Over the Top, Onto Your Television Set

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Upstart Joost is not only trying to emulate cable's video business model online — it's plotting to join the growing gaggle of other Internet TV operators trying to nose into the living room.

Such “over-the-top” Internet-to-TV rivals, which include the calculatedly hyped Apple TV, are seen as marginal threats today (See “Building TV Brands Without Borders,” p. 14).

But they may mature into full-scale, cable-style TV aggregators that offer live, high-definition programming online. And by then, analysts said, cable operators may be barred from throttling back bandwidth to these rivals by government rules on “network neutrality.”

Joost, which has cut distribution deals with cable-programming mainstays such as Viacom, Turner Broadcasting System and others, last week scored another coup in hiring Mike Volpi as CEO. Volpi, 40, is a former high-flying Cisco Systems executive who most recently ran the networking giant's $11 billion routing and service-provider technology group, which includes Scientific Atlanta.

INTO THE BOX

And what else would you expect from a guy who's made a living slinging networking gear? Freshly pressed as Joost's head honcho, Volpi immediately began musing that the peer-to-peer video service would be available not just through Internet-connected PCs, but also in TV set-top boxes or other devices.

“Joost is a piece of software, and it can reside on a variety of platforms,” Volpi told The New York Times. “It could be on a television set-top box. Or potentially, it could be [embedded] in a TV set with an Ethernet connection, or on a mobile phone, or in some alternative device that might come out in the future.”

Volpi was traveling in Europe last week, according to a Joost spokeswoman, and was unavailable for an interview.

For now, Joost-on-TVs is just a notion. Indeed, the London-based startup has yet to open up the PC-based service, which offers more than 100 channels of on-demand video through a proprietary computer application, to the general public.

But other Internet-to-TV video initiatives — which hit closer to home for cable than purely Web-based video — are already well under way.

Apple TV, a set-top box from the self-styled geniuses responsible for the iPod, is set to bring YouTube videos to big-screen TVs starting this summer. Never mind for now that YouTube clips will probably look terrible on an HDTV screen; the point is that any kind of video content is up for grabs. The device, in CEO Steve Jobs' bon mot, is a “DVD player for the Internet age.”

Meanwhile, Microsoft and TiVo sell movies and TV shows downloaded over broadband, and Sony Electronics is getting ready to roll out a network adapter for its HDTVs to pipe in Web clips.

UNRULY PASSENGERS

Cable operators, of course, control a good number of the broadband pipes going into homes.

Today, behind the scenes, high-speed Internet providers use “rate-shaping” equipment to curb the amount of bandwidth consumed by peer-to-peer applications, like Joost. Occasionally, providers boot off subscribers who suck down more than their fair share.

Will Richmond, president of Internet-video consulting firm Broadband Directions, likened the bandwidth-hog policy to an airline opting to eject an unruly passenger from a flight. But what if the entire plane is full of drunk, raving lunatics — that is, what happens when a large number of users are tapping into bandwidth-sapping IPTV services?

Cable will have to tread carefully or risk punitive measures from regulators, according to Richmond. “When you're talking about legitimate usage that is very heavy, from people using Joost or something else, broadband Internet service providers are going to be hard-pressed to limit those users without raising net-neutrality issues,” he said.

Network neutrality refers to proposed legislation, backed by Google, Yahoo, Microsoft and other Internet companies, that would bar Internet service providers from intentionally blocking or limiting bandwidth to Web sites. “There are consumer activists who are willing to pounce on anything perceived as discriminatory action,” Richmond said.

Cable could find itself at this crossroads soon. Apple TV, Joost and others may be just the tip of the iceberg. A&E Television Networks vice president of digital media Jim Turner said he's been amazed at the high level of recent interest in licensing A&E programming for broadband services to the TV over the Internet.

“Last year we were approached by several TV manufacturers who thought they were going to be video aggregators,” he said. “And we've had two companies pitching Internet distribution in a cable-like style, with a national footprint … We're not quite sure what to do with that.” Turner declined to name any of the companies he alluded to.

There have even been rumblings that cable operators themselves will dive into this pool, targeting Internet Protocol TV set-tops and services at broadband customers of other providers. Another succulent rumor, floated by tech blog Engadget.com, suggested that AT&T is in cahoots with Apple to offer some kind of IPTV service over Apple TV as soon as 2008.

NIBBLING AT THE EDGES

The extent to which these trial balloons will impinge on cable's core video franchise remains to be seen. At the very least, they'll nibble around the edges by offering alternatives to cable's video-on-demand services or siphoning viewers away from traditional programming.

Starz Entertainment, for one, felt Apple TV encroaching on its turf. The pay TV programmer in March sued Disney's Buena Vista Television unit for copyright infringement and breach of contract because Disney films are available from Internet distributors — including Apple's iTunes Music Store — within the same release window that Disney allegedly guaranteed to Starz. The lawsuit is pending.

Being able to watch a movie like Pirates of the Caribbean: Dead Man's Chest on a living-room television set using Apple TV “goes to our core business,” Starz CEO Bob Clasen said in discussing the lawsuit.

On the other hand, some see a business opportunity for cable by either partnering with over-the-top Internet TV providers or by upselling customers to higher tiers of bandwidth to get better-quality video.

Alex Taylor, CEO of U.K. Internet TV startup Jalipo, is developing an open market to sell TV and video content to consumers either on a subscription basis or per video.

So far Jalipo has deals to distribute programming from BBC World, Bloomberg Europe and Al Jazeera, among others.

Taylor said that consumers who are paying to stream video at speeds of 1 Megabit per second or higher will be candidates to buy higher-capacity broadband service.

“Right now, broadband is commoditized,” he said. “But when you're streaming high-quality video, that's a real test. That will allow cable operators to charge more for high-bandwidth services.”

But won't those video services peel viewers from cable? “There will be some overlap but so far we haven't come across any real concern from cable or satellite companies,” Taylor said. The startup is primarily geared toward enabling content providers to reach audiences in markets where it wasn't economically feasible before, he said.

“Frankly, I think for the foreseeable future, people will continue to watch TV at home on cable,” Taylor said.

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