Internet TV is the Competition

I’ve been seeing an interesting commercial on television these days. (Being from the Philadelphia area, there are a few live sports events that I’ve been drawn to watch, and thus I’ve been exposed to more commercials than usual.) The ad in question is from DirecTV, the satellite television subscription service, and the positioning message is that DirecTV gets new release movies a lot sooner than you can get them through Netflix.

Huh? The take-away here is that satellite services apparently aren’t competing with cable companies or terrestrial broadcast; they see Netflix as the bigger threat. And the ad is not specific about whether they’re talking about discs through the mail or movies streamed over the Internet. While it is true that subscription television networks still have an advantage over Netflix over release dates — especially the Netflix streaming service — I expect that the situation will change rapidly as Netflix builds more clout with the studios and is able to negotiate better and better deals.

How serious a threat is streaming content over the Internet? The market tracking company WitsView is predicting that 40 million Internet-connected TVs will ship worldwide this year, which will account for about 20% of the total. By 2015, sales could hit 200 million units, or about two out of every three televisions sold. Tell me that this is not enough of an installed base to attract Hollywood’s attention! And this doesn’t even count all the Blu-ray players, video game consoles, and network media players that also can connect a television to the Internet.

There’s another subtle angle to the DirecTV commercial. The implication is that you can get better movies sooner with the satellite service, so people who watch movies should sign up. But what about people who are interested primarily in movies, and not all the other stuff that fills the hundreds of available channels? This marketing approach would seem to open the door to the question of a la carte pricing. If I just want to watch movies, I can pay less than $10 a month to Netflix and have discs delivered to my mailbox while I also can watch all that I want streamed over the Internet. Is DirecTV going to offer me such a low-cost and focused option? Can satellite and cable survive if subscribers don’t have to pay for the dozens of channels that they don’t watch?

There are many signs of desperation and confusion in the subscription television business, and I sense that we’re rapidly approaching a tipping point.