TV Viewing Fragmenting Across Devices

Fully 87 percent of users age 13 or older say they have played video games of some kind for Xbox 360 and Wii, with 80 percent saying they have done so for PlayStation 3. Much of this is the result of traditional offline play, but nearly half of Xbox 360 and PlayStation 3 users say they play games online.

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But that might not be the most-important development in the gaming console space. The second-most popular use of consoles is for watching DVDs/Blu-Rays, most noticeably for PlayStation 3 but also for Xbox 360 (DVD playback is not a standard feature on the Wii.

PlayStation 3 users indicate that DVD/Blu-Ray viewing occupies 27 percent of their time with the console, about the same amount of time as users spend with offline gaming. DVD viewing occupies 11 percent of time on an Xbox 360

Video-on-demand and streaming services such as Netflix, MLB Network and ESPN3, account for 20 percent of Wii users’ time, 10 percent of Xbox 360 users’ time and 9 percent of PlayStation 3 users’ time.

In the second quarter of 2010, the average person watched more than 143 hours of television per month. What is perhaps new is the growing amount of time spent using gaming consoles for some of that viewing.

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Online Video Will Probably Follow the Early Steamship Model

Over-the-top video clearly resonates with consumers. The big challenge is figuring out a revenue model for the content owners and providers that supplies the content people want, at prices they are willing to pay.

Some might predict that the interim business model will essentially be the same as was adopted by sailing ships as the "age of steam" arrived. At first, sailing ships were outfitted with boilers, and used both methods of propulsion. Only later did virtually all ships convert to steam-only propulsion.

That's probably going to happen with entertainment video as well.

Verizon's "Flex View for FiOS" is one example, as is "TV Everywhere." FiOS subscribers can rent or purchase on-demand content and watch it on up to five devices.

Netflix takes a somewhat similar approach, allowing consumers to rent either DVDs or stream content, all as part of a single subscription.

One suspects that is going to be a dominant pattern, for the time being. Content owners and networks will not want to move too quickly to essentially cannibalize one existing revenue stream while trying to grow the new one.

Yankee Group :: Research Report

Internet TV and The Death of Cable TV

Lots of people believe video distribution is going to change, and the only question is how long it will take. Some think the important thing is the number of alternative venues now available, or which will likely be made available, to view professionally-produced content users now associate with "cable TV."

All you need to know is what the content owners want to do, and when.

The networks aren’t blocking Google TV access to content because Google is uniquely disruptive. They are blocking Google TV access to network content because "web TV" economics likely would be incredibly disruptive to the current business.

Content owners want preservation of existing revenue streams--at least the magnitude of those streams--as "over the top" delivery modes develop. One might question whether that is possible, but there is no question the networks will attempt to maintain the existing business practices to the greatest extent possible.

Cable, for its part, claims the lowest-possible distribution cost, from an end-use standpoint. The objection many users will have is that the cost to deliver programming that is not wanted is not the important metric. What matters is the cost to view only the content any single viewer wants to watch.

The key is what content owners are willing to accept.

Internet TV and The Death of Cable TV

BBC Looks To Ban Over the Top Use of Its Content

The BBC, saying it seeks to maintain its brand, says it does not want to make its programs available to third parties for VOD distribution on an unbundled basis. In part, that is one more example of how the debate over content pay walls is being played out, and also an example of the broader ways in which the battle between open and closed ecosystems likewise has heated up.

BBC Looks To Ban Third-Party iPlayer Builds | paidContent:

All Video Over the Top in 10 Years?

"The reality is that within the decade, the Internet will become the vehicle for distribution of all digital content, including the video and TV services currently still delivered within the walled garden of proprietary distribution networks, mostly satellite and cable," says Philip Hunter over at BroadbandBreakfast.com. 

The physical network may still be cable or satellite, but it will be an IP-based infrastructure, with the content arriving “over the top” rather than within a walled garden, he argues.  Access to the service will continue to be controlled. However, content providers now will be in direct contact with the end customer, in effect cutting out the broadcast distributor.

"Current TV operators will either morph into Internet service providers, which many are already anyway, or into content providers in their own right," he argues.

BroadbandBreakfast.com: ISPs Struggle to Deliver Video Traffic While Imposing Bandwidth Caps

Will 13% of Video Subs Cut All or Some of Their Services This Year?

It probably would not surprise you if the Yankee Group suggested that younger people are more likely to stop subscribing to cable, satellite or telco video services.

It might surprise you to learn that Yankee Group believes 13 percent of current subscribers will cut all or some of their video services within 12 months.

That would be unprecedented in the history of multi-channel video.

Keep in mine that Yankee Group says the forms of "cord cutting" might take the form of terminating premium channels or halting use of video-on-demand services, as well as terminating all service entirely. Still, that would be a stunning development.

Small Cable Operators Think Dumb Pipe Might be a Better Business Model

Not every cable operator thinks over-the-top video is a worse business model than providing cable TV. In fact, some believe providing what might be wholesale services to third parties might actually provide better profit margins than cable TV now does.

"Our video margins are going down year after year," said Colleen Abdullah, the CEO of WideOpenWest Holdings.

Wave Broadband COO Steve Friedman also agreed that the profits from an over-the-top model might be better than the current cable TV business, especially if the new model simply substituted a bandwidth usage model for the current monthly subscription model.

While the dumb pipe model may in fact be better for small operators, that probably is not the case for larger providers.

Probably the worst of all possible outcomes is over-the-top competition from firms such as Comcast, where Comcast sells the video content directly to broadband users, and the local cable modem provider is not able to charge for the additional bandwidth consumed. That is one reason why the dumb pipe model would not work unless some form of consumption-based charging were adopted.

"Over-the-top video will eventually emerge as a challenge to the current model of large, expensive bundles of programming," said Blair Levin, the executive director of the FCC's Omnibus Broadband Initiative. Levin thinks such a move is "inevitable."

The basic tradeoff is that cable operators would essentially trade current linear video subscription revenue for higher broadband access revenues. That essentially was the business decision Qwest Communications made years ago, when it concluded it was better off outsourcing linear entertainment to DirecTV, and building its optical access infrastructure in a way that ultimately is conducive for over-the-top or on-demand video.

"The final inevitability is mobile broadband," said Levin. "We know it's coming. We know it's going to be very, very big."

"In 1994, you could envision as inevitable the Internet replacing existing platforms for communications and entertainment," Levin said. "And based on numerous metrics, that transformation is well underway."

Levin also warned that consumer anger over the cost of cable TV now reminds him of similar sentiment leading up to the 1992 cable act, and that there will likely be "some kind of response, either from the market or from the government," to address those concerns.

Any such move would further limit the upside from linear video and likely propel more movement towards an over-the-top approach.

http://www.lightreading.com/document.asp?doc_id=190749&site=lr_cable&f_src=lightreading_gnews