Someday, you’ll be able to turn on your TV and view any movie or show ever recorded anywhere with the tap of a few keys. And someday, it turns out, is now. All you (and the government) have to do is get out of the way and watch.
Remember when you mostly used the Internet for shopping, email and looking up stuff like the name of Sandra Bullock’s coolest movie (Speed, co-starring Keanu Reeves)? Maybe you still do. But if you’re young, or anxious to have something to talk about with your teenager, chances are you now spend a lot of time on sites like YouTube, Facebook and Skype. What’s more, most of the content (measured in bytes) is bandwidth-hungry video “streamed” in real time — not words, music and photos downloaded for perusal at your leisure.
A sea change in Internet use? More like a tsunami that’s reshaping how, where and when we get our entertainment. But it’s going to take a lot of capital, along with some fresh thinking about how to recoup that investment, to make it happen. More ominously, it’s going to take a lot of self-restraint on the part of policymakers, who will be caught in the crossfire as content providers, telecom companies and consumers fight for bigger slices of the pie.
The long heralded, but long delayed, integration of TV and the Internet is finally upon us. In the two hours between 8:00 and 10:00 PM, Netflix streaming movies and TV shows account for one-fifth (not a misprint) of all the Internet bandwidth being used in the United States. And that’s not the half of it. True Internet TV is about to go mainstream.
One reason is that the technology is catching up with the vision: TV manufacturers are introducing sets with easy access to the Internet built in. Want to watch The Devil Wears Prada? Tonight’s network shows? Or maybe a cricket match, live from New Delhi? All that programming is available on the Internet. And with the new TVs, you’ll be able to buy it on demand just as easily as you buy clothes and books on your PC. Indeed, it will soon be practical for anyone with a broadband connection to bypass cable and satellite TV entirely, watching whatever they want, when they want it, via the Internet.
Burgeoning access to video on wireless devices promises to be equally disruptive, since most of the streaming video available on computers can also be seen on smartphones and tablets. The only constraint is access to fast wireless networks. And that probably won’t remain a constraint for long: Morgan Stanley predicts that video usage will rise 66-fold between 2008 and 2013 in the United States, by the latter year representing two-thirds of all wireless data traffic.
So, what stands between consumers and video nirvana? For starters, Internet capacity will have to keep up with demand. When 20 percent of the Internet is being hogged by Netflix, fewer than one million Netflix subscribers are online. Imagine how many terabytes of data per minute will have to pass through Internet switches when 100 million Americans are watching TV (or playing high-definition video games) online.
What’s more, those terabytes will have to flow seamlessly: Nobody knows or cares if iTunes hiccups occasionally on music downloads. But a bottleneck lasting a few seconds could mar the experience of Avatar for tens of thousands.
Wireless system operators face the biggest challenges. In part that’s because they have so much further to go in building broadband capacity, in part because the all-you-can-eat data plans now favored by most customers will not work well as use becomes more skewed. That’s why AT&T and Verizon have switched to tiered pricing plans, and why every other wireless carrier in the U.S. will be dragged in the same direction.
Now, from technological and economic perspectives, keeping the Internet ahead of the video curve is surely manageable. There will no doubt be growing pains, as consumers face additional charges for bandwidth use and premium programming and content providers duke it out with the carriers over how to split revenue from Internet-based video. But there’s no good reason to believe the market won’t sort itself out.
No good reason, but maybe some bad ones. In particular, the government could easily be drawn into interest group battles masquerading as high-minded debates over the principles of telecommunications policy.
Should content providers be allowed to charge Internet service providers, the way they now charge cable TV and satellite companies? Or look at the carrier-content relationship from the other direction: Should service providers be allowed to charge content providers for premium video quality? Then, there are the questions raised by the fact that the lines between carriers and content providers are blurred. For example, should a wireless carrier that sells a lot of voice services be allowed to block (or charge) Internet phone companies that piggyback on their systems? Finally, should there be rules on how Internet service providers and wireless providers can charge you, the consumer, to recoup their huge investments?
No doubt, consultants in search of second homes will discover a zillion reasons for believing that, without intervention, the new, video-dominated Internet will generate windfalls for somebody. But we think the proper test is different: Are regulators likely to do a better job in promoting efficiency and growth in an industry characterized by rapidly changing technology and a need for tens of billions of dollars in capital to stoke the engine of progress?
The answer may turn on how markets evolve – in particular, whether any of the players manage to find ways to build durable barriers to competition. What does seem clear, though, is that the burden of proof should be on those who want regulation now, because the Internet TV revolution has finally arrived at your doorstep and could soon be in the palm of your hand.
(This post was also published on Forbes.com.)