Start-up offers alternative to subscription TV

A new company called ZillionTV says it will soon introduce a new service that will enable cable and satellite subscribers to cut the cord and get subscription-free movies and TV shows right on their TVs from the Internet.

The company, which officially launched on Wednesday, has struck deals with some major Hollywood movie studios and TV networks, including Disney, 20th Century Fox Television, NBC Universal, Sony Pictures, and Warner Bros. Digital Distribution.

The plan is to offer streaming movies and TV shows directly to TVs using a broadband connection. The company has created a small piece of hardware it calls a Z-bar, which provides the connection between the TV and the Internet via an Ethernet cable or Wi-Fi. The Z-bar also acts as a receiver for the company's unique remote control, which works a lot like a laser pointer and uses sensing technology to navigate through the content menu on the TV screen.

The ZillionTV service, which is currently being beta tested, will only be offered through an Internet service provider. It will be commercially available starting in the fourth quarter of 2009.

Unlike some other Internet-to-TV services, such as Netflix's movie rental service, ZillionTV does not require a subscription. It also doesn't require users to buy an expensive box, such as Microsoft's Xbox 360, Apple's AppleTV, or even Roku's $99 digital video player. Instead, for a nominal activation fee of less than $50, users will get the Z-bar and remote. And then they will be able to view up to 15,000 titles of TV shows and movies through the service without having to sign up for a monthly subscription.

Users will choose one of three options for viewing the content. They can either pay a small rental fee for the movie or episode they want to view without commercials; they can "buy to own" the content, or they can view the video for free by watching targeted advertising.

For those opting to watch the movie or TV show with advertising, the ads will be short. And the advertising will be played before and after feature films and will not interrupt the movie. Advertising in TV shows will fit with natural breaks, but viewers will likely see 50 percent fewer advertisements than what they currently see on broadcast television, the company said.

ZillionTV viewers will also pre-select the advertising categories they are most interested in, so the ads they see will be targeted to their personal interests.

Eventually, ZillionTV also hopes to offer an interactive commerce component to the service. And viewers will be able to purchase products directly from their TVs.

Additionally, ZillionTV plans to offer a loyalty program, rewarding viewers for simply watching programming and interacting with advertising from categories they've personally selected.

The credit card giant Visa is working with ZillionTV on the payment and rewards program. Visa, and the movie studios and TV networks that ZillionTV has already signed on to its service are also investors in the company.

While the ZillionTV service sounds like it could have great promise, it has a long way to go before it can truly become a cable or satellite TV replacement. For one thing, 15,000 movie and TV titles may sound like a lot, but it's only a fraction or what other services such as Amazon Video on Demand offers. Amazon currently offers 40,000 titles. ZillionTV also won't initially offer live TV, such as sports, which is key for many cable and satellite TV subscribers.

But Patrick Gauthier, senior vice president of marketing and strategy for ZillionTV, says that more content is coming. And eventually, the company hopes that its service, which will be completely ad-supported or transactional-based, will offer all the same content and more than what current satellite and cable subscription services offer today.

"People are tired of paying for content that they don't use," Gauthier said. "They don't want TV by appointment or TV by bundling. We will offer them another way to view TV while also offering content owners and advertisers new ways to monetize their content."

But what's strange about ZillionTV's business model is that it plans to sell its service through broadband service providers, many of which also happen to sell their own subscription TV services. Won't these service providers see ZillionTV as a threat?

Gauthier explains that there are plenty of incentives for these providers to work with ZillionTV. Not only will the service require higher broadband speeds, which will generate revenue for these companies, but Gauthier said ZillionTV also plans to share the advertising and transactional revenue from the content directly with the broadband providers.

In exchange, ZillionTV will get dedicated bandwidth to deliver its service to ensure the best quality. In this way, ZillionTV will differ from other "over the top" online video services, such as Hulu.com, Netflix's online service, or Amazon's Video on Demand service. These services, which use the public Internet, can be affected by network congestion. But Gauthier said ZillionTV is offering the service through broadband providers to ensure that they are given dedicated amounts of bandwidth to ensure excellent service quality.

So what's the catch? At this point, ZillionTV needs to round out its content offering and sign up service providers. Even though the company sounds like it's off to a good start, these pieces of the puzzle will not be easy to fit together.

Gauthier said the company is in talks with all major broadband providers in the U.S., but he wouldn't divulge which ones it's working with. My guess is that big players, such as Verizon or Comcast, will likely reject ZillionTV.

Verizon is spending billions of dollars to build its Fios TV service. And Comcast has already said publicly that it is working directly with content owners to start rolling out an online video-on-demand service later this year. A Comcast spokeswoman said it's still too early to say how the service will work, but at least initially, it will likely be offered as an extension of Comcast's subscription TV service and not as a replacement service.

As the U.S. sinks deeper into a recession, ZillionTV's service could offer consumers already considering cutting the subscription TV cord an alternative. But it seems like every week, someone is announcing a new option for bringing Web video to the TV. It should be an interesting market to watch over the next couple of years, so stay tuned. I'll be following it.