On Monday, February 22 a short announcement by Walmart sparked some interest in the consequences of its acquisition of Vudu, Inc. As a TV watching nation, the US has a long history of following news, sports, movies, commercials, etc. on the good old TV tube. With the change to digital in 2009, a new paradigm for television signals has arrived. High definition - as in HDTV- has rolled over this continent for several years (and the rest of the world for that matter), and the most important question during the last few years for the TV enthusiast was, "how big a TV can I fit in my home?" The strong display-centric view of the last few years has left open the question of content delivery.

Norbert Hildebrand
Insight Media Analyst

For several years, a much-discussed option was Internet TV until it got some competition from 3DTV during CES in January 2010. While Insight Media is preparing its soon-to-be released new 3DTV Market Forecast report, Internet TV is still a hot topic and has regained some ground in discussions by industry analysts. While some are arguing that Internet TV will win against 3DTV, I don’t believe it’s so much a question of ‘Internet TV OR 3DTV’ but rather the solution will be ‘Internet TV AND 3DTV’. The high-end sets will offer both options as CE manufacturers can’t afford to bet on one option and risk losing part of the available market.

One question remains, how does the content get into the TV? This is not only true for Internet content, but also for 3D. The Internet might be an attractive addition to the standard methods of broadcast (aerial, satellite, cable) and optical media (DVD and Blu-ray) not only for HDTV, but also for 3DTV. To save money through bundling, many TV customers get their Internet service from the same provider and they throw in the phone service for good measure. While the service providers may not like this development and are offering their own IPTV services, consumers might love this as they can only watch one channel at a time anyway. Instead of paying a fixed fee for 80+ channels, they can pay only for the channel they watch. Sounds simple and elegant - giving the customer what they want is always good business - or is it?

Not so fast says the film industry. Will online rentals replace DVD sales? Will they slow the growth of Blu-ray disc sales? This seems to hint at the real hurdle for the IPTV services available today. The change in business models threatens many companies in the entire food chain, from content creators to service providers.

As an example, look at Blockbuster Video, which has struggled over the years to adjust to a new distribution models (from ‘in-store’ to ‘direct-to-door’). Their sales in the third quarter of 2009 have reached a mere $910.5 million versus $1.16 billion in same quarter of 2008. Compare this to the 24% year-over-year growth posted by Netflix with revenue of $423.1 million for the same quarter. With just these two companies providing content to the TV consumer, we are looking at a 5-6 billion USD market per year. This, in addition to revenue generated by others, and the movie-on-demand services of the traditional providers and their IPTV services is enough to get the attention of Walmart!

While it seems a smart move by Walmart to get in early for the next thing after DVD and Blu-ray, others have been playing in the same game for some time. There are still issues with the bandwidth, distribution of high definition content and content availability. Viable high definition Internet TV requires a high bandwidth Internet connection and will put some strain on the backbone of the net, and not only on the last mile. The USA is not leading today in broadband Internet connectivity and this would require a massive re-tooling of the Internet providers and the connection to the home. Don’t forget that the same guys providing this super high bandwidth to your homes, may then lose you as a paying cable TV subscriber.

With other companies like Apple and TiVo actively pursuing the same consumer space with alternative solutions, it is not clear how this endeavor will play out. In addition, there are several thousand free Internet TV stations available today (mainly public access stations) worldwide. Vudu announced during CES that they will abandon hardware sales and instead focus on the movie distribution side of the business, while several CE manufacturers announced Vudu compatible TV sets, Blu-ray players and set top boxes.

This squares off three of the most successful companies in the USA today - Amazon, Walmart and Apple - in a competition for the available entertainment $s. TV will never be the same.

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