Shakeout Coming in Internet TV Boxes

If consumers are likely confused by the raft of devices to bring the Internet and apps to the television, the TV industry isn’t so sure what they will mean for various players, from content providers to cable networks to cable and satellite TV providers. Folks attending the Streaming Media West conference in Los Angeles today got some answers from a panel of TV and device makers.

The gist: There’s a shakeout coming as more and more devices come to market this year and next. While the growth of interest in alternatives or supplements to cable TV may drive sales for the next year or so, the ones that don’t catch on quickly will start dropping like flies. And with Google and Apple putting bucketloads of bucks into their offerings, it seems likely there won’t be room for all the alternatives that already exist, let alone new ones still to come.

On the panel were moderator Andrew Wallenstein, senior editor at PaidContent.org; Dan Kelley, senior director of marketing for D-Link, which worked with Boxee on its over-the-top device to be released on Nov. 10; Jim Funk, VP of business development at Roku; John Griffin, director of connected electronics at Dolby; and John Koller, direct of hardware marketing for Sony Computer Entertainment America. Here in more detail is what they had to say.

Q: What is the big differentiator for the Boxee box? D-Link’s Kelley: It has to be a real TV experience. It has to be fluid. Boxee is really an open platform. There’s already about 100 apps in the library. It’s also social. And we think the box (which is not merely rectangular but has a cut in the base that makes it look askew) will stand out in this space.

Q: What becomes the primary selling point in the marketplace for over-the-top TV? Sony’s Koller: We create a lot of unique reality show content, like The Tester, and our social community, Home, and I think that helps craft the message to the demographic we’re targeting. Roku’s Funk: No one wants to buy a box. It’s all about the content. Netflix is the thing that gets watched. They’re going to have a lot of competition. But they’re really driving this whole segment. Dolby’s Griffin: These devices are coming down in price and they’re easy to use. We’re at the point where we could go mainstream. We at Dolby are also trying to raise the quality of online content.

Q: What are the implications of Netflix’s dominance on these devices? Funk: Netflix will have about 19 million subscribers by the end of this year, so it’s hard for others to compete.

Q: Some of these devices are not really easy to use especially in terms of finding content. What are the challenges here? Koller: We’ve been doing ethnography studies for the last couple months. We were in this kid’s attic for 12 hours seeing how he plays with the games. Funk: None of the devices do discovery and search well. The input devices are limited, for one. Somebody will do something better. Kelley: You need a great hardware and software integration to get that 10-foot experience right.

Q: So for the Boxee box now, what are your projections? Kelley: Won’t say, of course. But we have high expectations, and the preorders are hitting those expectations. Amazon will start shipping next Wednesday, so customers will get it in their hands as early as Nov. 11. We’ll be doing a pretty big splash leading to CES.

Q: This entire category is an early-adopter phase. What will it take for a device like this to go mainstream? Funk disagrees it’s only early adopters so far. The types of users we have don’t fit what you’d typically think of as an early-adopter mentality–often people get them for their parents. Awareness is definitely low, and people don’t sit around saying “I’m looking for a new way to watch TV.” DVRs took five to seven years to take off, really until they were given away by cable companies. Griffin: We’re going to see a very large adoption rate of many of these services.

Q: Is it inevitable that the Connected TVs will have an edge over add-on boxes? Griffin: The life cycle of TVs tends to be longer than the outside boxes, so there will be a market for add-on devices that come out more often. Kelley: You need some serious hardware in the TV to do streaming.

Q: Could we see cable operators work with or offer these devices as they did with DVRs? Funk: The challenge is in the way the cable industry has evolved. Bundles have been created and media companies have built their businesses on those bundles. It’s very hard to break those bundles apart. There’s nothing wrong with that $100 bundle but it’s not as much on-demand as they’d like. But eventually you will see cable companies try to do some of this themselves.

Q (from the audience): Will Boxee support Netflix? Kelley: Not yet. Just Vudu so far.

Q: Where do you all see Apple TV competitively? Funk: All the boxes are a little different. Kelley: It just help create additional awareness in the market. (Reading between the lines, they sound scared of Apple.) Funk: As the market matures, there will be winners and losers. Koller: Sony should be a winner because of the broad range of businesses we have.

Q: Is the Boxee box the best opportunity for cord-cutters? Kelley: I don’t know if it’s the best choice if you want to absolutely cut the cable. Lots of content may not be available.

Q: How are all of you different from Google TV? Kelley: They have some advantages depending on the type of customer, like the blending of Internet and regular TV. Google can make a splash and they have the partnerships to support that. But we have a viable place in the market. Every week this market changes from the hardware side to the software side. Funk: You can buy five Rokus for the price of one Logitech box. So you have to really want that Logitech box. There’s a lot of challenges in browsing the Web on your TV. It’ll be interesting to see how it evolves. This is a first-generation product.

Q: Do you see offering more actual browsing on your devices? Funk: Would cost a lot more to offer that.

Q: Do you see a future for advertising on your boxes? Koller: We’re already there with various sponsors. Kelley: Possibly for Boxee. Funk: Can’t do it with contracts with some providers (presumably Netflix).

Q: What will drive the inevitable shakeout of these boxes? Funk: The growth is rapid right now. The biggest driver is if somebody starts to take off, some of the other players will start dropping off. It’s going to get more crowded rather than less crowded.

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