How Will 'Net TVs Stack Up Against Cable?

The Monday, February 18 issue of The Los Angeles Times covers the trend of major television manufacturers adding network connectivity to their sets as part of new strategy to go "over-the-top" and provide direct access to Web services. It's a topic that we covered in a blog back in January, when we commented on the announcements and demos at the Consumer Electronics Show.

One question that today's article asks is whether a 'Net-connected TV is going to be a threat to cable companies. One key aspect of video delivery to watch is the race to pump out more high-definition offerings. As go the traditional TV providers, so will need to follow the over-the-top guys if they're going to keep pace. We anticipate that discerning consumers are going to look to more high-definition offerings in both linear and on-demand programs and movies as the number of high-definition displays in households continues to rise (see our blog about the latest numbers of HDTVs in U.S. households). Particularly with the digital transition set to take place in less than a year, we're doing to see a big bump in the number of homes that decide to upgrade to full digital and presumably HDTV displays and services.

To date, here are how the major television providers stack up in terms of high-definition offerings:

• AT&T U-verse: 40 high-definition channels.
• Cablevision: Currently offers 45 high-definition programming services.
• DirecTV: 90 HD channels as of the end of 2007, and is mulling the launch of a third satellite in 2008 to expand further.
• DISH Network: Expects to increase its national high-definition channel lineup from 76 to 100 channels by the end of the year.
• Comcast: By the end of the year, expects to offer 50-60 linear channels and ramp VoD offerings from 300 today to 1,000 by the end of the year.
• Time Warner Cable: Has 42 channels in high definition, eight HD movie on-demand channels and 112 HD on-demand titles.
• Verizon FiOS: 30 high-definition channels.

Both the Apple iTunes service (100 HD offerings) and VUDU (about 70 offerings) are close to matching the big boys with on-demand HD.

What will be interesting to see is how all of the other broadband video players respond to ramp up their own HD offerings.

In terms of the number of homes capable of receiving at least one HD stream in the next five years, this is going to increase significantly as broadband providers increase downstream throughput to reach at least 10 Mbps (assuming that an HD stream will require 5-7 Mbps) As of year-end 2007, we estimate that there were more than five million U.S. households receiving at least 10 Mbps service as of year-end 2007. This will grow to more than 30 million by year-end 2012.

Of course, there's no guarantee that the over-the-top players are actually going to have that kind of bandwidth with which to work. With cable operators such as Time Warner experimenting with capping the quantity of downloads (an experiment in Beaumont, TX), this could be a big threat to some of these 'Net TV experiments. If the cable industry pursues some punitive measures along these lines, it's really going to put the squeeze on the direct-to-consumer services. In a recent Newsweek column, Steven Levy argues that Time Warner’s most-limited download cap pretty much would limit customers to downloading two movies per month (5 Gbps)! It’s obvious that the cable industry is doing as much as it can to protect its bandwidth and to encourage use of its organic video-on-demand services, which have obviously struggled (at least the premium usage).