Could Best Buy and Walmart become OTT video service providers?

McDonalds, Starbucks and Huggies are not names traditionally associated with the pay television market — for now. But over-the-top (OTT) video is cracking the market wide open, and Andy Tarczon, founding partner and general manager of The Diffusion Group (TDG), believes these retail names could become as prevalent as any pay TV provider's.

Unlike pay TV providers, clearly defined by the service they provide to the home, there is no true definition of an OTT player. OTT content relies only on the presence of a broadband pipe, meaning anyone could be the source of material. After five years and several reports exploring online video and OTT content, Tarczon strongly believes that an established consumer brand is well-suited to be that service provider.

The best example comes from Best Buy, Tarczon said. The big box retailer is already making a push into mobile phones and consumer electronics. By establishing its brick-and-mortar locations as authorities on all devices, it is well-positioned to also, for example, offer a free 30-day trial of a new OTT service. Or, instead of selling a Blu-ray player that connects to Netflix, connect it to a Best Buy-sponsored video distribution service. As ABI Research also noted in a recent report, retailers like Best Buy are already selling connected data-centric devices, so it's not far-fetched to imagine them selling the service as well.

"That is something the retailers are hesitant to do, since they don't want to overlap with existing service providers now," Tarczon said. "They are trying to find a happy medium that says, ‘We know physical media has a shelf life.' It's not going away tomorrow, but over the next 10 to 15 years, the amount of a Best Buy store dedicated to physical media has nowhere to go but down. As that shrinks, Best Buy is looking for ways to extend their service and even their brand into that experience."

They may lose foot traffic or impulse-purchase makers, but by extending their brand, they could more than make up for it by owning the actual viewing experience. It isn't just a Best Buy that is exploring the opportunity either. Walmart or Sears would also be prime candidates given their strong relationships with brands, Tarczon said. Further down the road, even a Starbucks or McDonalds could get in the game of content and channels. As a new father, Tarczon could also envision the viability of a TV service dedicated to parenting, such as a "Huggies TV" that included Discovery Health, information and lifestyle content for homebound parents.

"In a quantum media environment, that service provider — that channel — can become driven by the brand around a particular life event," Tarczon said, adding that the brand works as a broadcast aggregator, not necessarily the broadcaster itself. "The challenge is our traditional views of what distribution is change. It's a whole new world. The barrier is not technology; the barrier is legalities and contracts."

Content providers have been slow to move to this environment for the fear of "Napster-izing" the video industry. Napster came onto the scene in 1999 and hurt the music industry by offering free, albeit illegal, access to songs. While Apple brought redemption in the form of an iTunes model of $1 per song, it also significantly lowered revenues as the value of purchasing CDs declined. The video industry wants to avoid this scenario at all costs, Tarczon said. They are in the experimentation phase right now, trying to find a model that works, but they are not willing to throw everything out the window just yet. If Tarzcon is right, however, it won't be long before broadband connectivity coupled with consumer-friendly services overtakes incumbent pay TV services, which consumers — 60% TDG says — are already failing to see the value in.

"Ultimately everyone will say there is a very clear vision, but it's a sandbox," Tarczon said. "We have some great intelligence on how the market will grow, what the platform and devices look like, but a lot of the model is up for experimentation right now. We know things that don't work, but there's a great effort to find the things that truly do work — and work for everyone — content provider, consumers and the middleman trying to make it happen."