Connected Chaos: Is Free Web TV in Peril?

Three million U.S. broadband households would buy Internet-connected TVs during the 2010 holiday season, predicted Park Associates. By 2015, its says 350 million units will have been sold globally. With connected TVs a focal point of this year’s CES, here’s a primer on the market and the forces shaping it.

Who’s manufacturing Web-connected TVs? Sony, Samsung, LG, Toshiba already feature TVs with Yahoo’s Connected TV software. Of course, Sony also offers Google TV (which has received some tough reviews). And last week at CES, LG announced the LG SmartTV Upgrader, which promises to make any TV Web enabled. With SmartTV, users can pay for content via Hulu Plus and Amazon Video On Demand, but there is also a full-fledged Web browser. Panasonic also unveiled the Viera Connect, which features Hulu Plus and a slew of other apps, but no browser.

Do consumers even want the Web on their TVs? In the past, that was highly doubtful (think: Microsoft’s Web TV). “But this has an inevitability to it,” said Brian Cooley, CNET’s editor at large. “I think consumers are pretty excited about this.” They are excited because of video on demand, not checking their favorite blog on their TVs, contends Cooley. “When people hear Netflix, Amazon and Hulu, they say, ‘Oh, I get it.’ There is a very clear use case. When it comes to traditional Web site content, consumers never wanted that.”

Google TV, Yahoo and others. Which prevails? There is a lot of momentum right now for the app model, especially with Google TV getting hammered over clunky interface and challenging set-up process. The company even sat out CES to retool. “We don’t think you want to change people’s habits,” said Russ Schafer, a senior director of product marketing for Yahoo Connected TV. “It’s still a TV experience.” But that could easily change as more manufacturers push full Internet connectivity. “You are going to see a lot more big screens with browsers,” said a cable executive. “You are going to have to be in the business of picking winners and losers.”

Do the networks block their shows? The networks have been unified in their rejection of Google TV. Said one TV exec: “The fight with Google has a lot of layers to it. Some of it is just because it’s Google.” But mostly, it’s about controlling the TV set. None of the major broadcast networks would comment on the record. But one executive explained their general take: “Putting full-length episodes on the Web was always designed to be a supplemental business. It was about an extra revenue stream.”

But once you let users stream shows on a TV set, the networks see that as a threat to the $60 billion-$70 billion TV ad market—something they have to defend aggressively. The exec said, “We’re going to block anyone who’s trying to put our shows on TV for free.”

So is Web TV accelerating the end of free TV on the Web? Could be. Witness CBS’ deal to sell shows via Boxee last week and all the force Hulu is putting behind Hulu Plus. The networks are conditioning users to pay for their content online. Plus, Comcast, which is about to take over NBC, is big on authentication—i.e., having viewers prove they are cable subscribers (and that they are paying for on-demand access).

Still, many doubt that Web-savvy consumers will even want to stream shows on their TVs, with so many other on-demand options available. “I don’t think there will be huge adoption,” said Adam Kasper svp, managing director, digital innovation at Media Contacts.

What happens to the $2 billion online video ad market if free TV on the Web goes away? “It essentially kills the online ad market for premium content,” said Kasper.