News Analysis: Why the Urge to Converge Now?

At the recent Consumer Electronics Show, there were as many, or more, major media companies in attendance as there were actual electronics manufacturers. And many of the show's big announcements centered on these media giants wagering on the long-hyped goal of connecting the PC to the TV.

Among the brands betting on PC-TV convergence are NBC Universal, Viacom, AOL, ESPN and Yahoo! Each has signed deals with Intel to make its content compatible with Intel's soon-to-be-released Viiv chip, which is supposed to make the convergence process much easier for consumers.

Meanwhile, MTV also signed agreements with Microsoft to tailor content from four of its broadband networks for Microsoft's Windows Media Center PCs. And then Yahoo! previewed the upcoming launch of Go TV, a downloadable application aimed at helping users move personal stuff from their PCs onto their TVs.

Why is this all happening now?

"There were several pieces of the puzzle that had to come together," said Kevin Conroy, executive vp, AOL Media Networks. Conroy believes that the combination of widespread broadband penetration, the increasing amount of online video content and a robust online advertising market have all made convergence more viable, and more compelling to users. "It's getting easier and easier" to link PCs and TVs, added Conroy. "And more importantly, there are more reasons for users to do so."

Yet among the many technological choices for users in this arena, no one is quite sure what consumers will actually embrace.
"To be honest, we don't know how it's all going to fall out," said Jason Hirschhorn, MTV Networks' chief digital officer. "We look at it as an R&D project. We need to be on a lot of these platforms.

We've made some clear bets. Brands like ours are trying to shape things."

While delivery and access to content is likely to change because of these applications, advertising is widely expected to support the evolving converged media space.

Predictably, the content companies leading the convergence charge are bullish on it coming to fruition. "The PC is not going away," remarked Yahoo! chairman and CEO Terry Semel at an investor conference last week. "It will be connected to your TV set in the next few years, not 10." And Yahoo! believes that it is the company that will facilitate such connections and that the timing is right.

"The bottom line is that consumers are ready," said David Riemer, Yahoo!'s vp of marketing solutions. "The last five years they have been learning how to do things with digital content. The logical next step is to marry it to another screen."

But some observers are far less enthusiastic about the near-term PC-TV meld. "The fact is that TV is resistant to additional devices," said Josh Bernoff, an analyst at Forrester Research. "Home networking is very challenging. It's so clumsy and so difficult right now. A lot of work needs to be done."

Yet others give consumers more credit, pointing to the rapid adoption of other PC-connected devices. "Four years ago, people didn't put their photos on their PCs either," said Lee Westerfield, managing director and media analyst at Harris Nesbitt.
While Westerfield acknowledged that many of these new convergence initiatives have yet to be fleshed out, he said that content companies are reacting to consumers' changing expectations in an increasingly on-demand world. "What would seem like 'trying everything because we can't figure it out' is really the market dictating things."

Cory Treffiletti, senior vp, engagement architect at Carat Fusion, agreed that consumers will determine how convergence unfolds—and that some will want to connect all of their media devices, and some won't. "I don't think any [one] of these [things] is going to become the wave of the future," he said. "The wave of the future is about options." --MS


The Players

Intel Viiv The soon-to-be-released Viiv chip should dramatically increase the speed of PCs. Viiv is also supposed to make it easier for users to manage a variety of different entertainment assets—and to transfer them to multiple devices. Plus, Web-video, which is typically compressed for the small screen, is said to look much better with Viiv. Attendees at the recent CES raved about how great AOL's In2TV broadband service for classic TV looked via Viiv. Many believe that Viiv can make the largest impact on convergence since most PCs will feature the chip.

Yahoo! Go TV Basically, Yahoo! Go TV is an application users will download to their PCs that lets them transfer all the entertainment (photos, music) they've amassed from their desktops to their TVs. Eventually the service, which has yet to launch, will help users search through TV listings and even record shows via a built-in DVR. While details are few on how Go TV actually works, Yahoo! is touting its ease of use. "You won't need to buy a new remote and you won't need to buy a new cable," said David Riemer, Yahoo!'s vp of marketing solutions.

Microsoft Windows Media Center PCs These machines have long been Bill Gates' answer to the dream digital living room. The Media Center basically is a computer designed around a digital environment with a user-friendly linear TV viewing, VOD and Web surfing interface on one screen. About 6.5 million units have been sold and Microsoft has deals with a number of providers for ready-made Media Center content. Some have questioned Media Center's potential for mass adoption as well as Microsoft's investment in the product. --MS


Cable, Telcos Spin Web Plays

For now, cable leads push to Internet-based TV

After better than a year of development, AT&T last week launched its Internet-based TV service in San Antonio, Texas, offering an introductory roster of about 200 cable channels, including MTV, ESPN, HBO, Discovery Channel and A&E, to a small, company-friendly test group. And while the telco, formerly SBC, has said that it will be able to offer even more channels and a clutch of interactive and on-demand features once it takes the service wide later this year, industry observers say that AT&T's IPTV push doesn't pose much of a threat to cable's dominance in the video space. For one, both AT&T and Verizon (which began rolling out its own video service, FiOS TV, last fall) can offer subscribers little in the way of differentiation.

"The telcos would have you believe that IPTV is some kind of revolutionary new delivery system," said Mark Harrad, Time Warner Cable's senior vp of corporate communications. "The MSOs have been able to deliver data, voice and video for years over the broadband plant that we built out in the '90s." Since last July, Time Warner has tested broadband TV in its San Diego footprint, offering 75 channels over broadband. Note that neither the telcos nor Harrad is using the term "IPTV" to specifically refer to the application that allows subscribers to watch TV on their PCs; the two industries' byzantine naming conventions have made any distinction between the two a bit blurry.

"IPTV gets thrown around a lot as a catchall for anything that's digital or interactive," said Paphion principal analyst Lydia Loizides. Whether people will actually want to watch TV while propped up in front of their desktops remains to be seen, although Loizides said it's possible that the PC will be surpassed as an alternative platform by wireless devices and the iPod. "The PC may merely fulfill its function as a media server rather than a secondary viewing hub," Loizides said. "No matter how wireless you go, you're still going to have to manage all that content somewhere."

Leichtman Research Group president and principal analyst Bruce Leichtman said that cable's lead looks indisputable, given the speed with which the MSOs encroached on the telcos' home turf. "You have to keep things in perspective," Leichtman said. "SBC will be lucky to reach 50 percent video availability by 2009. And Verizon has 5,000 landline video subs, while cable has 5 million voice lines." --AC