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Like many people who own a PC, Avner Ronen found himself watching more and more video online. But he wanted to view it on the TV in his living room as well as on his laptop. "I got together with a bunch of my friends and we realized we were watching streaming video on the Web a lot more and using our TVs a lot less," Ronen says.
But they couldn't find technology that did a good job of bridging the gap between the PC in the home office and the TV in the living room. So they created the software themselves. "We just wanted to build something that we would use," says Ronen, who emigrated to the U.S. from Israel in 1999.
The result is Boxee TV, software that grabs video and music downloaded onto a PC and then houses it in a single, easy-to-navigate location. It also lets users pull together content from a range of online video and music sources, from CBS's (CBS) CBS.com and Last.fm to Viacom's (VIA) Comedy Central and Time Warner's (TWX) CNN. Better still, when the PC is connected to a TV set with a cable that can be had for $10, Boxee lets users enjoy programming on a big TV that they'd otherwise view on an often-tiny computer screen. Ronen says 80% of users make the connection between their PCs and TVs.
Boxee was first released in mid-2008 to users of Apple (AAPL) Macintosh computers and machines running the Linux operating system. Already the software has developed a large, devoted following of almost a half million users. At the same time, Ronen and his pals have sprinted past where tech companies large and small have sputtered for the better part of a decade. For instance, Microsoft (MSFT) created the Media Center PC concept in 2002; while lots of people have purchased the entertainment-friendly machines, few connect them to a TV.
Ronen and his associates are tapping into the growing move to get entertainment as readily online as via other media, including the TV. As of March, U.S. consumers watched 14.5 billion online videos, up from 11.5 billion in March 2008, according to comScore (SCOR). Some users find watching TV with Boxee so satisfying that they're doing away with cable and satellite subscriptions altogether. "My roommate and I agreed that we didn't want to pay for cable anymore, so we watch Boxee," says Michael Galpert, a 26-year-old Web entrepreneur who resides in Manhattan.
For now, Boxee is free to users and producers of the content available through the service. Ronen has raised $4 million in venture capital funding from Union Square Ventures and Bijan Sabet of Spark Capital. Once Boxee has amassed a sizable user base, Ronen plans to charge content partners for the right to display their content in premium spots. "There will be parts that the user controls and customizes and there will be parts that we control," Ronen says. He also envisions generating sales by distributing applications built by outside developers to complement the Boxee experience.
To succeed, Ronen will need to win over the media companies and content producers that can make more money by broadcasting via TV—where advertisers pay big money for commercial time—than they can online. Hollywood is putting an ever increasing portion of its programming onto the Web, but at a measured pace. Advertisers who pay handsomely for 30-second TV spots don't want to compete on the same screen with cheaper, shorter ads associated with online video. "Broadcasters pay about $20 billion a year to content owners to carry their programs, and then sell TV advertising against them," Ronen says. "They didn't think people would bring it from the small screen to the big screen so soon, if ever."
Understandably, it didn't take long for Boxee to annoy Big Media. In February, Hulu, the Web video joint venture of News Corp. (NWS) and General Electric's (GE) NBC Universal, moved to block its content from showing up in Boxee. Ronen and his team of 12 software developers quickly developed workarounds that would allay Hulu's concerns while also giving its users access to Hulu shows.
Currently about 80% of the Hulu catalog is still visible through Boxee, but episodes look more like they do when viewed in a Web browser, lacking the slick, full-screen TV appearance Boxee users have come to love. Hulu can afford to be choosy about how its video is seen; it serves 24 million users each month. And without Hulu, the potential for Boxee to go mainstream is limited, says Michael Gartenberg, an analyst at Interpret LLC in New York. "There was a good deal of buzz about Boxee when it first integrated Hulu and now a lot of that is lost," he says.
Ronen intends to ensure that Boxee has plenty of appeal aside from Hulu's programming. He and his engineers are hard at work on a version for PCs that run Microsoft's Windows. He also plans versions of Boxee that will be integrated into other devices, including small, inexpensive TV-friendly PCs; Blu-ray disk players; game consoles; and even set-top boxes similar to the Roku device that streams Netflix (NFLX) movies. Some AppleTV owners have hacked the device to run Boxee. And as TV manufacturers increasingly add Internet connections, Boxee could even wind up getting built into the TV itself. "We want to get Boxee running on as many devices as possible," Ronen says.
Pulling off those plans won't be easy. "Inserting yourself into another manufacturer's ecosystem is a difficult thing to do," Gartenberg says. What's more, Boxee's software is all open source, adapted from a similar program developed by enthusiasts of Microsoft's Xbox gaming system. So there's nothing stopping others from building their own applications that do much—if not all—of what Boxee does. Indeed, similar software is already available: There's Plex for the Mac and Zinc for Windows users. The idea of bringing thousands of Web streams into a single application surely has crossed the minds of developers at Apple.
Ronen and his backers are undeterred. Whereas Apple uses iTunes mainly to sell hardware, Boxee isn't dependent on hardware. Instead, it aims to be open to any content—and making sure users can find it. "Using open source to give people what they want is a competitive weapon," says Sabet at Spark Capital, who is a Boxee director. In addition, Ronen envisions a world in which software developers can create applications to run within the Boxee environment. Picture the iPhone App store—but for your TV. "There are millions of developers who know how to develop for the Internet," Ronen says. "The screen is just a big display. The only reason to reinvent anything is if you want to control the ecosystem."
That ecosystem—involving 24-hour scheduled programming—is becoming increasingly antiquated to a generation of consumers accustomed to the on-demand nature of the Internet. "This whole notion of a channel with some original programming and some reruns—it's going to turn into something very different," Ronen says. "The TV industry is going through a huge shift. It's great to have a front-row seat."
Hesseldahl is a reporter for BusinessWeek.com.