Devices piling up

The absence of any breakout product reflects the difficulties facing devices in the "over-the-top TV" sector.

RELATED: Gadgets: Apple TV, Bravia, Vudu

DVR doesn't stand for what it used to at TiVo.

The company that practically invented the digital video recorder no longer just records programs off TV channels. These days, nearly one-fifth of its 4.2 million boxes are piping Internet video from YouTube and Amazon Unbox through broadband connections to TV sets. "Now you sometimes hear us using the expression 'digital video retriever,' " says Tara Maitra, vp and GM of content services.

TiVo might have popularized the DVR, but redefining that acronym will be much tougher. The company is far from alone in its quest in the U.S. to sell the box that will bring the massive supply of broadband video to your TV. Competition is coming from such tech heavies as Microsoft, Sony and Apple, whose Apple TV left the race wide open by failing to replicate the overnight success of the iPod.

In fact, the absence of any breakout product reflects the difficulties facing devices in this sector, known as "over-the-top TV."

"There are 10 different ways to do it and none of them are easy or good," Jupiter Research analyst Bobby Tulsiani says. "And because there are 10 ways, consumers are confused."

The best way to understand the over-the-top TV market is to think of your boob tube as a country. For decades, local stations were alone in this lucrative territory. Then in the 1980s came an invasion of cable operators, which were followed by insurgencies from satellite services and, more recently, the phone companies.

Over-the-top TV providers are the next conquistadors. Only this time, merging Internet video with TV could provide the a la carte alternative craved by viewers who have long suffered the tyranny of expensive channel tiers.

While this latest effort to lay a new pipeline to the TV is not new -- notorious failures include Akimbo and Disney's Moviebeam -- early adopters showed a willingness to embrace so-called "extenders" that migrate content that already resides on the PC to the TV. The best known is Microsoft's Windows Media Center Extender, first deployed in 2004 and currently embedded in 100 million copies of Windows Vista worldwide. The software is just one of the bets Microsoft is making in over-the-top TV.

"We see 2008 as a pivotal year for Microsoft in TV and also for TV in general," says Christine Heckart, GM of marketing at Microsoft Mediaroom. "We think this is the year a new category emerges around connected entertainment."

As pervasive as Media Center is, it hasn't made Web-connected TV a mainstream breakthrough. Neither did Apple TV, a tablet-sized extender wired to the PC and the TV. Released in March 2007, sales were disappointing, though Apple has never disclosed exact figures.

"We've all tried to figure out how to get movies over the Net onto the TV," Apple's Steve Jobs said in his January Macworld keynote address. "We've all missed."

A second version was announced at Macworld and released a month later. Apple TV is now a stand-alone device connected through a built-in wireless network. "What we learned in the past year is that not everyone wants the connection back to his or her computer," Apple vp product marketing Greg Joswiak says.

But cutting the cord won't change much if consumers are loath to pay for another freestanding device to attach to their TVs, says Thomas Frank, CEO of Akimbo, which has since been reinvented as a software company facilitating online video distribution.

"There's no value proposition for a stand-alone set-top box, even if you're Apple TV," he says. A new generation of such buzzed-about startups as Vudu and SyncTV will put that notion to the test.

TV manufacturers also are stepping into the over-the-top fray, looking to eliminate the PC as Internet video's middleman. This year's Consumer Electronics Show yielded a flurry of alliances between leading set makers and content aggregators.

For instance, Panasonic and Google are teaming for Viera TV, a plasma set arriving this spring embedded with an Ethernet jack that can access YouTube videos.

"Consumers have shown a reluctance to pick up additional boxes to get these services," says Merwan Mereby, director of new business development at Panasonic.

Not to be outdone, Sony has updated its Bravia line of LCD TVs with an Internet Video Link module that grabs online video from a variety of brands, including CBS and AOL. Other TV manufacturers making Internet content deals include Sharp, Hewlett-Packard and Samsung.

But these are all high-end sets, and given that consumers don't typically purchase TVs with the frequency they do laptops or mobile phones, new models could face slower adoption rates, says Richard Bullwinkle, chief evangelist at Macrovision.

"The problem with TVs is that you can own one for 10 years before buying a new one," he says.

Another consumer-electronics giant, LG Electronics, doesn't mind the set-top box model. It struck a deal with Netflix that will pump movies from the popular rental service into a branded set-top, which some have speculated might also be embedded in one of LG's DVD players. Scheduled to launch this year, the Netflix-LG box likely is only the first such deal for Netflix, which could see its service distributed on other platforms.

Widely regarded as a potential sleeper in the sector, video game consoles are perhaps best poised to deliver Internet video to TV because they already have earned a spot in increasingly crowded home entertainment centers.

In August, ABI Research projected an installed base of 184 million devices that route video to TV by 2011 -- and forecast that 85% of them would be embedded in game consoles.

It's not difficult to see why. Take Xbox Live Marketplace, a broadband-connected virtual storefront that doubles as a video platform. The service has partnered with 35 networks and studios for 4,200 hours of content, including 1,000 hours in HD. There are

17.7 million Xbox 360s worldwide and 10 million Xbox Live accounts.

Sony doesn't have a video platform on its PlayStation 3, but the company has suggested since late last year that it likely will follow Xbox into the business in the U.S. For now, users can access YouTube via an Internet browser on the console. Nintendo's Wii also has an Internet channel where online videos can be accessed, but there are no known plans to develop a video storefront of its own.

Still, Bullwinkle has his doubts that consoles are the over-the-top killer application.

"The gaming boxes are too focused on gaming," he says. "People don't buy them to be media players."

Like video game consoles, multichannel distributors -- cable, satellite and, more recently, phone companies -- already have a Trojan horse sitting in homes in the form of a set-top box. Plus, they already have a video service relationship with consumers, and many also sell the broadband connections that Web-connected TV requires.

Yet none of the major distributors offers anything that opens their pipes to Internet video. "They let other people pioneer the market and then they just copy it -- maybe not even as good a version -- and then roll it out," Jupiter's Tulsiani says.

Still, insiders say cable operators will have a competitive response on the market by year's end. At CES, Comcast chairman and CEO Brian Roberts talked up Project Infinity, a plan to weave together its own private pipelines with the public Internet. The company also has launched Fancast, a Web site that seamlessly aggregates online video with its own VOD.

"When we look at this over-the-top TV activity, what we think is really happening is people are trying to emulate what we're doing," says Derek Harrar, senior vp and GM of video services at Comcast.

The telcos also are working on the same kind of melding between private and public networks. Microsoft Mediaroom has a deal in place with AT&T, and a startup called Building B is getting buzz as another likely partner for that industry. Satellite isn't out of the hunt, either: EchoStar's acquisition of Sling Media last year could yield synergies involving SlingCatcher, which enables watching Internet video on the TV.

Regardless of which box -- or a lack thereof -- emerges as a front-runner in the over-the-top TV race, plenty of obstacles stand between the technology and widespread adoption.

Navigating the limitless video online is hard enough on PCs; doing so via remote control will be a challenge. Will the low image resolution of many online videos degrade even further when blown up to fill increasingly large high-res screens?

The sector's entrants are keenly aware of the problems, cautioning that current devices are first iterations in a market that will take shape over the course of years, not months.

Sony, for instance, allows users to search the online offerings on its Bravia with a remote control that activates an onscreen keyboard. And TiVo's Maitra notes that subscribers are savvy enough to understand that most viral video isn't going to be in HD. "Users know if they pull video off the Web, they will be tolerant of the quality," she says.

Bandwidth constraints are another concern. Parks Associates estimates that just 5 million-plus households receive at least

10 Mbps-speed broadband service (a single HD stream requires 5-7 Mbps), though this number could reach 30 million by the end of 2012. "The pipes aren't fast enough to stream HD content over the Internet, but broadcast can do it pretty well," Bullwinkle says.

But the sector's greatest challenge might be that so many competitors are pursuing their own proprietary paths. That's why video-streaming service Brightcove issued an open letter to the consumer-electronics industry in January calling for the adoption of open standards. "We're advocating for an approach where no one owns the browser or the Web server," says Adam Berrey, senior vp marketing and strategy at Brightcove. "We feel that television should be the same."

Given the rapid growth of video viewership on PCs, the question remains whether the demand actually is there for online video via TV. Panasonic wouldn't have invested in Viera unless it was confident in over-the-top TV, Mereby says. "We've done a lot of consumer research to validate that consumers are looking to enjoy videos online through television rather than PCs," he adds.

But in December, a Macrovision survey found that only 10% of consumers had any desire to watch online video on TV. Time will tell whether TV will remain the sturdy redwood in the ever-changing media ecosystem.