David Pogue’s blog post on streaming content turned out to be EXACTLY what I submitted for my final paper two week ago (for Harry Lewis‘ class on Life, Liberty and Happiness After the Digital Explosion), which was a huge relief, because I had been preparing for the paper since last year and if this post had been published before I submitted my paper, the professor may have thought I was a cheat. I disagree with Pogue, however, that the past few years of stumbling attempts for streaming content were due to technological problems that were “solved” by Netflix. In the US, the reason streaming content didn’t take off until now was because of poor broadband infrastructure. I mean, even now, the fastest speed you can get through Comcast is not very fast. Korea, on the other hand, had an extremely good broadband infrastructure since 2002, but streaming mainstream content was slow because policy makers fought over whether or not IPTV should be regulated by broadcasting rules or by Internet rules- because the standards for the two are obviously very different. Business is less about ideas and more about being at the right place at the right time.

Anyways, the feedback I got from the paper was that it was “well-written, but tended towards the obvious,” which was a teeny bit disappointing, but by Pogue’s post, I learned that something may seem obvious to those of us who are tech-savvy, but it’s worth pointing out because not everyone is aware of it. It made me feel a lot better. Some people need to be shown what is obvious to know that it is obvious.

Anyways, to celebrate, I’m posting my paper here. I’m thinking of tweaking it for an academic journal.

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It was New Year’s Eve. Outside, the snow was quickly piling on the sidewalks, but inside Hollywood Express, the tinkle of the bell hanging on the front door was frequent-boosting good cheer of the customers. Waddling around in huge coats and wrappings, they plucked out DVDs from the shelves and waited in a long line to check them out. It looked like business was good.

Ah, but there were better days, said Darren Buchanan, the 33-year old manager of the locally-owned video rental store. He admitted that the business wasn’t in deficit, but after 28 years, it was counting off the last minutes on its death clock. “Eventually, we’re going to liquidate. It’s a matter of trying to hang in there ‘til it does,” he said.

Having worked in the video rental business since he was 18, Buchanan has experienced changes in the industry first-hand. The first store he worked at only rented out VHS tapes; now, most of the videos are DVDs and some are Blu-ray discs. He claims business was good up until a few years ago, when profits made a sharp U-turn. “These video shops used to be a goldmine. You could open one anywhere and you could make a lot of money. Now, no one in their right mind would start a video store,” he said.

Buchanan said that he saw a massive drop in rentals about four years ago. “It happened when Netflix was advertising; it wasn’t because of Blockbuster or the Internet. Some people may have stopped going to video shops because they were downloading movies, but downloading would take a long time-you’d have to start downloading something before going to work in order to see it that night,” he recalled. “But now, the Internet is a threat. Downloading is so much easier and I think ultimately everything is going to go online.” He hasn’t started looking for another job yet (“because I love movies”) but he says he’s mentally-if not financially-preparing himself for the day the store closes. “The industry says it’s going to take five to six years but I think it’s going to come much sooner-maybe two to three years,” he said.

Changing Definition of TV
What is TV? Or rather, what is watching TV? Is TV still TV if you’re watching it on your laptop or your iPhone? One thing for certain is that television, while still a media, is no longer a medium.

Although the concept of Internet TV has been around for more than a decade, actual Internet TV is just starting to take shape. Now that more homes are being hooked up with broadband in the United States and connection speeds are getting faster, Americans are quickly changing how they watch TV and realizing that TV isn’t what it used to be. More people are watching television shows online or through some kind of video service that is connected to the Internet.

Matthew Shinners is one of those people. A student in his mid twenties, one of his joys in life is watching TV. He still owns a television set, but watches more on-line. “On the TV set, I usually watch Blu-ray movies and shows that are still airing that I follow,” he said.

For Ruth Abrams, an online religious community supervisor in her early 40s, watching things online is more about not watching it. She got rid of her TV set because “television represented a pure time drain.” Now, her son is growing up as an Internet TV user. “He mostly watches things on YouTube, he thinks videos are 10 minutes long,” she says. “So much as I would like to limit his screen time, I think watching online has a lot of advantages over the relative passivity of using a TV set.”

DK Kim, a woman in her thirties, still subscribes to cable but finds she is watching more shows online. “I go online when I miss a show, or if I want to watch something in bed,” she says. “The TV is in the living room but I have a roommate and in my room, it’s more private and I know I’m not bothering anyone.”

There may be hundreds of different reasons why people watch things online, but they are, and network companies are realizing this trend and trying to cater to viewers’ needs. After struggling with YouTube over copyrighted material that was being uploaded in short clips, network companies have only recently started to host entire episodes on their own web sites, or experimenting with sites such as Hulu.com, a joint venture between NBC and News Corp. ABC.com recently added a high definition viewing option for people watching on bigger screens.

Moving from Format to Distribution
The transition towards streaming video is happening at a pace much faster than it took the Video Home System (VHS) to switch to DVD. After mass retailer sales of DVD videos began in late 1997, it took several years for DVD rentals to outnumber VHS rentals. In 2007, JVC, the company that introduced the VHS format in 1977, said that it would no longer manufacture VHS recorders (It still produces hybrid VHS-DVD players).

All in all, VHS had a 20-year run before a worthy competitor arrived. The DVD was not as fortunate. TiVo-a digital video recorder in the form of a set top box that automatically records one’s favorite TV shows-was launched in 1999, just two years after the DVD’s commercial debut. In 2006, TiVo announced that it was adding a new “comprehensive broadband video delivery system” that would allow home movies to be sent over the Internet and automatically convert Web videos for display on TV sets. In TiVo’s world, there would be no need for any physical video product.

The move towards streaming content was also seen in Netflix. Netflix was founded in 1997 and began business under its current name in 2002 as a DVD mail delivery service. In 2007, however, it decided to start streaming video content. For a while, its “watch instantly” content was extremely limited-mostly old movies or B-rated films-but in the past year, it has aggressively expanded that content with television shows and more recent and popular movie releases. It also forged many partnerships with video players such as TiVo and Xbox360, and even released its own video streaming set-top box-the Roku-for those who wanted to watch on-demand Netflix videos on the big screen instead of their computer.

Service Providers v. Electronics makers, Boxes v. Displays
The high-tech market research firm In-Stat predicts that online video revenue will surpass $4.5 billion globally by the year 2012, up from $1.2 billion in 2008. It foresees that purchased and rented videos will account for the most growth in online video content in the short term and that ad-supported video from major TV networks will be making money with online videos by 2012.

Predicting that online video will grow is not so hard given the current trends, but the bigger question is who will get to deliver that content. With so many different parties trying to get a slice of the pie, it will be interesting to see whether or not people will choose enhanced set-top boxes or enhanced digital screens as the intermediary of their video streaming service and whether the ultimate decision will be more influenced by the content makers or the end users.

In the next few years, we will witness a fierce battle between service providers and electronics makers. Traditionally, the service providers were the ones who had control over the content. Content for cable television, for example, differed depending on what kind of subscription plan one had; different cable companies offered different channels (content). Because cable service providers controlled the content, they were able to secure a steady source of income and make sure viewers paid for the content they were viewing. Cellular phone service companies were the same in that they decided which content could be made available on cell phones and charged users according to usage.

The Internet, however, changed everything. Now, service providers are no longer in control over their content, enabling device makers to step into that position. With TiVo, Apple TV, or Roku, viewers may not see the need to subscribe to cable television anymore. That doesn’t mean that the content from cable TV will go away-only that the content will be delivered through arrangements between production companies and the video service companies, not Comcast.

Will companies like Comcast sit around and let that happen? That is where the debate over net neutrality steps in. This is a critical issue when it comes to the future of TV. If Internet service providers decide to take advantage of the situation that nothing can be done without Internet access, they may start to abuse their power.
At the same time, there will be competition between the set-top box makers and the display makers. Right now, set-top box makers are in the lead, because they have more contracts with production companies and film distributors, but display makers have the advantage of being a necessity. One can watch videos without a TiVo, but one can’t watch videos without some kind of screen. If display makers are savvy in inking deals with content developers, they will quickly overcome set-top box makers. In this respect, Xbox360 and PS3 have an advantage over Roku, TiVo, and Blockbuster Box in that the devices can do more than play videos.

Huge Market for Content Creators
Whether or not distribution takes place through the service providers or electronics makers, at the end of the day, the real benefactors will be the content generators. Falling costs of video production will enable more people to create content and make that content distributable on the Web. Like news, we will begin to see more specialized portals for online video. YouTube will no longer be the main source for online video because it is simply too generic. People will want sites or services that have quality content that caters to their interests. For instance, foodies will be going to Food.com or some other channel that compiles the best of food-related video content.

We will also see a rise in content aggregators, such as Netflix and more recently, Amazon’s video on demand. It will also be interesting to see if major studios will continue using these distributors or start hosting content on their own sites.

Now that actual tools allow viewers to become more engaged, will TV become more interactive? American Idol, for instance, was seen as a primitive model of user participation, but actual broadband connection will allow more interactive features. Some of these interactive features could include texting with friends while watching the same program or using object identification software to identify products featured on TV shows and then buying them with online banking tools. One of the key characteristics of TV as a media was its one-way communication function-if it becomes interactive, would we still call it TV?

On the other hand, many studies show that people actually like the passiveness of watching programmed TV, one of the reasons scholars give in explaining why Internet TV took so long to take off. That could open up opportunities for services that combine pre-programming with some element of customization.

Problems of Media Streaming
Despite all the rosy predictions we have for the future of television that relies heavily on the Internet, one of the biggest problems is that high Internet connection speed is a prerequisite in watching streamed material. This creates a problem because while broadband is a commodity for those living in urban areas, it is still a luxury for those in rural areas. Stephanie Pfeiffer, who lives in a remote area of Massachusetts, only has satellite as an option for Internet connection. Streaming videos is something she cannot imagine. Most of the time, she wakes up at four in the morning to read her email because less people are using the Internet at that hour. When told about streaming video sites such as Hulu, she said, “I didn’t know there were services like that but even if I did, I don’t think I would be able to use it.”

Epilogue
In the meantime, video shops like Hollywood Express are still in business. They may not be making as much as before, but they are making an effort to keep a competitive edge while they still can. For Hollywood Express, that is having an extensive movie library-one that includes foreign films and documentaries that are difficult to find on the Internet. It also helps (for now) that only about 50% of Americans currently have high-speed Internet access.

There are also people who remain optimistic that a small community of people who prefer a physical product will still remain. In a recent report, Gerry Kaufhold, an analyst at In-Stat, said that surveys show that half of consumers still prefer packaged goods over virtual ones. He also noted that the preference is not just with older generations. “Surprisingly, young people who regularly watch online were the group that expressed the highest interest in owing a package goods bundle that includes artwork and extra content,” he said.