CES: LG connects TVs to the Web, starting with Netflix

“I think it’s hard to say whether an Internet-connected TV versus an Internet-connected STB is a better solution,” Hurd said. “I see the upgrade cycle of the Internet-connected box to be a lot more frequent than the TV. For that reason, it makes sense to have an external box – partly for the same reason people have separate amplifiers and receivers from their Blu-Ray disk player or DVD player. You put it all in one thing, and it’s harder to upgrade.”

Since the onslaught of OTT options, there has also been debate over the number of STBs a consumer will tolerate in the home, with some analyst firms predicting a STB decline beginning in 2012. The LG-Netflix partnership may actually have the greatest affect on other OTT STB vendors in the crowded market. Going forward, this move could challenge this space – or persuade them to take the same path.

“Any of the proprietary services that don’t have the scale of Netflix or Apple are going to have challenges because ultimately what they have to pay for the content is greater, what they have to pay for the box itself is – the costs of goods and the hardware will be a lot more as well,” Hurd said.

Service providers are also potential competitors – or partners – in this market. From their perspective, content from their on-demand libraries must be much better quality than a Netflix or OTT provider, otherwise it raises questions about whether the service provider is doing enough to differentiate its video service, Hurd added. The big question for service providers is how good the video quality is going to be. There is still an opportunity for them to differentiate based on quality – otherwise, they may end up letting OTT services like Netflix dominate the video market.

“Overall, it’s one really big question here for service providers and for the consumer experience is how good is the video quality going to be? With a Blu-Ray disk at 25 gigabytes, you can’t stream too many movies without hitting usage caps, whether formal or informal,” Hurd said. “This really starts to affect bandwidth. The quality of what you are able to get through these over-the-top services and Netflix, while good, won’t compare to the quality of physical media or even for video on demand from the major service providers.”

The Broadband HDTVs, which will be on display at this year’s Consumers Electronics Show in Las Vegas, rely on a broadband connection and a queue-based user interface. Netflix members can add content to their individual instant queues from Netflix’s Web site, which is then automatically displayed on the TV. LG said the new LCD and plasma HDTVs will be available this spring for a premium. At launch, four models will be available, including LCDs with 42-inch and 47-inch screens and plasma TVs with 50-inch and 60-inch screens. In addition to the TVs, LG also has five new models of Blu-ray players and home theater systems planned for this year. On any of the connected TVs or devices, consumers can choose from more than 12,000 movies and TV episodes starting at $8.99 per month.