Over-The-Top TV At Bottom Of Station Plans

Don’t expect to find a local news broadcast on your connected TV anytime soon.

While TV stations are well aware of the growing market for over-the-top services from the likes of Apple TV and Roku, most say the business isn’t strong enough yet to justify making deals.

That could change over time, however, and stations are closely monitoring the market to see how it shapes up.

“We are constantly evaluating opportunities to grow our local businesses,” said Mike Nelson, a spokesman for the CBS-owned stations. “We are continuing to examine over-the-top and how it may become part of the local opportunity. We are actively engaged in discussions with potential partners.”

Wade Beavers, CEO of DoApp, has built his business developing mobile apps for TV stations and other content providers, and he is now expanding into apps for the some of the OTT platforms.

But so far his potential OTT clients do not include any TV stations. “My view on why the broadcasters are not so aggressive on this is because they already run live TV. What is this going to add? They’ve got so many other things to worry about.”

OTT television services bypass cable and satellite by delivering TV programming to TV sets through broadband connections and Internet-connected TVs, gaming consoles and proprietary set-top boxes from companies like Roku, Apple TV and Boxee.

And they are gaining traction with consumers. The Diffusion Group says by year’s end about 30 million U.S. households will watch broadband-delivered video over their TVs, a number that should rise to 64 million by 2014.

Netflix deserves much of the credit for the growth. Its “Watch Instantly” option allows consumers to stream TV shows and movies on many of the OTT devices.

Netflix, whose principal business is still DVD rental via the mail, recently said that 66% of its subscribers used its streaming content during the third quarter, up from 61% in the second quarter and 41% during the same quarter a year ago.

Also driving the overall OTT growth is the proliferation of connected TVs, including sets from Sony, LG and Samsung. These TV sets have popular Web services such as Facebook, Twitter and YouTube built in. Some connected TVs also have the Netflix streaming and other services built in as well.

The Consumer Electronics Association said it expects more than 8 million connected TV sets will be sold this year and that number should rise to 13 million in 2011. Connected TVs will likely be a main attraction at the annual Consumer Electronics Show show next month.

Although local broadcasters have yet to embrace OTT, three of the major broadcast networks have, albeit indirectly. Consumers may use Roku and other OTT devices to access Hulu, the online library of TV shows operated by ABC, CBS and Fox.

Apple TV’s service hooks the iTunes store into the TV set, allowing AppleTV users to watch the TV shows and movies Apple carries in its store on their TV sets. Apple TV is also growing fast, with analysts saying the company is moving 1 million units per quarter.

The networks, however, are limiting the OTT distribution of their shows. So far, all have denied Google TV, a platform built into connected TVs, access to their programs. The networks cite piracy concerns.

However, Google’s recent purchase of software technology firm Widevine may help its over-the-top prospects since Widevine already supports a number of TV Everywhere rollouts.

As consumer uptick increases, stations will likely pay closer attention to opportunities to deliver news on connected TVs.

For their part, OTT providers have their sights set on adding local content when stations are ready.

“It’s definitely something we see value in and are looking for opportunities to partner with local broadcasters/affiliates in this area,” said Brian Jaquet, a Roku spokesperson.

Boxee is also interested in adding local news. “Live news is something missing from most over-the-top platforms,”  said Andrew Kippen, VP of marketing at Boxee, which now counts 1.5 million registered users for its over-the-top service that hooks into TV sets.

“We have a few apps already that are on the platform, but we’d love to be able to localize content for a specific user,” he said.

Boxee has inked partnerships with Netflix, Vudu, NHL, MLB, Funny or Die, Vimeo, My Damn Channel and others, but it does not have any deals with TV networks.

Despite delivering a slew of video programming to TVs, OTT isn’t replacing traditional TV — at least not yet. In fact, consumers appear to be investing in OTT mostly out of a desire for additional content, access to podcasts or Internet streaming on a TV, rather than to replace pay TV.

Even with the proliferation of OTT devices, consumers are still watching as much TV as ever. Nielsen recently reported the average American watched 143 hours of TV per month in the second quarter of 2010, about the same as a year ago.

A CTAM study found that 84% of viewers who watch Web video also are watching the same, or more, regularly scheduled TV. Also, 92% of those who watch Web video subscribe to a pay TV service, with only 3% saying they might get rid of cable TV in the future.

However, pay TV services did lose about 130,000 subscribers in the third quarter, according to a Credit Suisse report. And the report cites OTT as one of the reasons. “Netflix, while not a perfect substitute for pay TV, offers a different value proposition: it’s cheaper ($9/month), more convenient (multi-platform access), and simpler (UI and recommendation engine),” it says. “Thus, disruptive technology appears at the fringes — in the case of pay TV, in lower-end lifeline basic cable customers, who are the bulk of current video sub losses.”

If that number of so-called cable cord cutters grows, all programming, including TV stations, may have to find OTT outlets to insure their shows are reaching consumers who have cut the cable TV cord.

For now, though, station groups say OTT services are simply too new and unknown to warrant investments or partnerships.