The revolution will be televised

With internet-enabled television we will choose our own timetables, pause when it suits us and when we shout at the box it will be listening.

Russell Clark's phone has been ringing off the hook since the Government announced its sweeping overhaul of broadband regulation last month.

Clark, joint managing director of the country's largest video rental chain, Video Ezy International, says the imminent broadband revolution is going to change not only his business but the way people view film and television altogether. For the past few weeks, he's been getting calls from internet service providers anxious to provide customers with some sort of video offerings over the higher-speed connections expected soon.

"They've been calling saying, 'what can we do?' It's a whole new business."

Indeed, the global trend is seeing television and the internet merging. Traditional television and video providers, such as Sky and Video Ezy in New Zealand, will soon have competition from a host of non-traditional players, including internet service providers and telephone companies. Faster broadband speeds and more reliable internet networks are presenting a serious threat to the traditional players.

Thursday's announcement that digital television will be phased in from next year could pale in significance when the impact of the internet is felt, since this time around the revolution will not only be televised - it will be downloaded.

The seeds of the movement were sown in 1999 when an American college student named Shawn Fanning launched a file-sharing program called Napster as an easy way to swap MP3 music files over the internet.

Napster turned into a global phenomenon as millions of people downloaded music tracks from each other for free, taking the record labels by surprise. This time around, media players are positioning themselves to take advantage of the new paradigm.

Clark says Video Ezy is close to signing off on a model that will allow customers to download movies directly from the chain. Video Ezy, which has 150 outlets in New Zealand and 550 in Australia, has yet to feel a pinch from consumers downloading video, mostly because of poor broadband speeds in both countries. But as those speeds increase, so too will the downloading.

"The public are alive for downloading movies," he says. "It isn't having an effect on us at the moment, but it certainly will have an effect, which we're getting ready for."

Last October, Apple started offering customers episodes of popular television shows, such as Desperate Housewives and Lost to US customers. The shows - which are for downloading onto Apple's video iPod - were selling for US$1.99 each the day after they aired on television. The company has sold 30 million videos so far and has expanded to include content from four major US television networks.

ISPs, meanwhile, are also looking for a piece of the video action. Their offerings will take a different form in that customers won't download content onto their computers, but rather straight to their television through a special set-top box.

It's a trend known as Internet Protocol Television (IPTV), which is essentially replacing the traditional television cable connection with a broadband connection. Doing so will allow service providers to introduce more interactivity to television, making it more of a two-way medium. IPTV is also typically offered with a Voice over Internet Protocol (VoIP) phone service and broadband access in a bundle known as "triple play".

"If you're an ISP wanting to differentiate your business, you'll be looking into those channels," says Stephen Harley, product innovation manager for No 3 Australian ISP iiNet. "Internationally it's become pretty well an obligated product offering."

Perth-based iiNet, which owns New Zealand's ihug, runs its own ADSL2+ network in Australia and is testing video services. The company is in the process of deciding on content providers and plans to roll out IPTV services soon. Ihug is likely to roll out similar services once it builds its own ADSL2+ network following the opening of Telecom's network next year, Harley says.

IPTV services typically include the ability to time-shift programmes, allowing viewers to watch shows whenever they want, as well as deeper on-screen programming guides and pay-per-view options. On-screen voting through a remote control will replace the cellphone text voting seen on shows such as NZ Idol. Viewers will also be able to pause, rewind and fast forward live TV.

Movie offerings also figure prominently in most IPTV scenarios, which means ISPs will go head to head with video rental stores and traditional television providers.

Rick Friesen, chief operating officer of CanWest - which owns TV3 and C4 - argues that internet TV is still a myth in New Zealand, but the network was discussing when the time could be right to move towards it.

"In terms of television, if we could live in a land where there were only three television stations and no more, that would be a wonderful thing for us but that's not reality," he says. "You just adapt to changing times and internet television will be part of that landscape."

Friesen says it will be at least five years before the commercial impact of internet television hits, but when it does, it could be a threat.

"It's another way of getting the programming and obviously once it's fully established, and you can get a comparable signal on internet TV, then the viewer obviously has the option to bypass advertisers and bypass television networks."

The key for networks is to maintain strong relationships with content providers, he says. CanWest currently buys shows to screen free-to-air but it would need to negotiate buying another set of rights - called IPTV rights - from content providers if it were to set up some form of IPTV. CanWest has not yet bought the rights because the technology to use them does not yet exist, Friesen says.

A TVNZ spokesperson said the network wanted to provide IPTV service and it had some rights.

Sky also holds IPTV rights for its "valuable" programmes, chief executive John Fellet says. "It's better to get it before you need it than when you're desperate to get it."

Fellet says IPTV is not yet a commercial reality but when it is the pay-TV network plans to be a part of it.

Sky and Telecom have tested a hybrid box taking both internet and digital feeds and Sky is working through the logistics of launching a service into New Zealand.

"It's our goal to try to be everybody's pay-TV partner and so if Woosh wants to offer an IPTV television product, we'd like to be partner, if Telecom wants to do it, if whoever wants to do it - we have a history of working with everybody," says Fellet.

"We view it as just one more way into the household."

Major telcos around the world are also eyeing IPTV as a new revenue stream. Telecom last month formed a video division to plan out its offerings.

"It's a question of when and what, rather than if," says Philip King, general manager of video services.

King says Telecom is not likely to compete on full television services with Sky, but will rather look to complementary offerings such as downloadable movies and interactive features such as time shifting. It is likely do this in partnership with Sky.

"We've got a highly evolved pay-TV market in New Zealand anyway, so the opportunity really is to do something additive to what customers [already] get in the home, not pretending there isn't already a lot of choice out there," he says. "We have no presence in the broadcast TV market today so it would take a long time to build expertise and capability in that regard into what is already a mature market."

King expects the IPTV market to really start rolling in mid-2007, once ADSL2+ services start to set in.

Geof Heydon, Asia-Pacific director of innovation and market development for network giant Alcatel, says telcos worldwide are looking at IPTV services as replacement income for declining traditional calling revenue. Most telcos are holding off on committing to plans until they see how AT&T, which is leading the way, does in the United States later this year.

While telcos' initial IPTV services may be complementary to existing offerings from traditional television companies, the ultimate goal is full competition with them, Heydon says.

Overall, the various forms of internet-related television and video will give viewers more options and could ultimately allow them to bypass networks completely, which could reduce the value of advertising space.

Two Net TV types

Downloadable: Viewers download shows from the internet to watch on their computer, iPod or similar. Apple already sells US customers episodes of popular shows.

IPTV: Programmes download straight to TV. IPTV replaces the traditional cable connection with broadband and gives viewers more interactivity with the medium.The