Any time I get frustrated with how something works in my day-to-day life I start thinking about how some day, years from now, I won’t be afflicted by this incessant inconvenience. Television and online video watching is high on the list of things that can (and will) be done drastically better some day.

There is a lot of noise in this very interesting space right now but only a few devices and services that I think have a real chance of changing how the average American television viewer consumes content.

The Devices

• TiVo makes the best DVR on the market but has priced itself out of orbit with its near-$1,000 hi-def unit. Their box is Internet-connected (sans-PC) and already has limited access to a handful of video podcasts. If they don’t dramatically drop the price, they’ll continue to lose market share. I own a standard-definition box of theirs and its currently unplugged and sitting in the closet. I didn’t pay $2,000 for a hi-definition plasma so I could watch a standard-def, analog cable signal. Another TiVo handicap is that one cannot access VOD services like Comcast’s OnDemand, which let you watch TV shows or movies (hi-def) whenever you like. I am an avid OnDemand user and would not use a device that couldn’t access that service.
• Motorola and Scientific America make severely crippled DVR’s with no Internet connectivity and a soul-crushing user experience. These little boxes of terror are distributed for a nominal monthly “lease” fee (typically $5-$10) via the major US cable operators like Comcast and Time Warner. To add injury to injury they even run ads in the program guide. I pay the $10 monthly fee for one of these boxes from Comcast, though, because it’s the only way I can have my hi-def content record to a DVR (without giving TiVo $800 + $16.95/month) AND access OnDemand VOD.
• Apple TV is a slick little device that syncs music, photos, podcasts, movies and TV shows from a computer (PC or Mac) running iTunes for playback on your hi-definition set. All for $300 (40gb). It can stream or store locally almost any of the content you have in iTunes. I’ve been using the Apple TV (connected to my receiver via HDMI) as my stereo and primary conduit for watching video podcasts. If you buy an episode of a TV show from iTunes, you may also watch it on this device. So, this is (for now) primarily an everything-but-TV device (since you’ll be able to rent movies soon through the Apple TV I’ll assume it will be a decent movie player in the near future, like OnDemand). As long as I’m paying for a hi-def DVR, I will most certainly not be buying episodes of TV shows (or anything else) from iTunes.
• Other/Generic media PC’s. HP, Dell and others make media PC’s that are intended to work with your television. They’re just regular PC’s running Windows XP Media Center Edition (or whatever equivalent Vista now has) with TV tuner cards and fancy remotes. Don’t bother with this if you have a hi-def set - and if you don’t, then just buy a standard-def Series 2 TiVo for $300! These machines won’t do digital signals, won’t do hi-def, won’t do OnDemand VOD - all they do is time-shift (skip commercials). Yes, you can buy hi-def video cards, etc, but at that point you may as well buy the TiVo Series 3 (hi-def).

The Content Services

Content is further behind on its evolutionary path compared to the hardware, which is scary because the hardware is still so archaic. Most of us are still paying through the nose for digital cable from one of the large US operators. Here are the alternatives so far:

• A newly launched start-up, from the makers of Kazaa and Skype, called Joost is the most promising and most likely player to carry content that people actually want to watch over a network that isn’t a major cable operator. They’ve struck deals with many of the large studios and networks in the US to legally play great prime-time TV shows through their player. They boast a lot more interactivity and additional content but that stuff doesn’t really matter in this context - it’s still people watching stuff on their computer screen which we all know Americans aren’t going to adapt to when it comes time to relax after a long day of work and watch your favorite shows.
• YouTube and the countless other video sharing sites command millions of hours of video and many more millions of viewers. Great for when you’re bored at work or want to watch the latest viral short film of an alcoholic toddler threatening Will Ferrel. Not only will people not sit through 30 minute prime-time shows on here, it would be illegal for most of the shows to even exist on YouTube. An interesting twist here is that Apple recently announced that the next update for the Apple TV will allow viewing of YouTube video clips. I imagine this will still be a cumbersome “iTunes-first” process, but an exciting step in the right direction nonetheless.

How We’ll Likely Be Watching TV … Soon

The Register is reporting some interesting news that Joost is in talks with DVR manufacturers to get its software embedded on their Internet-connect set-top boxes. Joost, armed with their network and studio distribution deals, would be the first to provide widely-desired television programming to set-top boxes strictly via the Internet. Apple and TiVo are in position to compete here as well and I hope, for the sake of us consumers, they do. Apple seems to be good at striking deals with content owners and TiVo has the leading hardware platform and decent in-home market share already.

In the hopefully not-so-distant future, The Ultimate Box will let the viewer watch hi-def, prime-time TV shows, rent movies in hi-def, time-shift programs (DVR functionality), watch any video clip on the Internet that has a discernible URL, view photos, videos and music from the user’s own collection, and share this content with friends via the Internet from the set-top box itself.

Economics, from the Networks’ and Advertisers’ Perspective

All of these delicious features are going to have to mix well with the economics of the television industry in order to get the content owners to play ball. NYT has a good numbers article this week that also highlights how the networks are evolving their pricing models. The highlights:

• Networks now including online exposure in their upfront pricing because advertisers are reluctant to try it on their own.
• DVR playback data now taken into account as well as audience size for the ads as opposed to the program.
  • The networks want credit for when shows are played more times after the original airing, thus amplifying the number of times the advertisers’ commercials may have been viewed.
  • The advertisers wanted their audience numbers based on how many viewers are watching theor commercials not the program.
  • DVR’s can and do now provide that data to Nielson.
• Some networks have fully sold their online inventory and some advertisers have unspent broadcast ad dollars for 2007-08 season.
• Total upfront ad sales (about 75% of all prime-time commercial spots for the season) for all 5 major broadcasters (ABC, CBS, CW, Fox, NBC) was estimated in 2006-07 to be $9.1 billion.
• The cable networks combine to command about $6.4 billion in advertising spend, making the entire television advertising market about $18.5 billion with the new medium elements worked into the pricing.

It’s smart for the content owners to work the ads into the online versions and then charge advertisers for that exposure and I’m pleased that the commercial-skipping DVR users haven’t soured the advertising business for the networks so much that they’re suing hardware manufacturers to get the feature disabled. It could happen - but it looks like it won’t have to.