Connected Consumer Wrap-up: Q1 2009

1. Summary

Even before the first tchotchkie was handed out in Las Vegas at the Consumer Electronics Show (CES) this January, it became clear that the online video story of 2009 is the continued march forward of online video into the living room. A few years ago, web-connected TVs were hardly even a glimmer in the collective eye of the consumer electronics industry, but with the launch of successful new services such as Hulu and Netflix, there has been a corresponding explosion of interest from hardware vendors and many content players in getting over-the-top video to the TV.

While the economy may ultimately hamper some of the enthusiasm as fewer consumers will be able to afford new products coming to market, there is a bright side to the downturn: Because times are tough for many, free TV is more appealing than ever, which may result in a rising number of cord-cutters.

This increasing usage is already being chronicled by rating agencies such as Nielson, which point to growing viewing of online content in the first quarter of 2009. These numbers indicate market viability, and venture capitalists are showing their support with significant investment. In first quarter alone startup companies have already raised significant capital, despite an overall cratering of venture funding during that period.

As the market develops, players are becoming more aggressive in securing relationships. Whether it is with semiconductor manufacturers, set-top box vendors, or content distributors, deals are being brokered. Players are also becoming more strategic in partnerships and more protective of their position. Battles have been especially fierce between content providers and portals, particularly in the case of Hulu. Set-top box vendors are also working to add functionality to their boxes through partnerships.

While set-top box vendors are working to adapt their products to the over-the-top world, as I discussed above, multiple consumer electronics manufacturers announced Internet-connected TV products at CES. These devices connect directly into the web, often times connecting to popular web video services such as YouTube.

Despite the economic gloom, first quarter has been fairly positive for online video. A few companies have had to shut down, others have seen layoffs, but overall, the market appears to be embracing this new frontier in entertainment. Even the big networks (ABC, NBC, CBS), the stalwarts of oldteevee, are making inroads into newteevee. The remainder of 2009 promises just as many advances as have occurred over the past quarter.