FUTURE WATCH
Internet TV: A Million Channels, Zero Cable Networks

Within five years, cable and satellite television providers will be facing a formidable competitor in their market: the Internet.

By 2011, TV programming delivered over consumer broadband connections will be a "viable alternative to cable," according to a report released Wednesday by Forrester Research.

At that time, however, the market penetration for Internet delivery of programming -- what Forrester calls "over-the-top TV" (OTT-TV) -- will only be around 5 percent, according to the report.

Over-the-top delivery "has the potential to completely shift the way the TV industry works," it says, "connecting consumers and their pocketbooks directly to content providers while disintermediating traditional cable and satellite operators."

Net Neutrality

Although potential competition with the Internet could spell dramatic consequences for the cable and satellite TV industries, it was played down in the recent "net neutrality" wars waged before Congress last year.

"The cable companies did not want to say, 'The reason we're against net neutrality is because we don't want MTV to get directly to consumers,'" the author of the report, analyst Josh Bernoff, told the E-Commerce Times.

"And MTV," he continued, "didn't want to come right out and say, 'The reason we're in favor of net neutrality is that we know we will be able to get directly to consumers.' Everyone wanted to couch their motives in all sorts of other issues. Nobody wanted their naked commercial interests to be revealed."

Stuff of Dreams

Internet delivery of programming is the stuff of dreams for broadcasters, noted Michael Wolf, a principal analyst with ABI Research.

"This idea of cable bypass is something that content providers have dreamed of for a while," he told the E-Commerce Times. "To the extent that they can do it, they'll do it. But they know they're never going to completely extract themselves from delivery over private networks. What you get there is hard to beat compared to the Internet."

Before over-the-top TV can gain traction, it must overcome some significant challenges, maintains the report.

Quality Issues

Since most video on the Internet today is designed to be displayed on a personal computer, new devices need to be developed to move video from the Net to the tube.

"Unless it gets to that big TV screen, online video is a sideshow that will have little effect on the economics of cable and network TV," the report opines.

Another challenge facing OTT-TV is the quality of video on the Web. Blurry and artifact-riddled video may be fine for YouTube, but it can't compete with the quality of existing delivery systems, the report notes.

The quality of Internet video will improve as bandwidth to homes increases, it observes. The needed increases, though, are at least two years away.

Building From the Bottom

Even when quality video is delivered to the homes through the Internet, programming economics will still favor traditional delivery systems. That's why Forrester expects the OTT-TV revolution to creep into homes from the bottom of the market.

"Mainstream content is most efficiently and most profitably delivered in exactly the same way it always has been," Bernoff said.

"There are a lot of other programs which have much smaller audiences, audiences that wouldn't allow them to get on television the way that it's currently set up. It's those niche types of programs that will become available over the Internet most quickly," he predicted.

"This is going to eat away at the lower-rated programs on cable," said Bernoff. "If you're not watching something on CBS, you're less likely to be watching TNT or Oxygen if you have thousands of choices on the Internet."

Internet delivery of video will move from niche programming to more mainstream offerings over a period of years, he believes.

Lost in a Sea of Programming

One of the biggest challenges facing OTT-TV is navigating the thousands of programs that will be available on the Internet.

"The elements of a better navigation system have been invented, but getting the hardware and software systems integrated to deliver on their value could take five years," the report observed.

What might the state of navigation be in five years?

"It will address the world of digital media in a non-linear way," Mike Fidler told the E-Commerce Times. Fidler is the CEO of Digeo, a maker of TV navigation systems in Kirkland, Wash.

"It will be an environment that easily organizes content for you, lets you quickly assess it, and has the ability to deliver that in more than one room in the house," he predicted.

Consumers will need all those capabilities if Forrester's divinations about OTT-TV come to fruition.

"Over-the-top TV distribution will, when it finally gets here, be far better than regular TV," the report predicts. "Every show will be on-demand, searches will be far easier, and the 500-channel universe will be replaced with a five-million-video selection."