Traditional cable and satellite companies will fight it out with Web portals like Yahoo! (YHOO) and Google (GOOG), as well as their own content partners.

Disney's ABC (DIS), for instance, offers Web downloads of its most popular shows, while selling the same in Apple's Music Store and showing it on traditional broadcast channels. That could lead to a day when Disney creates its own ad-supported Web channel.

Too Many Choices

"The fight to capture the expanding base of IPTV subscribers will put telecom operators on a collision course with existing pay-TV market competitors and with a new class of broadband video portals as they roll out progressively more sophisticated offerings," says Mark Kirstein, iSuppli vice-president for multimedia content and services.

Then there are the consumer electronics makers, who will slug it out with each other. Each company will face tough choices, as one device—say, a game console that can download content off the Web or an Internet-ready TV set—might cannibalize sales of the other.

And that's not even counting the problems that still remain getting consumers to embrace IPTV. One limiting factor may be the confusing array of products that can grab content off the Web but do not allow for equal amounts of programming to be viewed.

While cable and satellite programming is uniform, Apple TV, for instance, will stream only TV programs and movies downloaded from its Music Store partners. Sony, at least initially, has partnerships only with Sony Pictures Entertainment, Sony BMG Music, Yahoo!, Time Warner's (TWX) AOL, and the Grouper video- and photo-sharing site owned by Sony. Meanwhile, startup Sling Media plans to let viewers send any content stored on a PC or laptop to the TV, but has not announced media partnerships.

Early winners will not only have to keep the experience simple but likely will be the companies that offer the most content, without onerous restrictions on its use.

Hedging Their Bets

In its early days, the IPTV race may come down to which track consumers choose to go down. The three big approaches involve using the PC, building Web connections directly into the TV set, and creating set-top boxes that either connect directly to the Web or back to the PC.

Sony is hedging its bets. The PS3 is not only a game console but a powerful entertainment system allowing Sony to sell movies and music for downloading to a built-in hard drive.

The new Internet-ready Bravia line, then, may appear to cannibalize potential PS3 sales, but CEO Howard Stringer says Sony must consider multiple paths for delivering its content to consumers, particularly since the TV is something people use every day. "It's something you have to do," he says.

Others are betting that since people already use the PC or Mac as a natural repository for digital images and music, they'll opt for an easy way to connect those devices for viewing on a big screen. Apple TV, Netgear's EVA8000 Digital Entertainer, and Microsoft Xbox 360 fall into this category. Using wireless or Ethernet connections, any digital content stored can be transferred to a TV—with an on-screen interface to help users navigate through the commands.

The trouble with that approach is that consumers tend to prefer devices that require simply plugging them in, without complicated setups of wireless channels, security, and other features common to home networks.

There's Still Nothing On

Then there are the companies taking half steps. In early January, Netflix (NFLX) began rolling out a download rental service that provides around 1,000 movies and TV shows to subscribers with monthly membership at no additional cost.

The catch? You have to watch them on your PC, though some computers have video-out features that would let users run a cable to their TV so they can sit back and relax in front of the big screen.

TiVo and Digeo's Moxi, meantime, are rolling out pricey $800 set-top boxes in which you insert what looks like network data cards into a slot in the back TV and connect your cable line, to give you access to digital and high-definition cable offerings. Both are supplementing that programming with free content such as Yahoo! and aim to deliver content that can be purchased on demand.

Even with all the hurdles, one thing is clear: IPTV has the momentum. With nearly every content provider, manufacturer, and software company offering some jazzy new gadget or service, Internet TV soon may be as familiar to consumers as the PC or flat-panel TV. Just count on a few wrinkles before you can tune into that rebroadcast of Stephen Colbert's send-up of AT&T.

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