April 12, 2006 10:00 AM PDT
Free Net TV threatens telecoms and cable
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But advancements in technology could eventually eliminate the need for consumers to subscribe to a third party such as a cable operator or a telephone company to schedule programming. Companies such as Kontiki and EdgeStream are improving the quality of streaming video on the Net. And others such as Cisco Systems and Microsoft are working on products that will let people watch video downloads from the Net on their TVs.
These advancements, coupled with the fact that broadband penetration continues to grow, makes it possible for millions of people to watch TV directly from the Internet. In 2005, roughly 55 percent of all online users had broadband, according to JupiterResearch. That figure is expected to reach 69 percent by 2010.
A step toward a la carte
If content providers are willing to distribute their shows over the Internet themselves, viewers could simply use a search engine to find what they want to view, and then watch it directly from the Internet anytime they want.
Clearly Disney's move signals that content owners are feeling more comfortable about Internet distribution. Others have also started distributing video over the Net.
Warner Bros., for example, has teamed with AOL to distribute classic sitcoms such as "Growing Pains" and "Welcome Back Kotter." In March, CBS offered free online streaming of the NCAA basketball tournament. In November, NBC started offering its Nightly News broadcast on the Web for free after the newscast airs on TV. MTV's Comedy Central also launched a site called MotherLoad in November that offers clips of existing shows and airs new shows only available on the Web site.
And just last week, a group of Hollywood studios said they will sell digital versions of films such as "Brokeback Mountain" and "King Kong" through Movielink.com and CinemaNow with certain restrictions.
While experts agree that most people will continue to subscribe to a paid TV service for a long time coming, some research indicates there is consumer appetite to watch downloaded content from the Internet.
Parks Associates predicts that roughly 60 percent of broadband users will be downloading some video a la carte from the Web in 2010. These estimates were calculated when it was assumed that people would pay $1.99 an episode to download shows from iTunes, according to Kurt Scherf, vice president and principal analyst with Parks Associates. The figure could be even higher if content is offered for free, as Disney plans to do. Today, only about 3 percent of broadband subscribers download video from the web.
Increased competition in the video market from Internet-based video services could cause network operators to look for other ways to make money, added JupiterResearch's Laszlo.
"Even though Disney is delivering content independently of the cable operator or the telephone company, it would be interesting to see if network providers respond by blocking content," he said.
The issue referred to as Net neutrality centers on whether carriers should be able to charge different fees to content providers who access their network. For weeks, the topic has been hotly debated in the industry as lawmakers draft legislation that addresses the issue.
"I think Disney's move could open up this debate even more," Laszlo said. "I wouldn't be surprised if we saw large media companies getting into the debate soon."
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