Battle of the Web-TVs

This year's CES featured a slew of set-top boxes designed to unite the Net and TV, bringing both Web and on-demand shows to the little screen

by Catherine Holahan

Technology companies have long envied TV's place at the center of the home. They have encroached upon it with video game boxes and tried, in vain, to replace it with big monitors attached to powerful multimedia PCs. This week, at the annual Consumer Electronics Show in Las Vegas, technology companies finally unveiled the Internet-connected TV set-top boxes that are the key weapons in their bid to control the living room.

Seemingly every major tech company ever to enter gaming, computers, or entertainment unveiled a device at CES intended to unite the Internet and television without tethering the TV to the computer with a cable. The list includes iTV maker Apple (AAPL), Advanced Micro Devices (AMD), Microsoft (MSFT), and Sony (SNE), among others (see BusinessWeek.com, 1/10/07 "Smart TVs: The Race Is On").

The idea is not entirely new. Akimbo, a privately held company based in San Mateo, California, partnered with RCA several years ago to develop a set-top box that brings on-demand Web programming to the TV. On Jan. 10 Akimbo announced a partnership with Yahoo! (YHOO) that will bring the highest-rated user-generated videos on Yahoo!'s site to its on-demand service.

Changing More than Channels

While none of the "smart TV" devices have any significant market penetration yet, the sheer number of them shows that tech companies believe they can win the living-room rumble for dominance. If they're right, consumers can expect some big changes to how they watch TV that should go far beyond the ability to view YouTube videos on CBS (CBS). (The TV network announced a partnership with YouTube Jan. 10 that will enable computer users to vote for which user-generated video should air during the Super Bowl.)

Web-enabled TV devices will encourage content providers to create more interactive programming. Think of shows that, with the click of a remote-control button, pull up screens with DVD-like bonus features available via the Web, or allow users to select an alternate ending for a television show (see BusinessWeek.com, 1/31/05, "Interactive TV: What's In the Cards"). Already cable operators such as Time Warner Cable (TWX) are experimenting with such programming. The company held interactive voting for the show Last Comic Standing" that allowed viewers to select their favorite comic via remote control. The results helped pick the winner.

Perhaps the largest change brought about by increased Web/TV connectivity will be the availability of more on-demand programming. The appearance of digital videorecorders such as TiVo (TIVO) helped spur the on-demand trend by enabling audiences easily to save shows without the hassle of complex VCR programming. Most U.S. TV viewers, however, don't regularly use DVRs. Research firm eMarketer estimates that less than 16% of U.S. households had DVRs by the end of 2006.

Consumer Control

So it wasn't until the explosion of video on the Web this past year that American audiences grew accustomed to getting media at their convenience, says Showtime's Laura Palmer, a vice-president for distributor marketing who handles the cable network's on-demand experiences. At CES, Showtime announced a deal with Microsoft to offer its Web programming on TV sets. "The Web spawned that sense that the consumer experience was all about control," Palmer says. "The next step was to have that on your TV."

Television networks got into the on-demand act in a few ways.