Internet TV will turn your next HDTV into a set-top box

Ryan Lawler of NewTeeVee has written an excellent post about how the just-concluded Consumer Electronics Show demonstrated that HDTV manufacturers have become the new consumer gatekeepers, and cable (as well as satellite and IPTV) operators are just another content option. This is thanks to the Internet TV functions built into almost all of the major-brand HDTVs introduced at the conference. Some manufacturers, such as Samsung, Vizio and Sony, have licensed Internet TV technology from Yahoo, Google and/or Boxee. Others, such as Panasonic, have developed their own Internet TV systems.

Lawler's argument is somewhat premature, in that only a small minority of installed HDTVs have Internet TV capabilities, and sales growth in the U.S. market has slowed to only 1% per year. Nevertheless, it points out a "blind spot" in many industry observers' thinking (including my own). The focus to date has been on set-top boxes from Apple, Boxee, Google, Roku, etc. The argument has been made that most consumers won't add another set-top box to the one they already have from their cable, satellite or IPTV provider.

Last year, the U.S. Federal Communications Commission proposed a new set-top box design called AllVid that would combine the functionality of service provider and over-the-top set-top boxes in a single device. However, Internet TVs don't require a separate set-top box for over-the-top Internet video, and as Lawler points out, consumers' incumbent multichannel video services show up as one of many content choices, including Netflix, Amazon on Demand, Twitter, Pandora and other services. These Internet TVs accomplish most of the goals of AllVid without requiring any changes to existing set-top boxes.

On the other hand, just as there's currently a lot of consumer confusion about how to choose among Apple TV, Boxee, Google TV, Roku, Vudu and other over-the-top set-top boxes, there will be confusion about the Internet TV services built into the new HDTVs. That's in addition to the existing confusion over HDTV resolutions, refresh rates, backlight technologies and 3D technologies/formats, all of which may be enough to stall consumer adoption. I don't think that there's a chance that we'll see any real standards, either de facto or imposed by the consumer electronics industry, to lessen the confusion. It will take several years for technologies and formats to shake out.

Sooner or later, however, most HDTVs will be Internet-enabled, and at that point, the third-party set-top box argument will be moot. The real challenge for the current set-top box vendors will be to get their systems integrated into HDTVs. Yahoo is in the lead today, but with strong competition from Google and Boxee, it's not likely to keep it over the long run.

FCC: Will AllVid be CableCARD Part Deux?

Last Wednesday, the U.S. Federal Communications Commission (FCC) issued a Notice of Inquiry concerning its plan for next-generation set-top boxes. The FCC's intention is to encourage a retail market for intelligent set-top boxes that can support just about any video service, including cable, satellite, IPTV and over-the-top Internet video content. The FCC tried to do the same thing several years ago with its CableCARD initiative, but even the Commission now recognizes that CableCARD has failed.

The original concept was to enable consumers to purchase cable set-top boxes from any of a variety of suppliers, and then rent a CableCARD that would be compatible with individual cable operators' conditional access, authentication and encryption systems. Somewhere between the original concept and actual implementation, the wheels fell off. CableCARDs could only handle one channel at a time and were one-way only, which meant that they couldn't be used for on-demand, pay-per-view or interactive applications. Two cards were required for DVRs in order to watch one program and simultaneously record a second program. The monthly lease price for CableCARDs wasn't all that much less than complete set-top boxes. Cable operators still required installers to come to customers' homes in order to set up CableCARDs, and few installers were trained on how to set them up properly. As a result, CableCARD was a bust.

In the FCC's new proposal, consumers would purchase a "smart video device" (set-top box) that would work for any "multichannel video programming distributor" (MVPD), including cable, satellite and IPTV operators, as well as Internet video providers. Then, each MPVD (except for the Internet video providers, who would connect via Ethernet or WiFi) would supply a "set-back" device, also called an "AllVid adapter", which would serve as a tuner and also perform conditional access, authentication and decryption functions. The FCC would like the AllVid adapters to connect to the smart video devices via Ethernet and to use standard IP protocol to send and receive audio, video and data, so technically, an AllVid adapter could be connected to a conventional network router and make video content available to any device on a home network.

The FCC's goal of "one box to rule them all" is laudable, but it's likely to have many of the same problems as CableCARD. First of all, despite the Commission's attempt to redefine terms, consumers would have to have at least two set-top boxes: The smart video device and one or more AllVid adapters. The AllVid adapters would be proprietary to each service provider, so for example, if a consumer moves from an area serviced by Comcast to one serviced by Cox Cable, they'll have to lease or buy a new AllVid adapter. AllVid adapters are likely to be even more expensive than CableCARDs, since they'll perform many more functions.

Two important goals of the new AllVid strategy are to make over-the-top Internet content an "equal partner" to video from service providers on television sets, and to prohibit service providers from limiting access to over-the-top content. However, service providers will fight hard against the new proposal in order to maintain content control in the living room. They're likely to argue that AllVid adapters will be set-top boxes in all but name, so why not allow them to continue to lease all-in-one set-top boxes to consumers? They'll also argue that they've just invested an enormous amount of money to implement the Commission's CableCARD mandate, and now the Commission wants them to throw out that investment and implement another unproven technology. Satellite and IPTV service providers, who were unaffected by the CableCARD situation, would be covered under the new plan, so it's likely that they'll oppose the FCC's recommendations as well.

If the FCC hadn't already tried and failed with CableCARD, I'd give AllVid a better-than-even chance of success, but in its present form and with CableCARD's experience behind it, I give AllVid very little chance of making it to market. AllVid would elevate over-the-top Internet video content from a bit player in the living room to an equal partner, and the incumbent service providers will do almost anything to keep that from happening.