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Two surveys released in the past week come to the same conclusion that Internet-connected TVs (and by extension, connected peripherals like Blu-ray players) are going to be very popular this holiday season.

What the two surveys don’t agree on is the impact that NeTVs will have on traditional delivery of TV programs to the home. The idea of getting TV shows (and movies) through an Internet connection – whether streamed, or downloaded for later playback – is commonly called “Over the Top” video (OTT).

Where that name came from is anyone’s guess, because TV delivered over the internet is really more of a detour around cable TV channel packages, and doesn’t quite deliver the quality of a Blu-ray disc. Still, OTT video has become a hot topic, along with the phrase “cord cutting,” and may be one reason that Time Warner recently introduced a lower-cost channel package for subscribers in selected areas.

Let’s face it, cable TV is expensive, and the industry’s annual rate increases are far above inflation. Add in a recession, free over-the-air digital TV, Netflix, and WiFi, and you can see why people are experimenting with alternative, lower-cost ways to get movies and watch TV shows.

So, is there a real competitive threat from Internet-connected TVs, which are expected to drive the majority of TV sales over the next month or so? (Sorry, 3D TV still isn’t on most buyers’ radar right now.)

The Parks Associates study, released earlier this week, predicts that three million U.S. households plan to purchase an Internet-connected TV during the 2010 holiday shopping season, “…further eroding consumer need for brick-and-mortar video sources.” (By sources, I assume they mean Blockbuster, plus DVD and Blu-ray retailers such a Best Buy and Wal-Mart.)

According to Parks, nearly one-fourth of all American households already have one connected TV device – a number that is running ahead of Blu-ray player adoption – and 25% of those connected households (5% for those of you keeping score at home) have watched a streamed or digitally downloaded movie at least once in the past month.

The study goes on to state that only 38% of ‘broadband households’ plan to buy a consumer electronics device this holiday season, with Internet-connected products and smart phones in equal demand. By the end of the year, more than 40 million consumers are predicted to have a broadband-connected game console, while over 5 million will be using connected Blu-ray players and 4 million will be watching their favorite shows on networked digital video players.

Hmmm..are traditional channel packages and packaged media doomed? “Not so fast!” says a new survey by Frank Magid Associates, which claims that OTT services and Internet TV are ‘additive’ services. They do not replace traditional pay TV, but enhance it.

In the Magid study of 1,208 consumers, only 10% of respondents expressed an interest in watching TV shows and movies from Internet content providers on laptops, desktops, or tablets. The majority preferred to continue watching on new, lower-cost big screen TVs that also incorporate Internet access, either directly through on-board apps, or through a set-top box like those made by Roku and Apple.

The cable TV world was abuzz at the news earlier this fall that pay TV services are seeing a first-time decline in subscribers, with channel packages taking the  brunt of the hit and broadband and voice-over-IP (telephony) picking up some of the slack.

Not to worry, says the Magid study. Only 1% of consumers reported that they have cancelled their pay TV service in favor of accessing content available on the Internet, and only 2.5% of consumers use Internet content exclusively. In fact, Magid predicts only 3% of all consumers will eventually drop traditional cable TV for Internet video delivery.

Both surveys agree that packaged media (DVDs and Blu-ray discs) will be the ultimate victim of Internet video delivery.  Parks even goes on to suggest that the currently-popular kiosk video rental systems operated by NCR and Redbox could also fall by the wayside if Internet-delivered video quality improves and consumers see a real value to it.

One thing’s for certain: There will be no end to the surveys predicting just where the future of OTT video lies, and you’ll hear plenty of arguments between analysts over what will happen to traditional media distribution models along the way. (Oh well, someone’s got to speak at all of those ‘next-generation media’ conferences that seem to pop up every week…)

Posted by Pete Putman, December 1, 2010 2:23 PM

About Pete Putman

Peter Putman is the president of ROAM Consulting L.L.C. His company provides training, marketing communications, and product testing/development services to manufacturers, dealers, and end-users of displays, display interfaces, and related products.

Pete edits and publishes HDTVexpert.com, a Web blog focused on digital TV, HDTV, and display technologies. He is also a columnist for Pro AV magazine, the leading trade publication for commercial AV systems integrators.