Sony Races to Create Internet Alternative to Cable TV

This story first appeared in the Dec. 2 issue of The Hollywood Reporter magazine.

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At a breakfast hosted by the Wall Street Journal in early November, Sony CEO Howard Stringer talked about building "a different kind of TV set." A week later, the Journal reported that Sony might launch "an Internet-based alternative to cable TV."

Like Netflix, Hulu and others, Sony's own PlayStation Store already makes dozens of TV shows available on-demand after they air on TV, but Sony and others know that the holy grail is to create a service so compelling that consumers would trade in their cable or satellite services. So far, though, all the Internet-based options combined have convinced only an estimated 3 percent of consumers to take that "cord-cutting" step.

Sony won't comment, but its plans reportedly are to offer small bundles of channels to be delivered through Internet-connected TV sets and other devices, like Blu-ray players and PlayStation 3 consoles. Media companies, though, don't want to offer up their best content and alienate their big cable and satellite customers, so Sony will have to settle for niche channels, at least initially.

"Sony's heart is in the right place here, but it's going to face a lot of resistance in getting this new service off the ground," wrote the Motley Fool's Rick Aristotle Munarriz.

And Sony's competition isn't only cable and satellite providers -- it's also the likes of Microsoft, which already offers limited TV through its Xbox 360; Google, with its Google TV and rumored plans to test an Internet-based service in Kansas City; and Apple, which has Apple TV and other initiatives yet to be revealed.

But what the TV industry shouldn't expect is much more cord-cutting over the next few years, says NPD analyst Russ Crupnick.

The worry instead should be over "cord-throttling," whereby consumers who use Hulu, Netflix and whatever Sony comes up with downgrade their pay-TV packages. Crupnick asks, "Do they really need to spend $100 for all those channels?"