Sunday, November 11, 2007

Business Week Online

I Want My iTV
NOVEMBER 19, 2007

But I won't be getting it soon. While the technology is mostly in place, the players—from cable companies to film studios—can't agree on how to make it happen

It all started when my TiVo let me down. For years this little device has been like an old friend. It sat next to my big-screen TV to record shows and movies when I wanted, without a lot of questions, and with no judgments on what I wanted to see. But on a lazy late summer day, I came to view TiVo in a whole new light.

There's a collision, you see, between the boob tube and the Internet. TV is all about instant gratification. The Net is about me having control. Put the two together, and the result should be personalized TV, or iTV, which lets me watch what I want, when I want it. That sounds a lot like TiVo. The recorders, which the company claims deliver "television your way," also allow you to connect to the Net and do things like check freeway traffic before your daily commute, buy movie tickets from your couch, and listen to Web radio, all on your TV. In July, TiVo even became the first device that lets you search easily for programs from cable outfits along with movies and other content delivered off the Web from Amazon's (AMZN ) Unbox video service.

So when my editors asked me to explain how TV and the Internet were intersecting, my first thought was to grab TiVo's peanut-shaped remote control. I had a hankering to see 1949's White Heat, the Jimmy Cagney flick where he plays gangster Cody Jarrett. Cornered by cops on top of a burning oil tank, he laughs maniacally and shouts: "Made it, Ma! Top of the world!" just before being obliterated. Calling up a neat bit of TiVo search software, I typed in the movie's name.

No luck. It offered me White Men Can't Jump on cable, or Single White Female off the Web. I tried typing in "gangster" to let TiVo troll program descriptions that might fit. There was the Gangsta Girls documentary or 1944's Gangsters of the Frontier to rent at Amazon. No... White... Heat.

Experiences like this just make it painfully clear how far we still are from having truly personal TV. All the technology to do this is basically in place: fast broadband connections, personal media recorders, instant Web-searching software, high-definition sets. So why can't I press a button or two and see whether the tribe has spoken, root for the next top chef, pull up a YouTube (GOOG ) clip of Ellen DeGeneres breaking down in tears over a dog—or even watch Cagney rise from small-time hood to the top of the world? I want to listen to music, have a box pop up on my screen telling me who's phoning my home, or watch a vacation-themed slide show before forwarding it on to bore my friends on Facebook—all while sitting in front of the set in my living room. No one has yet put this wish list together in one nice, easy-to-use package.

To find out why so many have tried and failed to deliver my TV nirvana, I got up off the couch and hit the road to talk to technology wizards and top industry executives. I discovered that Hollywood, cable, satellite, phone, and consumer-electronics companies are all screaming "Go! Go! Go!" as they lay out ambitious plans to conquer the market.

But what's holding up the transition from network TV to networked TV is that any company with a little piece of control in the way things work today is unwilling to jeopardize its power and revenues until it becomes clear how the new model will pay. Every time you hear about some product that sounds great but just has one strange limitation, follow the money to understand why. Hollywood worries digital downloads could lead consumers to stop buying $24 billion of DVDs annually, and broadcasters are nervous about the fate of the $185 billion-per-year TV advertising kitty. So studios and networks alike limit how long programs are available on Web sites or restrict the shows that play on various devices.

Cable and satellite providers worry that they will lose customer loyalty to the Web, so they impose tight controls on what content you see and have moved painfully slowly to offer advanced TV services. The people who make electronics gear fret that if they don't lock up agreements for exclusive music or videos, consumers won't pay top price. "You've got device manufacturers, content providers, service providers, networks, software makers, security providers all trying to sort out how big their piece of the pie should be," says former Comcast (CMCSA ) executive Kip Compton. He is now senior director and general manager of video and content networking at Cisco Systems (CSCO ), which is trying to merge TV and the Web.

Granted, I'm far more obsessed with this topic than the average couch potato. I've been testing electronics gear for nearly 10 years and have enough boxes and wires in my place to open a store. Comcast cables connect one room, Dish Network's wires snake through another, and DirecTV's are in two more. There are six digital videorecorders, four stereo receivers, an HD DVD player, a Blu-ray player, a half-dozen PCs and just as many Macs. So many high-definition TVs arrive during the peak holiday testing period that at one point a few years ago I had to shove one under a bed.

Most regular people still haven't viewed their first TV clip on a computer screen. But a survey by the Conference Board-TNS shows that 16% of American households with Web access now watch full TV broadcasts online, double the number from a year ago. And visitors to parts of Europe and Asia can see how far behind we are in personalizing our TV experience. Speedy, reliable broadband access in those regions can deliver richer video service, and because providers face real competition, they have to add Webby services to television as a selling point. Today, some 60% of all households in Hong Kong watch programming delivered over the Internet to the TV, says researcher Parks Associates. From a hotel in Seoul, I can click to do my banking on TV. A couple of friends I know live on the frozen tundra of Canada; even there, I can play games or get onscreen score alerts of favorite sports teams.

The electronics industry has churned out dozens of clever workarounds to bridge the Web-TV divide: A device called Slingbox lets you take recorded or live TV shows off a box at home and "sling" them miles away on a laptop, smartphone, or other mobile devices. Apple TV indirectly feeds (we'll come back to this) a show you bought on the iTunes Web store into your TV. Kids are rigging their Xbox video game consoles to do a similar trick. Or, you can schlep the shows by hand with TakeTV, a pocket-sized memory stick from SanDisk. (SNDK )

Each of these solves one or two pieces of the puzzle, while never quite completing the picture. It's like we're at that junction in the early 20th century when you had your pick of electric, steam, or gasoline-powered cars, and the steering wheel might be on the right or left side.

The first stop on my journey was just a short drive down the road from my San Francisco home to the offices of SRI International, the former Stanford University tech shop that helped create the precursor to Wi-Fi networks and high-definition TV. There, CEO Curt Carlson, the co-author of Innovation: The Five Disciplines for Creating What Customers Want, assured me that the trick for companies facing tough choices in this period of transition is to look beyond the customer they have today and anticipate the needs of an even larger audience a few years down the road. In short, focus on what's truly important to people and be the first to deliver that. Simple in concept, but extremely difficult if you're constantly thinking of short-term profits, he says. "I'm a big fan of [Apple CEO] Steve Jobs," Carlson says. "The people who connect needs and ideas the best and fastest win, and that's where he stands out."

Ah, Steve Jobs, the patron saint of gearheads. He is everyone's first (and often only) example of someone who's managed to make sense of a fractious market like this and turn it into a money machine. Jobs and Apple reinvigorated consumer interest in music with the elegant combination of a device (the iPod) and experience (the iTunes Web store). He put the pieces together so that you don't have to.

But Jobs is also the bogeyman that has forced fearful media bosses to change their approach to Webified TV. In music, Apple turned the traditional model upside down by charging a premium for gear while setting a flat, low price of 99 cents per song download. Now Apple has amassed a cash horde of $15.4 billion, while the music industry is awash in red ink. No wonder Hollywood studios and broadcasters are hell-bent not to hand similar power to anyone else—and particularly not Jobs. "We know that Apple has destroyed the music business, in terms of pricing, and if we don't take control they'll do the same thing on the video side," NBC Universal (GE ) chief Jeff Zucker told an audience at Syracuse University's S.I. Newhouse School of Public Communications on Oct. 29.

Jobs actually did try the same thing with Apple TV. Amid all the hoopla over Apple's iPod, iPhone, and Mac, Apple TV is the one product that even Jobs concedes isn't a smash hit. It's a neat idea, a box that lets you buy videos off the Web and play them on a TV. But the business model is flawed: You can only buy what's on iTunes, 1,050 titles in all, vs. the 85,000 offered by Netflix. My whizzy $299 white, gray, and silver Apple TV box sits largely unused next to a big-screen television in my bedroom. The process is like running a Rube Goldberg contraption. Start with a Mac, where you download videos; wait for them to be transferred by wire or Wi-Fi to the somewhat limited storage on the Apple TV box. By then, you might as well have just watched the stuff on the computer screen.

As I visited technology workshops in Germany and Silicon Valley, I was struck by how many of these program-shifting products suffer from a simple but fatal flaw: set-top box fatigue. No one wants to take a science test in their living room, crawling into tight spaces behind the media center to run wires and spending hours on the phone with tech support pressing "1 for new customers, 2 for current customers." That's why cable and satellite companies typically roll a truck to the curb for installations, despite a cost estimated at $50 to $100 a home. Small companies have no such luxury. Many device makers are forced to partner with cable and satellite providers, incorporating their technology into the boxes those companies already have in customers' homes.

Box fatigue basically led Sling Media to sell out to satellite company EchoStar (DISH ) in September. The plan is eventually to build Sling's technology into Echostar's Dish Network boxes. The Slingbox has gained modest traction with professionals who are constantly on the go, for whom there's a certain attraction to a device that forwards TV programs to their laptop or smartphone via the Web. But here again you have that extra box to worry about, and one that's devilishly complex to set up—at one point you have to deal with opening ports on a wireless router to let the shows travel out. Company founder Blake Krikorian acknowledges most folks may be confused by the concept of shifting the time and place of media consumption. "People didn't understand where we were going when we started out as a standalone company. I'm doubly sure they have no idea where we're going to go with Echostar," he says.

Similar concerns led TiVo to explore how it can embed its features on Comcast and other cable boxes. My best guess is this fate awaits many products that offer halfway solutions—and this could be a turning point in resolving the TV-Web stalemate. Because cable companies are wired into nearly every home, they have a good chance over the next couple of years to incorporate innovative Webby technologies in their equipment, speed up broadband connections, and set standards that force others to line up behind them. They'll need to sign content deal with various partners and overcome a reluctance to spend more money to upgrade equipment. And they'll have to cede some control to the TiVos of the world.

That leaves the challenge of getting media companies comfortable about setting programming free. Google's (GOOG ) YouTube terrified them by showing how an independent site could usurp their gatekeeper role and siphon ad revenues. But it's possible that as Google methodically extends its Web-search expertise to all manner of screens—computer, TV, phones—it could help media companies adjust to the new world.

The media giants recently took a step in that direction with Hulu, a Web site launched by NBC Universal and News Corp. (NWS ) Hulu is the networks' attempt to monetize their shows on the Internet. It offers TV shows and movies for free, with commercials online. The companies get their money, and I, the consumer, get control, or some of it. Much of Hulu's programs ultimately will wind up on sites such as Yahoo! (YHOO ) and MySpace. But to protect their DVD income, the networks have placed a big limitation on the service: You can't watch it on TV, only a computer.And you can't record the shows. They are streamed off Hulu servers each time you watch and can't be stripped of ads unless you buy a copy. Prime-time hits disappear from that season's selection after five weeks.

Will it work? I completed my journey fittingly, testing Hulu on my home computer screen. I was skeptical. Techies like me assume that anything put together by a committee of desperate Old Media dinosaurs is doomed (Hulu is derided on tech blogs as "Clown Co."). I'll admit, though, that after spending some time on the beta site I was impressed. The morning after the latest episode of The Office was broadcast on NBC TV, it was on Hulu, with a quarter of the ads. The site offers the biggest collection of premium content on the Web so far and is adding older titles daily. You can e-mail a clip to a friend or upload it to a Facebook or MySpace page. After watching one Office episode from a previous season, I clicked on a link that took me to Amazon to buy it for $1.99—a download that I could even send to my TiVo to watch on the big screen. "What works for consumers is that which removes the most friction," says Hulu CEO Jason Kilar. "The technology needs to be so good that it blends into the background, and nobody notices it."

All well and good, but let's cut to the chase: Can I get White Heat? Alas, there is no happy ending. Only few movies are available on Hulu, and you probably can guess why: The Cagney flick is distributed by Warner Bros., one of the studios that has not struck a content deal with Hulu. Of course, even if it did, I would have to watch Jimmy's big exit on my laptop.

Foiled again. Looks like my search for iTV continues.