WATCH THIS SPACE

The hype’s still plenty thick for video on the go. ABI Research last summer predicted that mobile TV services will have 514 million subscribers worldwide by 2011, up from 6.4 million at the end of 2005.

Whether half a billion people will soon be watching video on cellphones or not, this year will show us what shape the market will take.

Verizon Wireless this week is expected to use technology from Qualcomm’s Media Flo USA subsidiary to launch a live TV service. The live channels, which have not been announced, will complement the carrier’s V Cast video-on-demand clips from ESPN, Fox Sports, CNN, NBC and others. It will be the second major live mobile TV service in the U.S., competing with MobiTV, which is carried by Sprint and other providers and claims to have 1 million subscribers.

But there’s still uncertainty about the best business models for mobile TV. Will carriers be able to charge a monthly price, like basic cable? Or will mobile video consist mainly of free, ad-supported content?

“Everybody is trying to figure it out. There are no definitive models, and there’s no monolithic model emerging,” said Mobile ESPN senior vice president and general manager Manish Jha.

The sports programmer last year rolled out its own branded mobile service, which included phones that provided live news, scores and video in a partnership with Sprint Nextel. But the sports-TV monolith pulled the plug on Mobile ESPN in September, and Jha is now trying to license the application to carriers.

“The reality is, it’s early — mobile content is just getting going in a meaningful way now,” Jha said. “Carriers are increasing data revenues, but they’re still in the single digits [as a percentage of total revenue], so they’re just now spending more time and resources figuring out how to optimize that experience.”

The big problem is that the technical infrastructure for delivering video over cell phones is very fragmented. The major carriers launch close to 20 new phones every quarter, according to Jha, and every device has different screen size, screen resolution, Web browser, modem, processors and media player.

That’s one reason ESPN tried to be a “virtual” mobile network operator, because then it could control everything from the phone hardware and software to the design of the on-screen menus.

“We managed the ecosystem,” Jha said. “And that integrated, immersive, personalized experience is not being done elsewhere today.”

At the same time, mobile TV “is not an indispensable service,” said Chris Steck, director of technology strategy at RealNetworks. He believes an ad-supported broadcast model will carry the day for most mobile video content, with only narrow-interest on-demand content requiring a subscription.

“I don’t see you getting to early majority [market adoption] by charging $15 a head,” Steck said. “As a consumer, I’m already paying $40 per month for TV content at home.”

— Todd Spangler

START THE COUNTDOWN

The Telecommunications Act of 1996 spawned numerous regulatory and court battles, but few have endured as long as cable’s marathon opposition to Federal Communications Commission rules designed to pry open the set-top box market to competition. The FCC’s main cheering section has been the Consumer Electronics Association.

Because cable operators have kept channel-scrambling technology a closely guarded secret, consumers need to obtain set-tops exclusively from their cable company. A decade ago, Congress tried to change that by ordering the FCC to craft rules to create a retail market.

In 1998, the agency issued two commands it said would promote such competition. It ordered cable to isolate its conditional-access scrambling technology, which led to the creation of the CableCard now used by 216,000 subscribers connected to digital cable services.

The agency also banned operators from issuing set-tops that don’t rely on the CableCard, effective Jan. 1, 2005.

Cable operators produced the CableCard, but twice went to court seeking to overturn the ban on boxes that integrate channel-surfing and signal-security functions. They lost both cases.

In 2003, the FCC moved the ban ahead to July 1, 2006, and in 2005, moved it again to July 1, 2007, hoping additional time would allow downloadable security to supplant the CableCard.

Comcast, the National Cable & Telecommunications Association and others have filed waivers from the July deadline (dubbed “Seven-Oh-Seven”), but the FCC has failed to act even though by law the agency was required to respond to Comcast months ago.

Verizon Communications, a new multichannel video entrant, has also sought a waiver. Cable could get lucky if the FCC under chairman Kevin Martin determined that it couldn’t grant Verizon’s waiver without granting the others.

Even so, NCTA president Kyle McSlarrow has told his legion of operators to prepare for the ban to take effect.

— Ted Hearn

A 'NOT-NEW’ TECH NEARS CRITICAL MASS

No, it’s not a “new” technology. But high-definition television is at a tipping point: In 2007, high-definition TV sets are poised to outsell conventional ones, according to the Consumer Electronics Association.

Nothing else even comes close to being as important as HDTV in consumer electronics right now, in the view of Bruce Leichtman, president of Leichtman Research Group.

HDTV appeals to “the high-end consumer, and it’s a growing segment,” he said. “We’re not talking about onesies-twosies here.”

That means cable needs to more aggressively get the word out about HD services — and to educate clueless consumers about how to switch them on, Leichtman said.

HD television sets only deliver HD pictures if a consumer (knowingly) subscribes to an HD service, or if the set has an antenna able to receive over-the-air high-definition signals from a broadcaster.

Yet, of the estimated 24 million households with at least one HDTV set at the end of 2006, just half subscribed to an HD service, according to his research.

More telling is that roughly one-quarter think they’re watching HD programming but aren’t. While that’s an improvement from two years ago, when Leichtman found about half of all HDTV owners had that misconception, it means there are still millions of untapped viewers.

“It’s not just about adding HD channels,” Leichtman said. “It’s about adding awareness” of how to actually get HD signals. In some cases, cable subscribers do get HD signals as part of their lineup — but don’t know it or know where to find them.

Most operators price their HD tiers separately. Cox Communications, for example, charges a $9.95 per month “rental fee” for an HD-cable set-top box. Cablevision, on the other hand, provides HD channels as a standard part of its digital tier. Typically, HD channels are segregated into a different channel “neighborhood” (for example, in the 700s).

And that can make it difficult for cable operators to rely on retailers to explain to buyers how to find HD signals in their cable lineup.

Some cable executives recognize the HDTV knowledge gap is a problem.

“I’d like our industry to educate all those people who purchased high-def TVs about how easy and inexpensive it is to connect them to HD services,” HBO chief technology officer Bob Zitter recently told Multichannel News columnist Leslie Ellis. “We should be ashamed at the magnitude of sets without HD service.”

Cable operators now have begun to deliver the HD message in a concerted way. Cablevision Systems in November launched a “preholiday campaign” with the tagline, “Do you see in HD?”

Ads highlighted Cablevision’s high-def lineup and underscored the fact that HD is a standard part of the digital tier. The push included cross-channel spots, as well as broadcast TV and radio ads, newspaper inserts and billboards in New York’s Penn Station.

In mid-September, Comcast kicked off a similar effort, starting with promotions for its 100 hours of HD VOD, including The Chronicles of Narnia. The operator also worked with ESPN and Fox to develop cross-channel spots about their respective NFL broadcasts that ran on Comcast systems, informing viewers that to receive the “true HD experience,” they need an HD receiver and subscription.

— Todd Spangler

NARROWING THE TELEVISION-PC DIVIDE

The PC and the TV are not what you’d call best of buddies. Today’s two primary outlets for home entertainment might as well be sitting on Mars and Venus for how well they talk to each other.

But 2007 will bring matchmakers galore, trying to break the ice in this years-old standoff. Some of them may start to make good on the threat of bypassing the cable company.

Here, for example, comes Steve Jobs. Apple Computer in the first quarter of 2007 expects to debut a wireless device, code-named “iTV,” which retrieves digital media files on computers — including movies and TV shows — and displays them on a television set. The box, which Apple plans to sell at a list price of $300, is expected to have 802.11 wireless networking and Universal Serial Bus connectors, as well as high-definition video outputs. The iTV device will tap into the iTunes music and video download service, CEO Jobs said during a preview last September, indicating that Apple will have a vertical-integration strategy with the TV product.

“We need a box to drive that big-screen TV,” Jobs said. “We think it completes the picture here.” Apple, he noted, will then be able to distribute content to three screens: computers, mobile players (via the iPod) and TV.

Microsoft will similarly hype the PC-to-TV features of Windows Vista when it officially launches the latest version of its operating system Jan 8. The Redmond crew also will expand the range of video downloads available through Vista and its Xbox 360 game console.

TiVo, meanwhile, has broadened its Internet video features with software for Windows XP PCs able to “autotranscode” video for viewing on TiVo-connected TVs. Letting PC users watch the videos that pull in on their computers on a TV sounds pretty close to what Apple intends.

These thrusts could represent the first widespread success in getting Internet-delivered content into the living room, said Will Richmond, president of consulting firm Broadband Directions. “PC viewing will start to melt away and people will be viewing more broadband video on TV,” he predicted.

Past attempts at such “over-the-top” broadband TV services haven’t scored well, but not for lack of trying. Akimbo, which operates an Internet-based video aggregation service with 14,000 on-demand titles, developed a device with Thomson Consumer Electronics that plugs into an Internet connection and TV. But Richmond said it’s simply hard to sell consumers yet another box to tie to their TV that is linked to just one service. So Akimbo’s trying another path to the TV: the DVD.

Jim Funk, vice president of marketing for Akimbo, said the company in the second quarter will release a PC application, developed in conjunction with Sonic Solutions, that burns downloaded video content onto a disc for playback in a DVD player.

“It’s not the ultimate solution, but it solves a piece of the puzzle,” he said.

Other vendors are trying to sell systems that bring Net video inside the walled garden of the cable system. One is ICTV.

The Los Gatos, Calif.-based firm sells a turnkey video-on-demand service that brings Internet content from its partners, which include Reuters and AccuWeather, into one or more VOD channels in an operator’s network.

ICTV’s pitch: Operators need an on-ramp for Internet video, one they control and can sell ads against, or they’ll end up cut out of the equation. “Nobody wants to be a dumb pipe,” said ICTV chief operating officer Ed Forman. “The consumer-electronics approaches to putting new forms of content on TV really do reduce the opportunity for [an operator’s] growth.”

— Todd Spangler

DIGITAL TRANSITION POSES FUNDING CONUNDRUM

A year from now, the gates will open on a $1.5 billion federal program designed to keep analog TV sets working after broadcast stations go all-digital in February 2009.

Looking at today’s numbers, the program might lack sufficient funds to provide for a hiccup-free transition. The U.S. today has about 73 million analog TV sets that rely exclusively on free TV, but the government’s subsidy program — which, in theory, limits each recipient household to two $40 coupons — would fund no more than 37.5 million boxes.

The program is being run by the U.S. Commerce Department’s National Telecommunications and Information Administration. NTIA director John Kneuer, in addressing a potential coupon shortage, has tentatively proposed excluding the country’s 93 million pay TV homes. In a second proposal, only low-income broadcast-only homes would be eligible. Both proposals attempt to aim funding at those most vulnerable to service interruption.

But NTIA’s plans met with strong resistance from the National Association of Broadcasters and the Consumer Electronics Association, with the two often-clashing trade groups agreeing that Congress didn’t give the NTIA authority to exclude any households. The NAB is especially worried about the 45 million analog TVs in pay TV homes that aren’t connected to either cable or satellite. That’s called the “second-and-third-set problem.”

The NTIA, still several weeks from issuing final rules, floated its regulations before the Democrats took control of the House and Senate. In the months ahead, House Energy and Commerce Committee chairman John Dingell (D-Mich.) is likely to learn the level of support on his panel for sustaining the analog TV shutdown, which, if poorly managed, could infuriate millions of voters.

Since the cutoff is scheduled for Feb. 17, 2009 — after the presidential election, the next presidential inauguration and the Super Bowl — Congress has insulated itself from instant political annihilation.

Failing to complete the transition has the dual penalty of undercutting the auction of 60 Megahertz of analog-TV spectrum, expected to bring in at least $10 billion, and postponing the turnover of 24 MHz to police, fire and ambulance squads. The most likely move by a skittish Congress? Ensuring a free, or almost free, digital-to-analog box for anyone who wants one.

— Ted Hearn

READY WITH ON-DEMAND?

This year, DirecTV and EchoStar Communications’ Dish Network may finally have some news about their attempts to compete with cable’s robust video-on-demand offerings.

DirecTV promised in February 2006 to have a video on-demand download service, dubbed “DirecTV Flix,” up and running later in the year. Although DirecTV made a big ballyhoo over that service at a New York presentation, the company has barely mentioned it since.

There’s been industry speculation that the nation’s biggest satellite provider would finally announce a launch date for the download service at the Las Vegas consumer electronics confab. But it’s unclear if DirecTV will now be putting any of its plans in abeyance in light of last month’s announcement of Liberty Media’s $11 billion deal to acquire a 38.5% stake in it.

In terms of download services, Dish reportedly also has an offering on the launch pad that would permit subscribers to download standard definition and HDTV movies, adult programming and music to DVRs. The download service, first reported by the Web site SatelliteGuys.us, is called DishOnline and may go live Feb. 15, the site said.

EchoStar declined to comment specifically on DishOnline. Director of corporate communications Kathie Gonzalez would only say that EchoStar will use its Jan. 8 CES press conference to provide an overview of its first-quarter marketing initiatives, and to talk about “new technology and products,” possibly including interactive TV applications.

A DishOnline download service would make a lot of sense for the country’s No. 2 satellite provider, according to Sean Badding, president and senior analyst for The Carmel Group.

“It just adds another piece of an asset to the EchoStar service, in terms of what consumers are looking for,” he said. “It gives them another platform, the PC, to start delivering more content to their subscriber base.”

At the Leichtman Research Group, president Bruce Leichtman is wary of all the hype that comes out of CES press conferences. “Look at their whole talk about VOD last year, and how many people have a VOD box [now]?” he said “You have to take it with a grain of salt. … That show [CES] is so far ahead of the consumer. What you don’t take with a grain of salt is that which sounds realistic.”

But a video-download service would allow Dish Network “to provide VOD without providing VOD,” Leichtman noted. “If it’s seamless and easy to use, it doesn’t matter if it’s the Internet, it doesn’t matter if it’s IPTV. If it’s functional, that’s great.”

Analysts aren’t holding their breath for any news about any new wireless offering from DirecTV, which at one point last year said it would unveil its mobile communications strategy by the end of 2006.

— Linda Moss