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Over the next few months, Sony (SNE) and its competitors will introduce a new generation of Web-connected televisions—and services that will stream movies, TV shows, and music over the Internet and onto those sets. The idea is to make it easier for consumers to bypass cable and effectively create their own personal TV channels.
That may sound a lot like what many people already are doing by tapping into YouTube (GOOG), Hulu, and other entertainment Web sites. What's different is that Sony and the other manufacturers are hoping to go after advertising dollars as well as subscription revenue and pay-per-view fees. Instead of using computers and mobile devices for their daily dose of free television, viewers would pay Sony or another company to watch on much more expensive equipment.
At least that's the plan.
Sony could use a new product. The company has lost $1.4 billion over the past two years, including restructuring charges. Research firm iSuppli says Sony has fallen to third place among TV manufacturers, behind Samsung and Vizio. According to Sony filings, its TV business is losing money. Chief Executive Howard Stringer says that as consumers watch less TV in their living rooms, the industry needs to adjust quickly to the changing ways viewers take in entertainment. Last month, Sony unveiled the prototype of a TV that will deliver video and music over the Web in partnership with Google (GOOG). These Google TVs are expected to be in stores by Christmas. "You can't get out of the way of this level of competition and choice," says Stringer.
Earlier this year, Sony introduced a video-streaming service called Qriocity (pronounced "curiosity") that linked to its high-definition Bravia TV sets and Blu-ray players, which both connect to the Web. While Netflix (NFLX) offers video streaming free of charge to subscribers of its mail-delivered DVD service, Qriocity will charge $2.95 or more each time a user clicks to watch a movie. Qriocity is available to the 35 million people who own Sony PlayStation 3 game consoles, which also connect to the Internet. The Tokyo-based company, which owns Columbia Pictures and Tri-Star, has been negotiating with other studios to let viewers stream movies for as much as $30 shortly after they open in theaters.
Web delivery of TV content won't be a huge revenue stream for years. Excluding income from video games, online video revenues may rise to $800 million by 2014, up from $180 million this year, according to researcher Parks Associates. This year cable and broadcast companies will take in $51 billion from advertising alone, forecaster Magna Global says.
Grabbing a share of that advertising revenue is the ultimate goal of TV manufacturers. Samsung says it plans to launch an on-screen virtual storefront of applications for shopping, games, and other activities that would allow advertisers to reach customers on its TVs, Blu-ray players, PCs, and cell phones. "This is a good time to start introducing another way of accessing content and putting control into the consumer's hands," says Eric Anderson, vice-president for content and product solutions at Samsung Electronics America.
Cable companies and theater owners are responding to the new threat. Comcast (CMCSA) and Time Warner Cable (TWC) are providing subscribers with on-demand access to content on all manner of devices. Theater chains have threatened to pull movies out of circulation if Sony and other Hollywood studios begin offering them at the same time on their television sets.
Stringer, acknowledging the turf battles to come, says everyone's concerns will be worked out over time. "If it's going to happen," he says, "we might as well be one of the first to embrace it."
The bottom line: Sony and other TV manufacturers are about to introduce Net-compatible sets as well as services to feed them content