The battle for the 21st century TV viewer is heating up as Verizon Communications adds more Internet content to its Fios TV service. But cable may not be the only competitor Verizon faces as more consumer electronics devices such as Blu-ray players and game consoles add similar Net-based services without an expensive TV service subscription.
Starting Tuesday morning, Verizon Fios TV subscribers will be able to watch YouTube videos and listen to Internet radio from iHeartRadio on their big screen TVs via their Fios TV service. The upgrade, which adds to a growing catalog of Web content available through Fios TV, is free and automatically available for all subscribers.
Verizon first launched these one-click Internet-based applications to provide news headlines and weather to Fios TV viewers. Then it added widgets to allow viewers to see what other people in their vicinity are viewing and to help them discover popular TV shows.
Last summer, it launched its Widget Bazaar, a scaled down version of an application store for the TV, with the vision of opening up a wide range of Internet-based applications to its Fios TV customers. The first apps from the Widget Bazaar offered on the service, Facebook and Twitter, were geared toward social networking.
Now Verizon is adding more Internet video to the mix. It already had some Net-based video from DailyMotion.com, Veho, and BlipTV. But YouTube is the first major Internet video site that the company has added to the service.
Verizon is adding more Internet applications to its Fios TV service mainly to differentiate its service from cable providers such as Comcast and Time Warner Cable. But cable companies aren't the only competition. The company is also facing a threat from over the top providers such as Netflix and Amazon, which are also offering on-demand video viewing via consumer electronics devices, like Blu-ray players and game consoles. These devices are also offering access to other Net-based applications, such as Facebook and Pandora Internet radio.
The number of people canceling their TV subscriptions for over-the-top Internet video is still small, but research suggests that consumers are interested in alternatives. In February, market research firm In-Stat said that nearly 37 percent of broadband households in North America are extremely or very interested in viewing over-the-top video content on the home TV.
While consumers have always been able to access this content via a computer hooked to a TV, now consumer electronics companies that make Blu-ray players, TVs, digital media adapters, network attached storage devices, game consoles, and even some set-top boxes are making it even easier to access this content by embedding streaming TV services from Amazon, Netflix, and YouTube right on their products.
As a result, video-streaming services like Netflix are growing. Last week, Netflix reported that 55 percent of its 14 million subscribers streamed a TV show or movie during the first quarter of 2010. This is up from 36 percent a year ago. The over-the-top on-demand capability has also helped boost customer growth with 1.7 million new subscriptions in the first quarter alone. By the end of the year, Netflix is projecting it will have 16.5 million to 17.3 million subscribers.
And the company is expecting to double the number of devices that allow its movies to be streamed to more than 100 by the end of 2010. Today, Netflix and Amazon, which allows viewers to rent individual movies and shows, is available on devices such as the Roku box, LG and Samsung Blu-Ray players, Sony Bravia and Vizio HD TVs, the Nintendo Wii, the Microsoft Xbox 360, and Sony PlayStation 3.
The Federal Communications Commission--as part of the National Broadband Plan it introduced to Congress last month--has said it wants to see more innovation in this area. It's already opened a proceeding at the agency to look for ways to create more competition and encourage more innovation in the set-top box market, which could bypass paid TV providers such as cable operators and Verizon.
Shawn Strickland, vice president of video solutions for Verizon Communications, said he isn't worried about the over-the-top competition because Verizon can offer a plug-and-play solution that will be easier to use for the mass market. What's more, Verizon doesn't require consumers to buy new devices to access Net applications on their TVs.
"Our goal is to make the service as easy to use as possible without requiring customers to buy and set up any additional pieces of equipment," he said.
While it's true that Verizon's Fios TV subscribers rent their set-top boxes from Verizon instead of buying them, ease of use for these new applications is debatable. For example, the new YouTube and Internet radio applications that Verizon has added require subscribers run its Media Manager software on a computer while accessing the application. This software is also used to allow Fios subscribers to access and share photos, music, and video that is already resides on their home computers.
Strickland claims that this is not a huge obstacle since most home computers are running all day long. But because Media Manager is not a "light" application, running it while trying to do other things on the home computer may be slow or it could slow the YouTube or iHeartradio apps on the TV, depending on the computer that's being used. While set-top boxes will automatically be upgraded for the new applications, Fios TV subscribers will also have to update their Media Manager software on their PC or Mac, which can be an annoying task for some users.
Meanwhile, once a Roku box or a Blu-ray player is connected to a TV, accessing YouTube and Pandora is as simple as clicking a button on a remote control. And it doesn't require a computer to be turned on.
Strickland admitted that the current set-up is not ideal and said eventually the technical encoding that necessitates a computer will be done in the network. He also added that there are opportunities for Verizon to work with consumer electronics device makers to offer services to Fios TV subscribers. For some customers, it might make more sense to offer certain functionality via a game console or a Blu-ray player to cut down on the number of boxes they have sitting next to their TVs, he said.
"Game consoles and some of these other consumer electronics devices have powerful processors and functionality," he said. "They're much more powerful than a set-top box. So we see an opportunity to leverage that in the future. Nobody wants more boxes connected to their TV."
Using an Xbox instead of a Verizon controlled set-top box could be tricky, given that Verizon wants control over the user interface to the customer. Still, Strickland said he sees these devices as complimentary rather than competition.
But for some customers, these devices with preloaded access to streaming services, like Netflix and Amazon, could provide an alternative to paid TV at a much lower monthly cost. Even when sold as part of a bundle, Verizon's Fios customers pay more than $100 a month for TV, phone, and Internet service. TV cord cutters still have to pay for broadband, but depending on what types of content their viewing, they can cut their bill significantly. Strickland admitted cost savings may tempt some consumers to forgo Verizon's TV service for an over-the-top solution. But even if they do this, he said Verizon can benefit.
"We still sell the best broadband service on the market," he said. "And in order to use these applications on these devices, they'll still need broadband."
The opportunity for consumer electronics makers and over-the-top Internet app providers is much bigger than Verizon. For one, Verizon only offers TV service to 70 percent of its traditional customer base, which itself is limited to certain regions of the country. By contrast, device makers and app developers can provide streaming services to anyone with a broadband connection.