New wave of Internet set-top content threatens to upset pay TV status quo

With a revival of interest in the Internet set-top box (STB)--due in part to the recent success of the Netflix box from Roku--the consumer electronics and the pay TV content industry need to examine what this could mean for commercial content distribution as a whole.

It's easy to dismiss the Internet STB as a viable threat to the business of commercial content distribution. Market researchers expect only modest unit shipments of Internet STB. Digital Tech Consulting (DTC), for example, expects annual unit shipments to finally surpass the million mark in 2009.

Also, history does not support the idea of Internet STB acting as a disruptive influence. Actually, the idea of a STB that can deliver online or Internet access to the TV, with potential to displace traditional pay TV, is not a new one; the first WebTV set-top box debutted in 1996.

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Though they have advanced admirably since then, dedicated Internet TV STBs have failed to pierce the mainstream, remaining a niche product with annual shipments in the tens of thousands until very recently.

So what has changed? Stated plainly, these would be price, established customer base, and content availability. One clear area of difference among successful Internet STBs is the price. The Netflix Player, the breakaway market leader from Roku, is just $99, while others, such as AppleTV or VUDU, are still retailing for about $300 despite recent price drops.

Another key element of success is access to existing customers and accounts. This has been a source of strength for the market leaders, including Apple and Roku, which have both benefited from the Web-based customer/commerce infrastructure of the iTunes Store and Netflix, respectively.

Content availability has also become less of an issue since large content owners are licensing assets to a wide variety of online platforms, from Hulu to iTunes or YouTube, as well as their own websites. As a result, programming has become available through a number of different outlets using subscription, video-on-demand and ad supported business models.