Sinking or Swimming with Streaming Video

Few MSO executives saw Frogger or e-mail as a danger.

Convinced that video games and messaging posed little, if any, threat to their cozy berth in America’s households, cable companies watched complacently for decades as their customers welcomed an underground competitor.

As the 21st century begins, it’s clear to cable operators that broadband and streaming video have evolved into a real threat to their virtual monopoly.

Executives of leading Internet portal Yahoo! estimate 200 million hours of streaming video are available on the Web today, a figure that is set to soar as digital technology makes it easier to upload and download. Even now, young people spend more time in front of a computer terminal than in front of a TV. The kids aren’t squinting at tiny 9-inch or 14-inch squares, but at 20-inch monitors that rival many TV screens.

Patrick Keane, a senior analyst at Jupiter Research, sums up the challenge streaming video poses to MSOs this way: "If anyone is going to eat your young, it might as well be you."

This week, cable operators will flock to the Streaming Media West Show. While this show has become increasingly popular with people in cable, there is still strong resistance to streaming media.

For example, at the Western Cable Show, Glenn Britt, president of Time Warner Cable, pointed to the poor quality of much of the video stored on the Net, questioned whether current technology can permit smooth delivery of quality video, and wondered how streaming companies could ever make a profit.

"Could you get a two-hour video over the Internet onto your TV?" Britt asks. "Theoretically; but I don’t know anybody who’s doing it."

George Bell, chairman/CEO of Excite@Home, who works closely with cable companies and their executives on his company’s own board, calls that view potentially short-sighted.

The first reaction of the cable operators is to protect their legacy network and to look at what can go wrong, he says.

"You go do the analysis on the four ways you could get sideways in your business model," Bell says. "While you’ve done that analysis, three Internet companies have been invented that just go ahead and do it, and two of them are so far ahead you can never catch up."

Programming void

Perhaps the strongest criticism leveled by cable operators at streaming video is the poor quality of available content. There are no National Football League games, no Grinch-like blockbusters streamed onto hard drives via the open Internet. Branded content, for the most part, belongs almost exclusively to traditional cable and broadcast networks.

"Internet content sucks," Bell says. That, however, could quickly change.

Several Hollywood studios are working on downloading movies through the Net, says Paul Sagan, president of Akamai, which helps provide the technology. He refused to name names, but Sony Pictures, Disney and Fox are said to be key players. The technology would allow companies to bypass video stores — as well as cable companies and cable networks such as HBO.

"They will force change faster than it could happen in a walled garden," Sagan says.

Cable companies are finding that their own programmers are also restless to jump onto the Internet broadbandwagon.

"It creates new revenue opportunities for them and their advertisers," says Steve Vonder Haar, an analyst for The Yankee Group.

Some programmers are walking a fine line in order not to lose cable revenue but are eager to beef up their Web presence.

Henry Schleiff, chairman/CEO of Court TV, one of the fastest-growing cable networks, says MSOs will benefit if networks such as his offer streaming video on the Internet.

"If original content is offered on the Web, it drives purchases of digital cable boxes, and it drives people to advertisers," says Schleiff. "There is a potential here for a win-win."

That’s fine as long as Court TV makes certain "original" is the operative word, says Time Warner’s Britt. He draws the line at streaming real-time network video through cyberspace.

"If Henry puts his video on the Internet, I don’t really care — but I don’t want to pay for it anymore," the cable executive says.

That puts the squeeze on cable networks. If they cannot broadcast their feeds on the Internet, their fear is that someone else will take advantage of the Net’s interactivity to push them out of the market. Why watch CNBC’s ticker on the bottom of the TV screen, waiting for your stocks to come around, when you can have the stocks you own running on a streamer as you watch Yahoo’s FinanceVision — and write a report at the same time?

The NFL may not be sacrosanct either. While no NFL games are broadcast on the Internet in the United States, the NFL has been experimenting with secure transmissions in Europe using Clearband technology.

Within the United States, Yahoo! is already broadcasting virtually every part of a NFL game except the video, providing radiocasts, real-time stats, post-game clips and more. The portal is also experimenting with transmitting live sports video feeds of local college basketball and volleyball games.

Just last week, the International Olympics Committee debated to the possibility of streaming images from future events, saying it was looking for ways to peddle joint TV and Webcast rights while maintaining geographic control.

Some analysts predict that within a year the major broadcast networks will transmit primetime shows over the Web, beginning with those which have already attracted a heavy online following, such as The Drew Carey Show.

While traditional TV programming is migrating to the Web, the other shoe dropping for cable operators is a fundamental change in the entertainment people want. Anyone who has watched a 13-year-old spurn TV for the computer knows interactive gaming is a key attraction for the upcoming generation.

"That’s the most important interactive technology coming down the line," says Jonathan Taplin, president/CEO of Intertainer. "Anyone who doesn’t see that will pay the price."

Bell of Excite@Home notes his service has 20,000 to 25,000 people playing interactive poker each night, and that’s without broadband. Sony is banking on heavy online game traffic through its new PlayStation 2.

Another change broadband providers are seeing is the interest in short, independent films typified by Atom Films, iFilm and Alwaysi, which provide forums for everyone from film students to Hollywood stars anxious to test something different.

Some of these shorts have been attractive enough to be sold to cable networks, and more Web-originated content is on the way to TV.

Fox Broadcasting is turning Zombie College, a Web-based series from Icebox, into a half-hour pilot, while Showtime has picked up Icebox’s Starship Regulars and has ordered a one-hour series based on Goosehead.com’s Web series, Whatever.

Other programming is being produced simultaneously for TV and Web audiences. TechTV.com is expanding on TechTV’s original programs, while Oxygen has been streaming online feeds of programming such as its World AIDS Day event. This month Oxygen is introducing "Virtual Trackers" to let Web viewers see and hear what’s going on behind the scenes during the real-time TV broadcast of Trackers.

However, the change in entertainment behavior may go even deeper.

"The digital camera is the guitar of this generation," says young filmmaker Rene Besson, whose first feature, Boxes, debuted in October on the Independent Film Channel. "There is a hunger for realities."

That means thousands of young people are becoming the cinematic equivalent of garage bands, making and editing their own videos.

What do they do with them? The better shorts may end up online at Atom, but Net service providers such as Excite@Home see heavy traffic at sites where anyone can upload a video to be reviewed, praised or mocked by fellow filmmakers, self-designated critics or anyone else who cares to visit the site.

The message? The current generation may not be willing to sit back and passively watch Titanic. They want interactivity. And they want to form communities.

"People are going online as the world’s water cooler," says Paul Lee, COO of BBC America.

Then there is Napster. Could the Internet produce a video equivalent, where the latest movies are swapped from one participant to another? The answer is an unequivocal yes, say many.

"The American consumer always gets what he wants — even if it’s illegal," Bell says.

There’s another message for cable companies in the wild interactivity preferred by many younger Net users. Users accustomed to the Net will have little patience with the "walled garden" of select services many cable companies are now offering.

"We think people are going to reject any kind of a walled garden or semi-closed environment when they have options," says Stan Woodward, VP-business services for Yahoo!. "Right now they do have options. They have cable, but they have DSL, DirecTV; they have what they get over the airwaves. We’re going to keep a completely open access direction to our business, and we think other people’s attempts to do differently are going to fail miserably."

Somewhere out there may be the ultimate cable bugaboo, the killer Net application that leaves MSOs behind. Almost by definition, no one knows a killer app until it’s too late.

While Barry Diller was arguing onstage at The Western Show that there is no one killer app, if you’d walked by the Sorenson Technologies booth you would have seen yourself on a TV screen. Yawn. Except you could also see someone else on-screen, in a second frame, looking — and talking — back at you.

Sorenson has designed a chip that turns those increasingly prevalent Web-style cameras into videophones. Not only can you talk to Grandma in Michigan, you can see her baking cookies as she chats, while little Megan could show off her latest ballet moves for grandma. All this interactivity is free, except for the cameras, all over the Internet.

Dave Perkes, Sorenson’s VP-engineering, says that for the Western Show demonstration the company used a Motorola DCT5000, but says it runs on the DCT2000 as well. Sorenson says it hopes to market the videophone through cable companies. Perkes adds they are considering giving away the camera and chip and charging a subscription fee for the videophone service to push broadband connections. What’s more, he says, the chip — and the videophone — will work equally well over DSL or satellite.

Could the videophone be the killer app that sells broadband to those late adopters who don’t give a hoot about the Internet but would love to see the person they’re chatting with on the phone?

Technology

As the quality of the infrastructure improves to encompass broadband, the quality of streaming video is improving in leaps and bounds.

Cisco Systems CEO John Chambers argued at the Western Show that streaming video is the killer app for broadband, with the picture quality bound to improve as fiber and intelligence are pushed out toward the edge of the network. Cisco is already looking at how to get 40 megabytes into homes, he added.

"Where there’s a will, there’s a way," says John Billock, president of HBO’s U.S. Network Group. "There are too many people who have an economic interest, and the infrastructure, to transport rich assets to the consumer. If the cable industry doesn’t go after it, someone else will."

Three of the top five MSOs are working with Clearband to bring a high-quality streaming video signal directly into a PC via a modem, bypassing the set-top box. Clearband helped the NFL with its Web broadcasts in Europe.

The technology can also transmit TV network video from Discovery or CNBC or ESPN to a computer via a cable connection, says Jeff Huppertz, Clearband’s VP-marketing.

Under Clearband’s deals with MSOs, the Web feed of network programming would be limited to cable broadband subscribers. Someone trying to access the same Web site from a DSL or satellite Net connection could not receive the video feeds.

That keeps the signal inside the cable system, but it may not please programmers anxious to reach those viewers on the wider Web. Clearband’s approach will work just as well over DSL or satellite, Huppertz says.

Other companies are coming up with novel approaches to fix the quality problems of Internet streaming video and put the signal onto a TV screen.

Optibase showed off technology at the Western Show that allows full-screen display of MPEG4 video directly off the Web onto a TV monitor. While the video was not up to digital cable TV quality, the result is comparable to many 1960s and 1970s movies still shown on television.

A software startup called EnjoyWeb takes a different approach. Called by one analyst, "sort of a TiVo for the Internet," EnjoyWeb allows a user to automatically download streaming video. The quality of the video when played back on a television set is the equal of any direct cable transmission.

The company would like to deal with cable companies, says founder Yangbin Wang, who notes the software works equally well over DSL or satellite.

Whether any of these companies are successful, says analyst Vonder Haar, the overall message is clear — the technology is already here for clean, crisp transmission of Internet streaming video to your TV set.

Money, money, money

Many cable operators quietly gloated as dot-com after dot-com collapsed in recent months. If streaming video is so great, they chortled, why can’t anyone make money off it?

One company making MSOs sit up and take notice by earning hundreds of millions of dollars off streaming video during 11 consecutive profitable quarters is RealNetworks.

The company’s strategic adviser, Richard Wolpert, says cable’s gloaters are missing the point.

"What we’re seeing now is the fallout of people who never really had a path to a business model that made sense," Wolpert says. "At the end of the day we’ll see the companies that do have revenue streams and profitable objectives they can get to in a short time."

The financial health of streaming survivors seems likely to improve. One overwhelming reason for the paucity of revenue from streaming video is simply the lack of viewers.

Current estimates have only 3 million to 6 million home broadband users in the United States. That number could increase five- or tenfold over the next five years, depending on which research projections you believe.

Yahoo! projects 20 million users by 2003, its target date for "critical mass" to attract advertisers to the business, sports and shopping channels the Internet portal is launching.

There is ample reason to believe more eyeballs will do the trick. Most broadband usage in the United States is still in the workplace, and Yahoo! is already making money with streaming video in its business services division, transmitting training sessions, stockholders’ meetings, product launchings and other B-to-B activity.

HBO’s Billock also has little doubt the revenue is out there, noting that with DSL, cable, wireless and overbuilders pushing broadband, commercial successes could develop almost immediately. One prime candidate he sees for early profitability is a music video streamed directly onto a 16-year-old’s computer or TV screen.

Broadband will not just change the business model for streaming video companies, he adds. Within five to seven years, it will affect ISPs, cable companies and everyone else in the industry.

"When we move to a broadband world, when we do have a highly sophisticated set-top or television monitor, there’s going to be a change in the dynamics between where the programming is coming from and what is going to be paid for by the user," Billock says. "It could be bits, it could be content, but I think there is going to be a fundamental shift in business models down the road."

Excite@Home’s Bell agrees and raises a key issue for all broadband service providers, exemplified by sudden surges of usage for game playing his company experiences.

"We are very concerned about it from the point of view of a business model. It sucks so much bandwidth," he says, then puts his finger on a dilemma for the entire industry. "There is no future for us in running a broadband network in which huge variable rates of traffic and bit flow are going unmeasured or unpaid for."

Cable’s choices

Cable is already doing the most critical thing to survive and ultimately profit from streaming video: pushing high-speed connections into the home. The challenge is how to maintain profitability without driving broadband users away to other suppliers such as DSL or satellite.

The crudest and simplest way would simply be to charge for bit use, perhaps through a tiered system. If Bell is right, all broadband providers face the same dilemma, and cable won’t risk alienating customers because DSL and satellite will eventually be forced to do the same.

Unless and until cable companies become the only broadband connection into the home, MSOs must accept that network programmers will need access to customers using other systems. Revenue sharing, perhaps through e-commerce, rather than thwarting that effort, would create the ultimate win-win situation.

"At their core, cable companies are all about carrying data from one place to another," analyst Vonder Haar says. "If you are successfully able to deliver the world of streaming media content options, chances are customers would be willing to pay more. Any form of content you can bring to the table just makes your pipe that much more valuable."