Flipping Three-Screen Strategy on Its Head

By Gary Kim

There’s no doubt about the drive by cable and telco providers to make a business of content on at least three screens—TV, PC and mobile. Neither is there much doubt of the desire to build businesses that can source video content from any input—broadband Internet connection, over-the-air or network-delivered linear video—and display it on the “main screen” most viewers use to watch most of their video, namely the TV screen.

So it is noteworthy that Verizon Communications is about to introduce a service that attempts to forestall some viewing on second and third screens by making it really simple to watch YouTube or other Internet-delivered video on the main TV screens in a home or office, without requiring the use of an additional box such as a TiVo, Roku or Apple TV appliance.

Instead, viewers will be able to use their standard FiOS TV remote control to pluck video from YouTube or other Internet video sites and watch directly on a TV set, with no additional in-home hardware.

That’s a big deal for several reasons. First, there is a barrier to adoption whenever extra hardware has to be purchased by the end user. One can buy a $100 Roku box to watch Netflix video, but one has to be a Netflix customer. One can buy a $300 Apple TV box and watch what iTunes has available. But those options are walled garden approaches.

The device investment only allows a user to watch the walled garden content a particular content provider has licensed authority to offer. Verizon’s new FiOS TV application does away with all that. Viewers can watch any Internet video they want, on any Web site, without having to buy, rent or otherwise be supplied with yet another terminal in the home. That is a huge advance in “friendliness” for users who want to watch Internet video on a home TV with minimal fuss and cost.

And make no mistake: most TV viewing still occurs on TV screens, not PCs or mobiles, though PC viewing is growing. A recent Nielsen survey found viewers watching 133 hours a month of TV content, and just about two hours a month watching video on their PCs.

In fact, Nielsen suggests that Americans are watching more traditional television than ever, even as alternative modes are growing. Between May 2007 and May 2008, for example, Nielsen survey respondents reported adding about five hours of additional TV viewing, for example, of which about two additional hours were PC-based.

Still, watching video on the Internet is no longer a novelty, as Nielsen reports that nearly 119 million unique viewers viewed 7.5 billion video streams in May 2008. The average viewer spent two hours and 19 minutes in May streaming video online.

Still, time spent watching online video represents less than 10 percent of overall Internet usage and a fraction of overall entertainment video consumption. Still, 73 percent of the active Internet population viewed video online during May 2008, Nielsen projects.

If Verizon makes it easy enough to watch video clips and content while in the FiOS TV experience, it will gain significant protection from hypothetical customer churn based on use of Internet video as a substitute for linear viewing. Verizon also gains a value advantage, as the whole point of Roku, Apple TV and other devices and services is the ability to capture content from Internet sources and view that content on standard TVs.

It isn’t yet clear how the industry will evolve over time, and whether Verizon can create a delivery proposition attractive enough to content providers that such an “Internet video on TV” service can become a revenue generator. In the meantime, Verizon will create a more-sticky and valuable linear video product that also makes it really easy for users to watch Internet video on their TVs, which is where most viewers probably still want to watch it. IP