Content kings control the future of IPTV

New technologies are making it easier to get high-quality video streams just about anywhere and on any device, but content owners are still calling the shots.

What this means for consumers is that the dream of cutting the paid-TV cord and getting everything you want streamed over the Net without a subscription and largely for free is a pipe dream. Content owners aren't going to let this happen anytime soon. You will still pay, and there's a chance you will pay as much as you do today--or even more.

Some over-the-top services--those that use a broadband connection to deliver TV and movies over the public Internet--are already making headway. Netflix, which offers a large catalog of movies and TV shows for streaming via game consoles, Roku boxes, and Blu-Ray players provide some of what consumers may want for a low monthly subscription fee.

But Netflix doesn't offer live programming, such as sports. Some people who can get over-the-air TV could use an antenna to tune in to live broadcast TV from the major networks, but premium cable stations, such ESPN and CNN, are harder to come by online.

Ultimately, it's the movie studios, TV broadcasters, and cable channels that control what content is shown where and for how much. Without content, IPTV services are worthless--just ask the backers of Hulu competitor Joost, an Internet TV venture started by the Skype founders that tried to make a go of it with niche programming. While the industry seems to recognize the opportunities of Internet streaming in a digital age, its is also cautiously resisting upending its current business models.

Still, embracing the new wave of video streaming is where the market is going. It's what consumers want. They want to be able to watch their TV shows and movies on the devices of their choice. This is why Comcast has launched TV Everywhere, a service that allows Comcast cable subscribers to take certain cable content, such as HBO movies and TV shows, on the go with them on laptops and other devices.

And it's why Verizon Communications is allowing its subscribers to view rented and purchased movies on its Fios TV service on laptops, tablets, and smartphones. Verizon is even taking this concept a step further and next year plans to allow Fios TV subscribers to watch streaming TV on devices such as Apple's iPad.

"Our approach is to have all sides win," said Verizon Chief Information Officer Shaygan Kheradpir. "We are of opinion that content partners and tech partners should not go at each other. It's a waste of energy. We need to expand the pie for everyone."

Getting broadcasters and studios to agree to these new ways of viewing may not be easy. Verizon is currently in negotiations with content channels on its Fios TV service to make streams available to devices other than set-top boxes. Some content owners want to be compensated for every device their content is shown on. But Kheradpir doesn't believe Verizon should pay extra to show the same content on a different device.

"The idea is to work with the rights holders and allow them to monetize their content in a different (way)," he said "But we don't pay for every stream that goes to a separate set-top box, so we shouldn't have to do that when the set-top box function is in software."

A generational shift
Movie studios and TV broadcasters recognize that what customers want is to take their content with them on different devices. Young people aren't even watching TV the way their parents and grandparents did. In fact, a recent Nielsen study shows that audiences for broadcast networks like ABC, Fox, NBC, and CBS, which once dominated television programming, are getting older.

Twenty years ago, the median age for ABC viewers was 37; today it's 51. Fox's median age has also jumped, from 29 to 44. And NBC and CBS, which have always had older viewers, are also seeing the median age of their viewers rise. [CBS is the parent company of CNET.]

"There is a generational shift that needs to be acknowledged," said Andrew Kippen, vice president of marketing for Boxee, an over-the-top Internet TV provider. "Younger people get everything from the Internet. They're discovering music through MySpace and other social-networking sites. They're watching TV on Hulu.com. Their Internet connection is their lifeline."

For the content industry, working with Comcast or Verizon to make content available on more devices is less scary than giving free reign to the over-the-top services. After all, Comcast and Verizon are still paying content owners big money for the right to broadcast their channels. Internet-only distributors haven't proved that they offer the same scale as paid-TV providers. And it's still unproved that they will generate as much cash for the content provider as simply selling it to a cable or satellite provider.

This could be why Apple and Google seem to be having a hard time getting their TV strategies out the door. Smaller players, such as Boxee and Roku, which enable Internet video to be shown on TVs, have also run up against roadblocks, even though they're much smaller and have managed to carve out small user niches they claim don't replace the old cable TV model and therefore don't threaten the status quo.

"Our goal is to work with paid-TV providers, such as Comcast," said Boxee's Kippen. "We've had interest from some smaller telcos offering TV. We can work both scenarios. We can help people cut the cord who want to do that, but we also offer a nice complement to existing TV services."

But Kippen said the trend is moving toward video online and content owners need to embrace it rather than fight it.

"It's really about where the audience is," he said. "And they are definitely with cable today. But there is a shift happening toward the Net. And as more TV shows and movies end up online legally and illegally, that is where people will go."

The reality is that Boxee and similar companies are small and aren't a major threat. But Apple and Google are a different story. Their entree as competitors to the paid TV market would bring clout and scale that hasn't yet been seen in this market.

Earlier this year, Google introduced Google TV, a service that would allow Google to bring video streamed over the Internet onto a TV in the living room. Products are expected to be launched later this year. But Google is having problems securing the rights to programming from the major TV broadcasters, including ABC, CBS, Fox, and NBC, according to The Wall Street Journal. The problem Google seems to be having is that content owners are skeptical of Google's ad-based business model, which may not generate enough cash to adequately compensate content owners.

Meanwhile, Apple may be facing similar roadblocks. The company's Apple TV device and iTunes video service have seen only mediocre success. And the company has been rumored to be readying a relaunch of its product. Supposedly Apple is preparing a new sub-$100 set-top type of box that will offer streaming rather than just video downloads. This is significant because it makes the experience much more like real TV. It's exactly what Netflix has been offering on consumer-electronics devices like Blu-ray players, gaming consoles, and the Roku box.

While Apple doesn't seem to have a problem making consumers pay for content, movie studios and TV broadcasters have been reluctant to make too much of their content available to Apple for fear the company will do to the film and TV industries what it has done to the music industry.

Netflix, which got its start renting DVDs through the mail, is one of the few over-the-top Internet video players that seems to be playing its cards right. While the company competes with paid TV companies' video-on-demand services, it has not threatened the companies' live TV businesses. And it doesn't intend to. Instead, Netflix is courting movie studios and television networks to get access to as much digital content as possible so that it can stream it to its 15 million subscribers.

Because the company continues to pay the traditional rates to license the content and because it now has scale, it is able to work significant deals.

"We have a big checkbook, and we want to write big checks," said Steve Swayse, vice president of corporate communications for Netflix. "We know that content is king. So it's very important for us to add content to our DVD library and streaming library."

Earlier this month, Netflix cut a deal with the paid movie channel Epix, which is owned by three studios: Paramount, Lions Gate, and MGM. The deal, which is reported to be more than $1 billion for five years, will allow Netflix to stream movies from the Epix library to its 15 million subscribers. The deal significantly expands the Netflix streaming library.

To ensure that Netflix doesn't kill the studio's DVD business, Netflix will have to wait 90 days after Epix gains the rights, which is typically a few months after a film debuts on DVD. This means Netflix viewers will likely get access to these films about six months after the moves have made it to DVD.

Epix, which is trying to compete against premium movie channels such as HBO, was struggling to get picked up by cable providers, and now this deal will likely make the channel profitable. So it's a win-win.

And by striking deals with consumer-electronics makers such as Samsung, which has embedded Netflix into its Blu-ray players, and with makers of game consoles such as the X-Box and the Wii, Netflix is also making it easy for consumers to access its service.

"Netflix is simple and easy," Swayse said. "It's all about convenience and having a wide selection of content."