Connected devices will fuel the next rising tide for online video industry

editor's corner

Jim O'Neil

Apple (Nasdaq: AAPL) CEO Tim Cook may have reiterated the company's stance that its Apple TV franchise is still just a hobby to the company, and with the numbers Apple put up in the first quarter for iPads and iPhones, what else could it be?

But there are increasing indications that that "little business" of Apple's is about to boom, and that it's likely to be part of a rising tide that will give the online video industry yet another boost, perhaps becoming the flood tide that puts it over the top and firmly into mainstream America.

NPD In-Stat today rolled out some research that said 2011 was a banner year for connected devices, and it's likely to just be lighting the candle on a boom that the research company expects to see deliver a compound annual growth rate of 52.6 percent through 2016.

"CE is no longer about ‘dumb' devices that exist at the edge of the network to provide specific functions, but rather about ‘intelligent' devices at the edge of the network that can connect consumers to new stores of content and engage them in new digital experiences," says Norm Bogen, VP of Research. "This simple fact is having a profound impact on the development of the digital media and entertainment industry, which clings to the old practices of using networks to control the user viewing experience."

Bogen's remarks reflect those of BTIG analyst Richard Greenfield, quoting from a Nate Silver tweet: "An implicit although obvious subtheme of Moneyball is that resistance to innovation is driven by job insecurity."

Greenfield on Tuesday wrote that Hollywood, coming off its disastrous SOPA folly, should aggressively embrace video-on-demand for new releases, charging $20-$25 a title for movies to be available at home the same day they're released in theaters. Greenfield's parlay isn't new.

The idea of releasing VoD at the same time as a theatrical release has been talked about before. Studios have balked in the past, fearing the wrath of theater chains, ala the threatened boycott when Universal Pictures in October considered releasing Tower Heist three weeks after it opened in theaters.

Hollywood has maintained that its primary worry about early VoD release dates is piracy, but Greenfield contends that with 21 million Netfix (Nasdaq: NFLX) subscribers paying $8 a month to watch movies that are easily accessible through illegal sites, the point is moot. Most viewers just want easy access to a quality viewing experience; and paying $25 for a 24-hour license isn't likely to send them looking for a free source.

Next week, the Super Bowl makes its debut online, with NBC and the NFL expecting some 5 million viewers to tune into the videocast. The NFL, in fact, is actually charging more, in terms of CPM for ads on the streaming videocast than on its broadcast, a CPM of $55 for online ads compared to about $35 CPM for broadcast spots. A year ago, I'm not sure than would have been the case.

Much of the move online, of course, is because the technology to deliver OTT products with the same QoS offered by pay-TV operators is arriving. The quality of movies delivered to me through my Apple TV or Xbox 360 is as good as, and in some cases better, than the quality I get from my pay-TV provider's VoD service, There's no doubt the user interface on both devices is far superior to cable's still clunky guide.

But it's the consumer who's really driving this bus. Apple's Cook said the company sold just more than 2.8 million Apple TVs in the fiscal year that ended in September. In its most recent quarter, it sold more than 1.4 million units. That's a pretty good bump, and it's just Apple TV.

Last month, Strategy Analytics said about 8 percent of U.S. households had an installed connected device, a number it expected to double. NPD, meanwhile, said it expects the installed base of connected devices to grow from 256.8 million units in 2011 to 1.34 billion units in 2016. Video game consoles, he says, will lead the pack with 36.7 million units in 2016. There's a lot of room left there for Roku, Apple TV, connected TVs and a host of other devices that we'll likely be seeing in coming months.

Roll tide.--Jim