Wanted: Sexy HDTV That Connects to the Internet and Services All DVRs

CE Meets Content
At this point I was beginning to appreciate the limitations of my DVR when I received a call from John Taylor, vice president of public affairs with LG Electronics in the U.S. It took some time, but I was excited to finally talk to a traditional CE provider. I was especially interested in talking to LG, because, at CES, the company had announced a new partnership with Netflix to provide VOD via the internet with a box that connects to LG HDTVs. Taylor says they plan to ship the device sometime in the second half of 2008.

Taylor is an experienced CE executive who has personally been involved in the negotiations with service providers and CE manufacturers to develop standards like tru2way, which Comcast announced at CES. tru2way removes the need for cable and satellite customers to have a set-top box. Instead, with tru2way, CE devices can rely on new technology known as Downloadable Conditional Access Systems (DCAS). This allows CE companies like LG to build boxes that can connect to third-party service providers. This technology will also allow content to be converted from the service provider’s conditional access encryption scheme to a digital rights management protection scheme that allows the content to be ported to different devices throughout the home and other portal devices. I asked Taylor whether LG was indeed concerned about the additional cost new technologies like tru2way are adding to the price the consumer has to pay for an HDTV. "The tradition has been that as the volume ramps up, costs drop like a rock, and the additional features become free over the years," he said. However, he added, "We collectively have a challenge: The manufacturers, the retailers, and the program providers need to work together in the right time and the right way to make sure consumers understand the real value here."

Many folks criticize current VOD services like Netflix for having limited libraries. As Scherf explained to me, "Given the fact that Hollywood still strictly controls the way in which movies get released to hospitality and to DVD and all these movie on-demand services—including what you get today with cable and with IPTV [internet protocol television]—the content is old by the time it hits that particular window." Another question Scherf thinks these services have to address is, "What are those features that are really going to matter to end users?" His answer: "I don’t think it is YouTube on the television, at least not by itself."

To address this issue, I reached out to LG’s new content partner Netflix. "Whenever you are in the early phases of the early period of a trend, it is not [as] fully developed as it will be," said Steve Swasey, Netflix’s vice president of communications. "When Netflix started as a DVD subscription business in 1999, there were about 1,000 titles on DVD. It was a VHS world back then. Netflix came out with this better way to rent movies, and it changed the way Americans rent movies by offering it online and shipping it directly to your house—no late fees, and postage paid both ways. The DVD title count was much smaller than what was generally available by VHS tape, and of course now we have 90,000 titles on DVD.

"Right now we have 6,000 choices you can watch instantly on the PC. A year ago at this time we had 2,000. So we’ve tripled the amount of titles for watching on the streaming services, but you’re right, it does pale in comparison with the DVD. That’s because studios are licensing content differently for online viewing as opposed to what they are making available for DVD. It is still a DVD world, and it will be for several years."

For now, Netflix plans to include its new feature that allows users to stream content to their TVs for free as part of its regular subscription.

Vive La France!
Another company that has been in the space for a while and sees the market differently than most is Thomson, the French technology company. I sold my former company, SyncCast, to Technicolor, one of Thomson’s subsidiaries (but I don’t own any stock in Thomson or its subsidiaries). I know they are doing a lot with IPTV, so I called a few people I know and asked them who I should speak with about Thomson’s strategy to help consumers get connect televisions via the internet.

I spoke with Brad Sparks, director of business development with Thomson’s home networking division. Thomson’s strategy is to work directly with the service providers. Thomson’s Advance Gateway Solutions allows operators to provide triple-play services—voice over IP, cable, and internet access. They provide similar solutions for telcos and other service providers. For example, Thomson has provided STBs and cable modems to satellite and cable providers in Europe and has what it claims is the largest installed base of commercially available IPTV users through its relationship with France Telecom and others.

Sparks said Thomson has about 1 million users connected to the internet with its Advance Gateway Solution. "Our business model is tied closely with operator interest and requirements, with what their strategies and directions are." He added that today, "Operators are interested in STBs that interface with display devices and maybe a centralized access point or gateway.

"We had TVs built with built-in satellite decoders. We had a close relationship with DirecTV at the time. They sat on shelves because they were too expensive," he continued. "It puts the burden on the consumers, and consumers don’t always want to buy that brand of TV. They want to be free to buy whatever brand they want and they want to be able to choose whatever operator they want … We’ve learned our lesson not to build in operator-oriented technology that’s going to really hit the consumer.