Video Services Evolution - Part 5 of 5

The Medium Term Event Horizon

Reed Hastings - (Chairman and CEO, Netflix)  presented "Internet on TV or TV on the Internet?", the first of the afternoon keynotes at NewTeeVee Live 2008.  I transliterate without quotation marks, though have attempted to transcribe with a minimum of interpretation (which I may do onscreen).

In this fifth section of his presentation, he sets and justifies his forecast:

Over the next few years, we will have internet tuners built into TVs.  It will be a step-up in the cost of the sets. TV manufacturers don't want to be wrong on the cutting edge of a big device.  So the innovative video game and set top boxes will lead the way.  Longer term, the solution will be like a wiimote interface with the computational power in the TV needed to support the browser.

Web video will continue to grow, nurtured by the billion unit PC- and Mac-based ecosystem.  As web-video providers get better at personalization and content, the value of this ecosystem increases, which will create the opportunity for the web on television.

All of this has to happen before cable, telco, and satellite systems adapt the grid to their own version of the web where they can co-opt the benefits.  On the internet, we'll build the video web stronger on the PC ecosystem and have it expand on to the TV. The competition and sustained innovation will benefit consumers.

The monopoly-oriented architectures will succumb to the competitive universe that most of us live in on the open web.  Standard TV is highly competitive because at least three providers are found in almost every neighborhood.  Dish, DirecTV, and cable are almost everywhere, and occasionally there is a fourth video provider when you add IPTV.  It’s a highly competitive market with tight margins and (due to churn) high customer acquisition costs.

In the disaggregation, the very competitive parts will move to the web:

• Netflix against Blockbuster
• Apple against Amazon
• Hulu against ABC.com

      (ed. note: this is a historical trend)

The people with the big pipes for delivering streaming HD will do great.  Cable will do the best job for providing such a high bandwidth, which is why the average cable bill is at $40 with zero content cost (ed. note: the flow of causality expressed here is reversed from the actual case).  Broadband data services provided by cable companies have nearly 100 percent gross margin. Cable will realize that broadband video is its’ friend and to drive this revenue on broadband. We are seeing some of this now from leading companies like Comcast who offer 50Mbps services at $60 per month, and are demonstrating 200Mbps services.