NEW YORK (AdAge.com) -- Considering cutting your Cablevision subscription? It's not just the cable industry that would rather you didn't; it's also TV networks and studios that make bank off your monthly bill.
But device-makers from Samsung to Boxee to Apple TV have no such concerns -- and they're continuing to roll out products that bypass the cable box and draw content and services directly from the web, setting up what could be one of the entertainment industry's biggest business battles of the next few years. Think: the current print-media implosion, but with much more money at stake.
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Netflix in particular is in the midst of a push to be a native application on TVs and gaming consoles. Last week it announced a deal with Nintendo's Wii gaming console for its on-demand movie-streaming service; Netflix is already on Sony's PS3 and Microsoft's Xbox, not to mention TVs and Blu-ray players from Samsung, LG Electronics, Sony, Best Buy's Insignia and Vizio.
At the annual Consumer Electronics Show in Las Vegas, cable operators got a look at a device that could start to eat into another core business: TVs with built-in Skype access. LG and Panasonic announced partnerships to start shipping the sets later this year.
The consumer-electronics industry has a long history of over-promising; years of chatter have yet to yield a line of affordable mass-market 3-D TVs you can buy in stores, for example. "A lot of manufacturers have come out and made announcements, but I don't think they really are in a position to erode the pay-TV subscriptions that the cable industry has today," said Park Associates research analyst Jayant Dafari.
Yet content and features built directly into the TV have become the selling point for the next generation of high-definition sets, gaming consoles and boxes. And none of it is coming from your cable operator.
"Still no evidence of cord-cutting, but as prices spiral higher, the stresses on the system are unquestionably growing," said Craig Moffett, senior analyst at Sanford C. Bernstein.
But customers are cutting back on cable bills: while rates go up every year, the average amount consumers are paying for digital cable dropped from $79 a month in the third quarter of 2008 to $70 in the third quarter of 2009 as they drop additional channels and services, according to research from Centris.
Cable still has the most complete reserves of TV programming, films and video-on-demand, as well as a near-lock on live sports and news. But web-based devices are getting closer to offering the full deal. Avner Ronen, CEO of startup Boxee, estimates 60% of broadcast TV is available online free in some form, and 10% of cable TV.
Waiting for clampdown
The question is: When will cable put a stop to it? So far, the industry has been relatively laissez-faire about the situation, but one tech exec, who asked not to be named, predicted that the minute cable operators start to feel the disruption, they will clamp down and use their market power to keep TV and films from seeping into next-generation devices. They're already putting the squeeze on networks; any free distribution is an argument for lower cable distribution fees.
In the meantime, they insist that cable-cutting is more urban myth than reality. "We see some interesting stuff out there, but right now people are watching more TV than ever; cable-cutting is largely on the fringe," said Alex Dudley, spokesman for Time Warner Cable, the nation's No. 2 operator.
The audiences for these web-connected devices are starting to scale to the point at which marketers become interested. Parks Associates estimates that the consumer electronics industry will sell 80 million net-connected TVs by 2013, and there are already 20 million net-connected Xbox consoles in circulation. Recently, Microsoft said it had 2.2 million Xbox users online at the same time -- about the audience of an episode of "Gossip Girl." Within that experience, Xbox is selling traditional spots, branded entertainment and display advertising to brands like Sprint.
Boxee, which unveiled a set-top box at CES, first released its software on the web in 2007 and now has 850,000 registered users. It pulls video and other content from the web and displays it with an interface optimized for 10-foot viewing on TV.
By the numbers
Snubbing the box
So what did Boxee do? It added a web browser to its box, so users can simply surf over to Hulu.com and watch as if they were on their computer, an inelegant bridge, to be sure, but another incremental snub of the cable box.
In the coming weeks, Boxee will add the ability to sell subscriptions on a pay-per-view or channel basis, much like iTunes, Netflix or Microsoft's Zune service.
For the vast majority, devices like connected TVs, Boxee, Xbox, Roku, Netflix, etc., are additive to cable. "Personally, I think there is a style of TV viewing that is a more passive activity rather than the more active decision to use Apple TV or Xbox," said Mike Vorhaus, president of Magid Advisors.
But more and more, people don't care how their content is delivered, which is a scary thought for the cable industry and a key reason Comcast is acquiring its own content mill in NBC Universal, as well as pushing Comcast's own, proprietary web-TV plans. One thing the cable operators have on their side is they are cash-rich and can make acquisitions of media or technology companies that start to disrupt their models.
"For many people, cable works just fine; the quality is great; the DVR functionality is great; the only gripe they have is that they're paying for it," said Boxee's Mr. Ronen. But "there is a growing generation out there where the whole definition of entertainment is changing, and their main source of entertainment is the internet."