Is Web Video on the Crux of Seriously Challenging Cable?

A look in the latest trends in television technology.

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When you’re at home and thinking about watching your favorite TV shows and movies, is your TV remote the only device you grab? For an increasing number of people, computers, internet set-top boxes, and even video game consoles are becoming major players in bringing video entertainment into our lives. Is cable receding into the distance?  Well, not yet, but a raft of news over the last month shows signs that we are at a turning point for “web TV.”

September began with the announcement of an upgraded AppleTV box, which was followed by announcements from other makers of web-based set-top boxes: GoogleTVRoku and boxee. For an upfront cost between $59 (Roku) and $199 (boxee), US consumers will now have a range of options to hook-up these devices to a flat screen TV and watch content directly from the web. These devices, along with direct, computer-to-TV connections, offer viewers a wider set of cheap, and even free, ways to watch video a la carte and on demand.

The Rise of Netflix through Streaming

Last week brought the demise of a “traditional” video entertainment company when Blockbuster filed for bankruptcy. In stark contrast to Blockbuster’s fall is the rise of its primary competitor, Netflix, whose growth has largely been driven by product and service innovation.  Netflix burst onto the scene by introducing the delivery of rental DVDs via the postal service. More crucial to the discussion here, it also made an early decision to develop the technology, and pay for the licensing rights, to add streaming web video to its business model.  One crucial element to the potential success of the Web TV set-top boxes is the fact that Netflix’s service is offered on each one of them.

In fact, Netflix’s streaming video decision drove the industry forward, with cable providers (e.g. Comcast Fancast) and media companies (e.g. Hulu (owned by News Corp., NBC & Disney) and HBO Go) providing similar “on demand” streaming offerings through the web now as well, using both advertising and subscription models.

If investors are any indication of where the future of video distribution is going, they have put their hat in the ring with Netflix and its model. Netflix stock is now trading at levels 7-8 times higher than it was at the start of 2008, one full year into its “Watch Instantly” service.  Compare this with the major, publicly-traded US cable companies—Time Warner, Comcast, and Cablevision—which have all been treading water (or worse) since the beginning of 2008.

Implications for the Future

A lot remains to be played out in the deals and decisions made by content providers and service providers (new and “traditional”)—not to mention the impacts that may come out of the net neutrality debate. But it is no surprise that US consumers are pleased with finally having variable, a la carte pricing options and the ability to customize the content on their TVs.

As more and more people relax on their couch for “42-inch Web TV,” future opportunities for advertisers looking to build their brand around video content will grow. How will the online world of analytics, diversity, and flexibility leverage itself to offer additional consumer segmentation, targeting, and ad placement alternatives? As web video services grow, how will they provide increasingly innovative interactive ad opportunities? What can companies inside and outside the media category do to utilize the potential of these services to curate content and create more branded content opportunities?

The testing ground for this future is already open.  Hulu has introduced an “Is this ad relevant to you?” check box into the pre-roll and in-show ads on their network.  Start-ups like Tremor MediaInnovid, and ZunaVision, are developing new interactive video ad capabilities for advertisers and content providers. Major brands like Axe, Charmin, and Dominos have already experimented with interactive ads for Dish Network and TiVo, and such offerings could be even more innovative when implemented through web TV.

What do you think the biggest impacts of this growing internet TV trend will be?

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