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Sorry Revolutionaries: Internet Video No Threat To Regular TV
And won't be for a very long time still...
by Karl Bode 04:09PM Friday Apr 16 2010
If you ask most cable industry executives, they're fairly confident of the cable industry's ability to shrug off the Internet video threat for another generation -- given decades of experience and an already built infrastructure specially-suited to the task of high quality, live video delivery. If you ask people in the Internet video business, traditional TV is a dinosaur that hasn't been informed of its eminent demise, and with voice, video and other content being just data -- it's inevitable that the traditional TV system (and concept of bundled channels and bi-annual rate hikes) is going to change completely.

"Internet TV is not going to become a competitor for at least a decade, half generation, more..."
-Convergence Consulting
Both sides are of course right to some extent -- so the question becomes what kind of time frame are we looking at for this TV revolution? A new report (pdf) by the Convergence Consulting Group notes that while the $84 billion TV/satellite industry may not feel the pinch yet, they eventually will. And while it may be a very big shift, it's also going to be a very slow one.

According to the report, those customers defecting to full time Internet viewing represent just 3%of the total number of consumers who watch TV episodes online. In other words, online video viewing remains a supplement to traditional TV viewing for most people -- not a replacement. Of course that will change as last-mile broadband connections ramp up, and methods of getting video to your living room from the Internet get cheaper and simpler.

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According to Convergence, 800,000 people cut the cord over the last two years, with 600,000 of them doing so in 2009. The firm predicts that the number of cord cutters will grow to 1.6 million households by the end of 2011. Still, you have to realize that (at least according to data from SNL Kagan) satellite, cable and telcoTV companies saw 1.8 million net adds during 2009 -- which means 2.6 million subscribers must have signed up for traditional service.

"Internet TV is not going to become a competitor for at least a decade, half generation, more," Convergence analyst Brahm Eiley tells Broadband Reports. In its current form, Internet video "has no feet" to replace the TV access and content business, he argues. "Online is not returning what traditional TV can" in terms of economics, argues Eiley. "Nor is online in most cases a more enjoyable experience."

Just follow the money: In the U.S. last year, Broadcasters and Cable Networks saw roughly $1.56 billion in Online TV related advertising revenue, a number Convergence says will jump to $1.83 billion in 2010. In contrast, Broadcasters and Cable Networks brought in $62 billion in TV advertising revenue last year, nearly $34 billion in programming fees from access providers, and, in turn, telcoTV, cable and satellite providers brought in $84 billion in TV subscription fees.

Still, don't expect those numbers to remain quite so rosy for the traditional TV industry forever. Cable continues to have the worst customer satisfaction rankings across nearly any industry, consumers face endless rate hikes, and most are tired of paying for channels they don't watch. When higher-quality, less expensive living room broadband-based alternatives finally emerge -- many will be happy to make the leap if cable isn't willing to compete on price. Companies have tried (Roku, Apple), but who's going to make the device that truly breaks through to the mainstream and begins the real growth spike?

Eiley also admits Convergence still isn't tracking the influence of piracy ("wish we knew this, we could guess but its a tough one" he says). Piracy often seems like the unmentioned elephant in the room among analysts and news outlets.

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Of course the cable industry is trying to hold off this continued erosion of customers by offering Internet video service of their own. Dubbed "TV Everywhere," the plan is to offer existing cable users only a selection of online video content so they don't cut the cord. But many predict the system will fail due to clunky GUIs, walled gardens, inconsistent standards and the attempt to take the offline TV business model and force it online.

Still, the traditional cable and broadcast industry seems to have breathing room to stumble toward the correct approach to doing business in the broadband age. Customers have shown they're more than willing to pay a lot of money for service (even during a recession, which shows they feel they're still getting value), and many users may not want to leave the comfort of their cable provider's triple-play convenience. If Convergence is correct, these companies won't have to worry about TV's inevitable (r)evolution for a long, long time.

The group has chewed through a lot of data, and also offers a full analysis (pdf) of TV, broadband and wireless competition (or lack thereof) between all the major players for those interested.

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