For two reasons, Brian’s recent TV Everywhere post caught my renewed attention.

For one, earlier today, Comcast announced expansion of its online TV video efforts to an impressive 23 networks. From full-length movie channels – think Cinemax, HBO, IFC, an Starz –  to cable TV favorites such as A&E, E!, Food Network, and WE,  Comcast’s 5,000 trial homes are now among the very first to enjoy online video akin to legacy TV.

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It’s time to talk about Zillion TV.  Announced a week or two ago and slated for a 2009 Q4 launch, this set-top box streaming initiative has already received quite a bit of coverage. Here’s our quick take:

What They Got Right

• Investors – One impressive thing about Zillion TV is the stature of the companies behind it:  Visa is a major investor (and will implement the back-end billing transactions for purchasing streams), and content providers Disney/ABC, Fox, NBC Universal, Sony Pictures and Warner Bros. Digital Distribution are all also investors/partners.  In fact, while I’ve read Zillion TV described as the “Hulu” of set-top boxes (due to the innovative cooperation between otherwise competing companies Fox and NBCU), Zillion TV goes Hulu one further, having Sony, Warner Brothers, and even long-time Hulu holdout and rival Disney/ABC on board as primary stakeholders as well.

• Revenue Model – Although television viewers and web browser users have consistently expressed a preference for “free” (ad-supported) content over paying subscription or per-view fees, Zillion TV itself will be agnostic as to which monetization model individual content owners choose, and will be able to support either.  One thing Zillion seems to understand, though, is the game-changing impact targeted advertising will have, given a lean-back audience willing to tolerate the heavier ad-loads typical of traditional TV.  I touched upon this a few weeks ago here – and as Zillion TV’s initial press release puts it: “Gone are the days of mass market, untargeted television commercials.  Through the ZillionTV Service, advertisers clearly will reach a more highly-targeted and engaged audience.  This is a major boon for the advertising industry.”

• User interface - We believe that in the absence of a keyboard on the coffee table (which studies show nobody really wants), the problem of the remote control and the user interface will have to be solved.  One way or another, the current remote paradigm (dozens of never-used dedicated buttons) is going to go away – to be replaced by either a touch-screen iPhone-like device or a Wii-like pointing remote (something I touched upon a few weeks ago here).  While Apple’s been quietly filing for patents on the laser-recognition pointing technology necessary for such remotes, Zillion TV will be the first internet video device to market that actually features one (which, come to think of it, is probably why the Zillion TV “box” has to hang over the top edge of the screen – see image).

• Zillion TV and the Service Provider – Easily the most noteworthy aspect of Zillion TV is that like Time Warner’s “TV Everywhere,” access will be limited to customers with current cable and/or ISP contracts from selected vendors already in place (more on TV Everywhere here).  Could this be an emerging trend – internet video services sharing monetization with carriers?  Possibly – in Zillion TV’s case, the device will be marketed as a hardware value-add available through (as yet unnamed) service provider partners.  The decision to Include the carrier in the revenue stream is huge, because instead of an insurgent over-the-top internet video service threatening to dramatically increase user bandwidth consumption while simultaneously making cable TV access less valuable, Zillion will instead be a business partner.  Of course, as the issue of monetizing internet video remains up for grabs, incumbent service providers remain (to put it mildly) “concerned” over what services running “over the top” could ultimately mean to the business models they’ve come to know and love – but from the service provider’s perspective, Zillion TV will likely be seen as the lessor of several evils, because at least some participation is better than none.  And the arrangement works for Zillion TV, too: the company plans to install caches of video content at your local ISP.  The technical innovation of expanding the content delivery network one step closer out to the user (from the edge of the internet onto the user’s local service provider) is potentially huge- and yet another step in one of our favorite topics, the privatization of the internet (something I touched upon a few weeks ago here).   Which brings us to…

What Could Be A Problem

• Net Neutrality - With Zillion TV content caches sitting out there in ISP data centers, look for this to come up when Zillion TV launches later this year – and look for the issue to be ongoing, because If I’m a Vudu, Roku, TiVo (or any other 4-letter box making company) – or if I’m a Yahoo Connected TV, Amazon VOD (or any other television/set-top streaming service), even if I lose a legal challenge to the Zillion TV business model, I’m going to be out there doing continuous comparative testing to see if there’s any hint of Zillion TV-partnered ISPs slowing down my packets – in other words, it’s going to be a good couple of years to be a media (or antitrust) lawyer.

Conclusions

In short, I’m impressed with Zillion TV – the big players are clearly onboard, I think including the service providers is a smart business move, and I like what little I know about the user interface.  A few things to watch:

• As the year progresses, which MSOs and ISPs will announce they’ll be partnering with Zillion TV?
• WIll the hyper-localized ISP/CDN model offer dramatically enhanced performance over competing solutions using CDNs external to the carrier?
• If so, will the net neutrality/anti-trust challenges be equally forceful?
• Will Zillion TV expand from television content into film as well?

Time Warner CEO Jeff Bewkes in a recent BusinessWeek article:
“We believe in TV everywhere, that consumers should have access on broadband to the same channels they see on television. But the online model has to support, not undermine, the distribution fee and advertising arrangements between programmers and distributors. Those with a subscription to a video service would also get access to shows online.”

“We believe in TV everywhere…” – it happens that TV Everywhere is also the name of a new cross-network, cross-industry initiative Bewkes announced several days earlier in an Ad Age interview. In short, TV Everywhere is designed to enforce the vision of the future Bewkes describes in the BusnessWeek article: to make internet access to cable network content possible only if you can prove you also happen to have a multi-channel  (i.e. cable, satellite or fiber) television account.

To the technical purists among us, this might seem a bit like limiting the availability of the Model T to those who can prove they already own a horse, but it’s worth remembering that an awful lot of money flows from the consumer to the cable carrier and on to the cable network: in fact, it amounts to 50% of the networks’ income.  In other words, the cable networks need the carriers – and they won’t make a truly comprehensive move onto the internet without bringing them along for the ride.

Conversely, the availability of cable network content is the primary value proposition of the cable/satellite industry, especially now that terrestrial networks are broadcasting in HD over the air.  In other words, since good reception of a local affiliate’s broadcast is less dependent on that cable connection, the cable carriers need the networks, now more than ever – and so are doing the heavy lifting of putting the “TV Everywhere” initiative together.

It’s a very lucrative (and interestingly circular) business relationship – and one that both parties have an interest in protecting from the wild-wild-west of the internet.

So, which major players are  on board?  On the network side, we have Viacom and (Hulu co-owner) NBCU, while (Hulu’s other co-owner) News Corp. and (Apple-friendly) Disney are said to be in talks.  On the carrier side, DirecTV and Dish Network have yet to officially announce, but Bewkes clearly intends to include the satellite carriers.  Comcast, meanwhile, plans to stick with their “Fancast” service for now, but has made some friendly remarks about the two services possibly becoming compatible.  Of course, the prospect of an ISP such as Comcast (the largest MSO in the country) selling both their own proprietary internet video walled garden while simultaneously selling internet access raises issues of net neutrality – so in Time Warner’s case, it’s interesting that the conglomeorate that includes cable networks Turner Broadcasting and HBO) will be splitting off the Time Warner Cable subsidiary on March 12th – just one week after announcing the TV Everywhere initiative.

So what exactly is “TV Everywhere” going to look like?  Evidently an identity-based access system running over the top  at “no extra cost”  to the user.  I imagine the pledge to make the service free is based on the fact that recent election-related spikes in internet streams of The Daily Show and SNL clips did not appear to cannibalize broadcast ratings and that all-important symbiotic relationship between the carrier and the cable network.   There’s something most coverage of TV Everywhere misses, though:

The most interesting thing about TV Everywhere is that it’s still only about the PC/web browser/mobile device – conspicuously absent is any mention of network-enabled televisions and set-top boxes.

The next generation of internet-enabled television hardware is the elephant in the room – and the content owners know it: how else to explain NBCU and Fox suddenly forcing Hulu to back out of Boxee once it became clear the service was ultimately aimed not at the (lean-forward) PC but at the (lean-back) TV?  (I would’ve thought the prominent placement of the letters ‘b-o-x’ in the company’s name would’ve been a red flag, but that’s just me.)

The whole TV Everywhere model is intended to preserve the current carrier/cable network revenue stream.  To that extent, it’s intended to prevent (or at least slow down the progress of) access to internet video from the television. That’s going to be difficult, though, because while users really don’t care whether their programs arrive at the TV via a cable stream or via IP packets, what they ultimately will demand is the same freedom from program schedule tyranny they enjoy over on a website – in other words, it’s not about “TV Everywhere” – it’s about “TV Anytime.”