Tumultuous Times for TV Over IP as Microsoft Enters the Fray

It’s not easy being a consumer trying to cut the cable or fiber cord these days. You’d think with a bevy of hot new set-top boxes like Apple TV, Google TV and Boxee, we’d be living in a Utopian future where television finally does what we want and dumping your expensive provider was a real possibility.

Not so fast, because it’s just not the reality, at least not yet. And predictably, given the nature of content owners, the issues are control and profits.

As thousands of new Apple TV owners plugged in their shiny new boxes, the realization that only a handful of networks were available, slowly began to sink in. With shows from ABC, Fox, Disney, and BBC, Apple TV via iTunes simply does not offer enough diverse content to satisfy most TV-watchers. While that’s a nifty start for Apple’s reboot of Apple TV, certain shows are conspicuously absent.

Are you a ‘Wipeout’ or ‘Big Bang Theory’ fan? Unfortunately, you’re out of luck since iTunes doesn’t carry those shows. And if you think Google TV might be your salvation, it just may be worse for owners of Logitech’s Revue Google TV devices. Upon Google TV’s release, the big three networks as well as Hulu began to block Google TV owners from streaming their shows.

So it’s no shocker that the recent reporting talking about how Microsoft is potentially cobbling together enough network deals to launch it’s own streaming service on the back of its extensive installed base of Xbox gaming systems, has many consumers quite skeptical.

Reuters is reporting that the software giant is in talks with both HBO and Showtime to possibly begin delivering either a la carte shows via Xbox Live, or potentially offer gaming fans a subscription-based service that allows full access to the channels. Given the popularity of Walt Disney Co’s ESPN on the Xbox Live online service, these early negotiations start to make perfect sense. According to the report:

“One scenario under consideration by Microsoft is to create a new TV service on its Xbox gaming console that would establish a “virtual cable operator.” The service would charge a monthly fee for access through the Xbox to networks such as ABC, NBC, Fox, CBS, ESPN or CNN, according to two sources familiar with the plans.“

While a la carte channel subscriptions have long been the dream of TV addicts everywhere, you have to wonder if Microsoft won’t succumb to the same fate as Google and Apple. Somewhat analogous to the music industry, whose companies saw profits plunge as digital delivery and piracy began to edge out physical product with higher margins, the various networks are staring down the same challenge.

Where network advertisers will pay huge sums of cash for standard TV audiences, the economics of streaming content isn’t anywhere near as certain, nor are the ad deals as lucrative. Cable and Fiber consumers are used to long commercial breaks, wherein the networks can run blocks of 6-8 commercials, several times an hour. On the streaming side of the equation, the consensus seems to be that viewers simply won’t put up with that much advertising.

So, for ad-supported networks, you’re going to see a fragmented IPTV market for a very long time, until these economic issues can be sorted out. What seems more likely in the short-term, is that premium channels with original content who do not rely on advertising dollars will venture more bravely into streaming arrangements with the various set-top players.

In the meantime, consumers will have to console themselves with Netflix instant streaming and a much smaller sampling of content than they’d prefer. Hopefully, in the near future, as more and more consumers purchase IPTV devices and screens, the ad-driven content providers will begin following the eyeballs and perhaps we will finally get to be in control of the content we consume and on what devices we consume it.