Andrew Frank

Against an ominous backdrop of half-skinned highrises and idle cranes in Las Vegas, the annual Consumer Electronics Show has been anything but idle. Innovation and disruption are here in abundance as manufacturers, start-ups, internet, software, and media companies demonstrated real velocity on the path to the promised land of any content on any screen, anytime, anywhere.

As my colleague Allen wrote, Yahoo! Connected TV widgets (announced here) took pole position in the Internet-TV convergence race by partnering with Intel and securing distribution deals with Samsung, Sony, LG, and Vizio to include the Yahoo! TV Widget engine in TV sets scheduled to hit the market this spring. Yahoo! also augmented its “open strategy” by revealing an open TV widget developers’ kit (WDK) and ecosystem that will allow any developers to create TV widgets, have them reviewed by Yahoo!, and (if appropriate) get them listed in Yahoo!’s (or anyone else’s) on-screen (PC & TV) directory. ITV is here at last.

Hardware integration in the sets makes all the difference in terms of experience quality, and creative possibilities are tremendous. But of course we had to ask about the business model. And this is worth a close look.

Yahoo! will not (initially) provide a commerce model for apps (although there’s nothing preventing any widget from conducting ecommerce just as one would on the web), nor is there any claim on widget platform real-estate for advertising (although Yahoo! did concede that its position delivered certain advantages in securing prominent distribution of its apps and content). Naturally there’s a halo effect of being first to market with an open and radical advance in the state of interactive television. But beyond this, Yahoo! has played to its oft-overlooked advantage of still being the largest seller of online display advertising in the world by building a bridge from that world to the much richer world of TV advertising.

You mean web banners on TV? No. There will need to be new formats and standards, and the medium naturally wants to use video, which has not been Yahoo!’s strength online. But Yahoo! has now positioned itself as a leader in this convergence effort, and can wed its unmatched online display ad experience and relationships with the impact (and economics) of the TV model. This won’t happen overnight, to be sure, but the first mover advantage of securing these distribution deals puts the company in a strong position to extend its online display leadership into a potentially huge emerging medium, while playing the “altruist” role of an open platform provider.

So what could go wrong? Well, there are many unanswered questions, but a few dark clouds stand out for me. Putting aside non-trivial questions of Yahoo!’s health and leadership, and many questions about security and competition and regulation, the biggest issue for me is how disruptive this technology appears to be to the incumbent TV business. Cable networks rely on carriage fees – derived from subscribers – to provide much of their revenue. If ample content can be delivered – even in HD – through a Hulu or Netflix or YouTube widget (and, yes, the YouTube widget works in full screen as you might expect) then the tiered cable bundling model could be broken. And while online geofiltering has become fairly robust, the use of consumer video services to retransmit programming beyond geographical windows is hard to avoid. That interferes with the TV licensing business, especially for high-cost programming like sports. All of this suggests many incumbent TV companies have some motivation to try to ensure that video from the open Internet stays off the tube. Nevertheless, illustrating the complexity of this issue, Disney-ABC Television Group President Anne Sweeney made ABC support for “Intel’s TV Widgets” the focus of her keynote Thursday afternoon. Still, this powerful industry has yet to fully show its hand.

Of course, what’s done is done and Yahoo! is far from the only company showing bold moves to send video “over the top.” Move Networks and Neulion, for example, have teamed up to deliver an impressive new internet set-top box that delivers HD video over a standard consumer broadband connection, and was showing live Hockey (Neulion has distribution deals with NHL and NFL) that looked like – well, TV, but with no coax cables, satellite dishes, or rabbit ears in sight. And many others like Boxee, ZeeVee, Livestation, and Roku are delivering products and services along similar lines. Oh, yes, and Apple.

I used to think that, after music, movies would be the next big Internet-driven disruption in media. But it’s TV.