During a long career as a television and technology executive, Mitch Berman has tried to sell several different iterations of TV, often in their formative stages. These included premium cable networks (at HBO), original cable programming (E! Entertainment Television), satellite TV (Sky and Foxtel), interactivity (OpenTV), and video on demand (Arris). Now, Berman is onto the next new thing, delivering TV through the Internet. His company, ZillionTV, faces long odds, but has at least three advantages over the increasingly crowded field of online TV players: It brings DVD-quality programming straight to the TV set. It has a remote control that sets a new standard for ease of use. And its advertising model actually encourages people to watch commercials, rather than undermining their value to advertisers and programmers. Berman is positioning it as a service that offers unique benefits to consumers, advertisers, content companies and broadband providers. Here's hoping the Hollywood studios that own a piece of Zillion don't strangle it in its crib, which they could easily do....
Berman said he got the idea for his start-up in February 2007 from inventor Peter Redford of TV Interactive Corp., who gave him a demonstration of Internet-based TV on demand using a PC as a set-top box. Ten months later, he'd lined up his first venture funding. His backers today include two VC firms (Sierra Ventures and Concept Ventures), Visa, five studios (Warner Bros., Sony Pictures, Disney, NBC Universal and 20th Century Fox) and a chip maker (Sigma Designs), Berman said, with more money coming soon from an as-yet undisclosed Internet service provider.
ZillionTV's goal is to lure viewers away from cable and satellite by offering them movies and TV shows on demand. Its ambition is to make available everything that pay-TV services provide as well as a healthy supply of "long tail" programming, but it's not there yet (more on that later). Another important difference from pay TV services is that ZillionTV doesn't plan to charge a flat monthly fee. Instead, it will give customers three different ways to compensate programmers for what they watch: buy a program, rent it for a limited time period, or view it gratis with commercials. The service relies on a thin set-top box that connects to DSL or cable-modem service and a high-tech remote, both of which ZillionTV plans to supply for free.
I watched a bit of ZillionTV in Berman's office in Santa Monica, and the images were quite impressive. Seconds after programs were selected, they began playing in what It looked to me like DVD quality -- a welcome contrast to the delays inflicted by Hulu and Netflix's streaming services. ZillionTV's standard-definition streams require 1.5 Mbps of bandwidth, Berman said; high-definition streams will need faster connections, although the speed has yet to be determined. Just as impressive was the motion-sensitive remote control, which enabled Berman to select items simply by pointing at the right spot on the screen and clicking. Taking advantage of the remote's capabilities, the service's menus displayed programs as images (picture a tableau of DVD covers) spread across the length of the TV, rather than using the customary TV grid or PC-style folders. The ZillionTV software also enabled Berman to search for a program by selecting the first few letters from an on-screen alphabet.
The other innovation is in the way ZillionTV generates revenue for program providers. Two of the three options it gives customers aren't novel -- it rents programs the same way as other online video-on-demand services do, and it sells them much as Amazon does (by storing the customers' purchases on its own servicers, instead of having them download a copy to their set-top box or PC). The third, however, is a twist on the usual advertiser-supported offerings. ZillionTV lets customers tell advertisers what kinds of commercials they're interested in, and to encourage them to watch more ads, it gives customers points that they can redeem for merchandise. "You're rewarded for watching television," Berman said, a concept the company hopes will prove irresistible to couch potatoes.
Berman argued that the chance it offers to target ads to interested viewers, to make commercials interactive and to break out of traditional TV commercial formats will enable ZillionTV to charge higher ad rates than the networks do. Its technology also creates opportunities to sell the products shown on screen (the remote has a "buy now" button). "This is a blank canvas on which the creative community can paint its pictures," he said. Those higher rates are important because the company it trying to generate at least as much from an advertiser-supported viewing as it would collect from a rental. That kind of performance will help persuade Hollywood to make more titles available for ad-supported viewing, Berman said, as well as to abandon the rigid release windows that cause the studios to yank new programs offline just a few weeks after they appear on the Net. "I'm trying to prove to my partners that there is an alternative, and we're trying to bring down those windows," he said.
One problem for other TV-on-the-Internet services is that consumers won't accept as many ads as they're willing to sit through on TV. What that means for services such as ZillionTV that bring the Net to the TV set is anyone's guess at this point; Zillion has been conducting a national trial for about a month, and it's still trying to determine how many commercials customers will tolerate. The conventional wisdom has been that Internet-based programs can get by with fewer commercials because they can target them more effectively than broadcast TV can. But some advertisers and agencies have pooh-poohed targeting because it translates into a smaller audience.
A bigger issue for ZillionTV is its library of content. Berman said it expects to have 15,000 programs this year, which is 3,000 more than Netflix offers today. Still, some of its partners -- notably Fox and NBC Universal, which own Hulu -- are holding back new programs or making them available only on a pay-per-view basis. Premium cable networks have also been virtual no-shows online, and some other notable cable networks have spurned the Net for fear of reducing the subscription fees they receive from cable and satellite operators. Berman argues that if he proves the effectiveness of his business model, content providers will come. But it may be impossible for him to do so without a critical mass of new programming. After all, ZillionTV won't seem like a viable alternative to cable if it doesn't offer many of the most popular shows. If the studios fret about ZillionTV undermining their existing revenue streams from broadcasters, pay TV and online distributors such as Hulu, they may not provide the programming it needs to survive. Such a conflict between existing business models and potential new ones contributed to the music industry's plummeting fortunes. As ZillionTV illustrates, it's Hollywood's turn to struggle with that dilemma.