Apple TV returns in a convenient "fun size."

When Steve Jobs throws a stone in a pond, the ripples are felt by just about everyone.  One day before the unveiling of a new, slimmed-down version of Apple TV, the rest of the Internet TV industry reacted.  From some came price cuts, for others a defense of their business model relying on higher-priced boxes.

First to Apple.  Yesterday, Apple’s Steve Jobs unveiled the latest version of Apple TV, a product Apple has ignored for years.  Jobs once dismissed the set top box as an afterthought intended for “hobbyists.”  Considering the product’s enormous number of limitations, he may have been right.

The latest version of Apple TV bears little physical resemblance to the original, except for the square shape.  What used to look a lot more like a Mac Mini now looks like an oversized A/B switch.  The unit’s mini-me size comes with a mini-me price — $99.  For that, Apple dispensed with the hard drive and turned TV watching into a streaming-only affair.  HDMI remains the preferred method to connect with your television — component video connections are gone on the new version.  Optical-digital output is included for audio.  The new version of Apple TV also loses the coffee-warming capabilities of the original, which routinely heated up to 111 degrees.

For Netflix fans, Apple includes support for Netflix video streaming, which is the most welcome change from the dreary everything-iTunes/YouTube limitation that handcuffed the original.

The new Apple TV continues to have plenty of limitations however.  There is no Gigabit Ethernet connectivity, there’s no support for 1080p, the micro-USB port is locked down preventing native support of external hard drives, and you are still stuck using iTunes for much of Apple TV’s functionality.

Apple’s control-freak mentality also remains on full display, banning you from watching Hulu or watching shows from most of Apple’s competition (Amazon, network TV websites, overseas TV streaming sites, etc.)  No audio streaming from sites like Pandora is allowed, either.

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Bloomberg News delivered extensive coverage of Apple’s latest product announcements, with many taking a positive tone about their impact.  Several reports are included covering every angle.  (20 minutes)

Boxee, built by D-Link

Current Apple TV owners cannot benefit from the software upgrades that are a part of the new Apple TV.  The two products are not compatible.  That probably won’t bother many current Apple TV owners who long abandoned Apple’s awful software, jailbreaking their units and installing XBMC, Boxee, or atvusb-creator.  All of these remain superior even to Apple TV’s newest software because they offer owners the opportunity to stream virtually any content from any source.

In fact, Boxee’s developers were relieved after watching Steve Jobs unveil Apple TV 2.0.  Boxee will release its own set top box in November for $199.  They defended Boxee’s $100-more price point on their blog, noting that Boxee will offer a completely open viewing experience, and delivers a more compelling set of features than Apple TV will offer:

We think people want to be able to watch anything that they can watch on their computer, only on their big screen TV.  There is an overwhelming consumer expectation that the content we can consume in our cubicles, our dorm rooms, and in our laps should be available in our living rooms, in full 1080p with a gorgeous interface.  It’s a simple premise, but the challenge is to do it in a way that makes sense in that space, so you can put your feet up, grab a remote and start watching. No keyboards, mice, windows or labyrinthine menus. It should be calm and it should be beautiful. And it *must* be open.

We all watched the Apple announcement. We walked away feeling strongly confident about the space it left for Boxee to compete. We have a different view of what users want in their living rooms.  We are taking different paths to get there. The Boxee Box is going to be $100 more expensive than the Apple TV, but will give you the freedom to watch what you want.

Those investing $99 in the new Apple TV might have a shot of getting the best of both worlds.  It’s a safe bet Boxee’s creators will be working on a version of their software to replace what comes with Apple TV, potentially providing a Boxee experience at an Apple TV price.

The Roku set top box

For those counting every penny these days, the arrival of Apple TV’s budget-minded update forced some companies to start cutting prices.  Roku, which has been around since 2008, was the first player to officially support Netflix video streaming.  Today, most Roku owners use their boxes for that purpose, but because Roku is also an open platform, anyone can create “channels” for the box to open up new viewing possibilities.  As a result, Roku has come a long way from its days as the “Netflix Video Player.”

Now it’s $20-30 cheaper, too.

Coinciding with the launch of Apple TV, Roku cut prices on its three boxes:

• The standard-definition Roku SD is now $59.99 (down $20), but currently out of stock.
• The popular Roku HD is $69.99 (down $30).
• The Roku HD-XR, which adds Wireless-N capability and will support 1080p video after a firmware upgrade due later this year is now $99.99 (down $30).

Roku is running a promotion with Netflix that includes 50GB free on MP3tunes.com for a year to stream your iTunes music to your television if you buy any Roku HD player through this promotional link: www.roku.com/GetOne

Of course, still looming in the background is Google TV, due this fall on some new Sony TVs and Blu-ray players and the Dish Network satellite TV service.  Logitech is also bringing out its own standalone set-top box version — the Logitech Revue.

Although pricing for both Google TV and the Logitech Revue have not been announced, analyst Andy Hargreaves of Pacific Crest Securities thinks the Revue will cost between $250 and $300, which he believes is more than consumers would spend. “It’s a cool concept, but a tough sell,” he told USA Today.

Logitech is banking a lot on its new Revue box, as Logitech’s core business selling replacement computer mice and keyboards continues to falter — from $2.3 billion in 2007 to $1.9 billion in 2009.  As consumers replace $1,000 desktops with $400 laptops or web-ready smartphones, many aren’t interested in splurging for top of the line accessories Logitech includes in its product line, and webcams are already built-in to many laptops and phones.

Many more don’t want another box on their TV set.

James McQuivey, an analyst with Forrester Research likes the concept of Google TV, but believes it will succeed best if it’s already built-in to television sets or DVD players.

“It will change TV viewing forever,” he told the newspaper. “[But] you’d have to be a very technically oriented and TV-obsessed person to go through the pain of an additional box.”

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An introduction to Google TV and three amusing ads from Logitech for the Revue: TV Misses You.  (6 minutes)

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Apple’s other new products, including their iPod line, was covered by KGPE-TV in Fresno and KWGN-TV in Denver.  (5 minutes)

Amazon Prime members may get access as part of their $79 annual membership fee.

Amazon.com is talking to TV show distributors and media companies about launching a new online streaming service comparable to Netflix to provide online television programming, according to sources familiar with the talks.

Amazon already offers $1.99 online access to individual shows and movies, but the new service would charge a flat fee for unlimited access.

Various news reports indicate Amazon has approached NBC/Universal Studios, Time Warner, and CBS/Viacom, among others.

The Wall Street Journal obtained access to one proposal that would bundle the yet-unnamed service with its existing Amazon Prime service, which charges frequent Amazon shoppers $79 a year to get two-day “free shipping upgrades.”

Would Amazon.com have access to current hit shows or find themselves restricted to showing 1970s Wonder Woman reruns?

Analysts say Amazon Prime’s steep annual fee has only attracted a small percentage of Amazon customers who perceive value from it, but including unlimited TV programming would give Amazon a built-in subscriber base and potentially attract new interest among current Amazon customers who want something more than two-day shipping for $79 a year.

Large web players are jockeying for video programming, seen as the next big thing as broadband becomes commonplace in most American homes.  It’s already a huge revenue generator.  Americans spent $340 million dollars watching TV online and another $300 million for online movies in 2009, according to Adams Media Research.

Those familiar with Amazon’s proposed service say the service is likely to find studios amenable to licensing older TV shows and second-run content, similar to what Netflix streams today, but will likely find strong resistance to licensing first-run, current network shows.  Most TV networks and major cable networks reserve those for services like Hulu and the cable industry’s TV Everywhere, which they own and control.

Some studios are concerned that licensing reruns of current shows might be eating into their lucrative deals with cable networks, which license network TV programming as part of cable programming lineups.  But many studios also recognize that viewers blockaded from access will simply pirate the shows online, downloading them from newsgroups, commercial file storage networks, or peer-to-peer services.

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Bloomberg News covered Amazon’s video service in this morning’s Business Briefs, which also gave word Sony was dramatically expanding video options on its Playstation console and Motorola was putting $3.5 billion in cash into its mobile phone and set-top box unit destined to be spun-off in 2011.  (1 minute)

Netflix has a big problem.

As it gradually shifts its operations towards more instant, on-demand video streaming of movies and TV shows subscribers want, some well-connected studios and distributors have a vested interest in stopping Netflix in its tracks.

Among the most threatened is Time Warner’s HBO, which has watched premium movie channel subscriptions erode for years as consumers dump pay-TV for lower cable bills and Netflix subscriptions.  For up to five dollars less than what cable systems charge for HBO, Netflix customers get access to unlimited video streaming and can still check out one movie at a time on traditional DVDs.

Netflix is slowly evolving their business towards streaming and away from costly and labor-intensive DVD rentals-by-mail.  Customers enjoy the instant access to programming — no waiting for the mail or getting on a waiting list for popular titles.  Netflix does not have to pay ever-increasing postage rates either, or replace lost or damaged DVDs.

But for Netflix streaming to succeed, the company needs agreements with content producers — Hollywood studios and distributors — for so-called “streaming rights.”

One contract wins the right to obtain and rent out the physical DVD’s, which Netflix has had no problem in obtaining… eventually.  But another, separate agreement is needed win the rights to stream movies or TV show over the Internet.

So far, most of Netflix’s streaming agreements cover older movies and TV shows that have already found their way to Hulu or have been run to death on premium movie channels.  Anyone for Big, Fast Times at Ridgemont High, or Class Action?  These are all listed by Netflix as “new releases.”

Now Netflix wants to expand their library to include additional titles and they’ve run into a roadblock – HBO.

The premium movie channel controls streaming rights not just for its own programming, but also for Warner Bros., 20th Century Fox, and Universal.  Those three movie studios produce an enormous amount of movies and television shows, and without being able to contract streaming licenses, Netflix may be in big trouble.

HBO's Go service streams HBO movies, specials, and series to "authenticated" HBO subscribers

HBO intends to keep those shows, as well as its own, exclusively for itself and its cable and telco-TV partners.  As part of the TV Everywhere concept, HBO will dramatically expand its own streaming movie service — HBO Go, currently only available to authenticated Comcast and Verizon FiOS HBO subscribers.  Everyone else can forget about it.

The pay television industry — cable, satellite, and telco-TV, is more than happy to accommodate HBO sticking it to Netflix.  HBO Go could help sustain the premium movie channel and sell more subscriptions.

The video war means that Netflix will be in the DVD rental-by-mail service for years to come, if only to serve up movies and TV shows from those three studios.  More likely, however, is that Netflix will find a partner to help return fire — denying HBO access to movies controlled by Netflix.

Ultimately, consumers are likely to follow the content.  If Netflix controls it, consumers will sign up for that service.  If the cable industry controls it, they’ll be forced to keep their cable subscriptions.  It’s a high stakes game either way.

Reardon is fine with this vision of your online future.

Marguerite Reardon confesses she’s confused.  She doesn’t understand what all the fuss is about regarding Google and Verizon teaming up to deliver a blueprint for a corporate compromise on Net Neutrality.  In a column published today, Reardon is convinced she’s on a debunking mission — to deliver the message that rumors of the Internet apocalypse are premature.

As I read the criticism of Google and Verizon’s supposed evil plan to demolish the Internet, and as I hear about “protests” of several dozen people at Google’s headquarters, I scratch my head and wonder: am I missing something?

The Google-Verizon Net neutrality proposal I read last week doesn’t sound nearly as apocalyptic as Free Press, a media advocacy group, and some of the most vocal critics out there have made it sound.

In fact, most of proposal sounded a lot like a plan FCC Chairman Julius Genachowski offered nearly a year ago, which many Net neutrality proponents seemed to support.

In short, Google and Verizon say they agree to a set of rules for the Internet that would prohibit broadband providers from blocking or degrading lawful content on the Internet. Broadband providers would also not be allowed to take action to impede competition.

This is pretty much what Genachowski has proposed.

OK, terrific. There is agreement.

But wait, Net neutrality zealots are still unhappy.

Hmmm… “zealots?”  Reardon probably just angered the majority of CNET’s readers, who now find themselves labeled as crazed Internet online freedom fighters — net fundamentalists who want absolute protection against big Internet Service Providers tampering with their Internet Experience.

Where can I get my membership card?

Reardon’s “debunk” consists of her narrow, inaccurate definition of Net Neutrality pounded into a pre-conceived notion of what is and is not possible in a competitive broadband marketplace.  In short, she’s satisfied we can all move along… there is nothing to see here:

What Free Press and Public Knowledge don’t seem to realize is that AT&T and Verizon already offer differentiated services today with enhanced quality of service to business customers. Verizon’s Fios TV and AT&T’s U-verse TV services are also examples of managed Internet services that are delivered to consumers. And the last time I checked, no one, other than their cable competitors, has complained about AT&T and Verizon offering competition in the TV market.

The truth is that if Verizon and AT&T wanted to cannibalize their broadband business with premium broadband services, they’d already be doing it. But they aren’t, because there hasn’t been a market for it.

The reality is that consumers are in control of what type of services are offered. If the public Internet can adequately deliver a service for free, then there’s no need to pay for it. But if someone can provide a better service over a dedicated network and there are consumers willing to pay for it, then why shouldn’t it be offered? Isn’t that why some people subscribe to a 768Kbps broadband service for $15 a month, and others pay $100 for a 50Mbps service?

So let’s debunk the debunk.

First, Net Neutrality is not about stopping broadband providers from offering speed-based tiers of service.  In fact, that’s the Internet pricing model we’ve all come to know and love (although those prices are just a tad high, aren’t they?)  Free Press and Public Knowledge do not object to ISPs selling different levels of broadband speed tiers to consumers and businesses to access online content.

Net Neutrality isn’t about stopping ISPs from selling some customers “lite” service and others “mega-super-zippy Turbo” service — it’s about stopping plans from some ISPs to establish their own toll booths on the Internet to charge content producers twice — once to upload and distribute their content and then a second time to ensure that content reaches a particular ISPs customers on a timely, non-speed-throttled basis.  Consider this: you already pay good money for your own broadband account.  How would you feel if you sent an e-mail to a friend who uses another ISP and that provider wanted to charge you 20 cents to deliver that e-mail?  Don’t want to pay?  That’s fine, but your e-mail might be delayed, as paying customers enjoy priority over your freebie e-mail.

A lot of broadband customers may never understand the implications of giant telecom companies building their own toll lanes for “preferred content partners” on the Internet because they’ll just assume that stuck online video or constantly rebuffering stream is the fault of the website delivering it, not their provider intentionally pushing it aside to make room for content from companies who paid protection money to make sure their videos played splendidly.

Second, Reardon need only look to our neighbors in the north to see a non Net Neutral Internet experience in Canada.  There, ISPs intentionally throttle broadband applications they don’t want users running on their networks.  They also spank customers who dare to try what Reardon insists Verizon would never stop — using their broadband service to watch someone else’s content.  With the application of Internet Overcharging like usage limits and consumption billing schemes, cable companies like Rogers don’t need to directly block competitors like Netflix.  They need only spike customers’ broadband bills to teach them a lesson they’ll not soon forget.

Within days of Netflix announcing their imminent arrival in Canada, Rogers actually reduced the usage allowances of some of their broadband customers.  If you still want to watch Netflix instead of visiting Rogers pay-per-view cable menu or video rental stores, it will cost you plenty — up to $5 per gigabyte of viewing.

Reardon seems to think giant providers like AT&T, Verizon, and Comcast care about what their customers want and wouldn’t jeopardize the customer relationship.  Really?  She herself admits she hates paying for hundreds of channels she never watches, yet providers are deaf to complaints from customers demanding an end to this practice.  What about the relentless price hikes?  Wouldn’t that drive off customers?  Perhaps… if customers had real alternatives.  Instead, with an effective duopoly market in place, subscribers pay “the man,” pay an almost identical price from the “other guy,” or go without.

Providers understand their power and leverage in the marketplace.  Until serious competition arrives, it would be a disservice to stockholders not to monetize every possible aspect of broadband service in the United States.

The check against this naked aggression on consumers’ wallets is from consumer groups who are fighting against these big telecom interests.

Before dismissing Net Neutrality “zealotry,” Reardon should experience the Internet in Canada and then get back to us, and more importantly those consumer groups she flicks away with disdain, and join the fight.

The Internet video revolution will increasingly be blocked by Internet Service Providers who will leverage their duopoly markets with restrictive usage limits to keep would-be video competitors from ever getting their business plans off the ground.

William Kidd, industry forecaster for iSuppli, an industry analyst group, sees a future of Internet Overcharging schemes like usage caps, overpriced pay-per-use pricing, and other limitations designed to erect roadblocks for online video content, which increasingly threatens the cable-TV products of both cable and phone companies.

The latest scheme to limit usage of streaming media come not from concerns about bandwidth costs but rather the “unknown risks” online video could have for cable and phone companies’ other products.

Such risks, Kidd believes, will compel broadband providers to increasingly implement caps in order to mitigate any long-term gambles that providers might have to take to make streaming media available to home and mobile environments.

At present, content can be streamed over TV from online service offerings such as Hulu and Netflix, or accessed through a device such as the PlayStation from Sony Corp. In addition, new-media business models continue to emerge with the introduction of new platforms that circumvent services currently provided by traditional cable or satellite pay-TV providers.

The caps planned for implementation will sink virtually all of the video streaming services that are not partnered with cable and phone companies.  Kidd notes the caps he’s seen offer limited viewing — as little as three hours for wireless 200kbps video streams or standard definition video streamed on wired networks for up to 25 hours per month.  True HD viewing is simply not going to happen with caps on many providers planned to cut off viewing after only seven hours.

Business plans and would-be investors must take notice of what providers have in store for would be competitors, Kidd argues.  Since the phone and cable companies maintain a near-monopoly on broadband, they ultimately control what Americans can do (and see) on their broadband accounts.

Rogers reduced usage allowances on several of its broadband plans days after Netflix announced a streaming service for Canadians.

One need only look to Rogers Communications in Canada for a timely example.  Rogers promptly lowered usage limits on some of its broadband plans just days after Netflix announced a video streaming service for Canadians that could directly compete with the cable giant’s video rental stores and cable pay per view services.

“These new-media business models imagine that they don’t have to pay the network through which their data traverse,” he said. “However, such a theory is directly at odds with the ambitions of cable and satellite-TV operators, which increasingly are unwilling to provide heavy data access through their networks for free—especially if a way can be found to monetize ongoing data traffic into viable revenue streams.”

In addition, new Internet-born content providers wrongfully take for granted that the way their largely free content has been consumed now also will apply in the future to premium services. The assumption is a bad one, Kidd observed, because in order for consumers to consider the Internet as a true substitute for their big-screen TV, content would need to be comparable in both technical quality and entertainment value. And to achieve the same level of value, such content necessarily would be extremely bandwidth intensive.

As a result, for any number of these emerging TV-substitute models to work someday, one has to assume that the picture quality being proffered is acceptable for viewing on large-screen TVs.

But providers have a trick up their sleeves by implementing seemingly tolerable usage caps as high as 250GB per month, which seem generous by today’s usage standards.  But they will be downright paltry tomorrow, especially if they do not increase over time, as online video increases in quality and size.

“By implementing caps now that don’t impinge on the way subscribers use the Internet today, cable and telco operators are able to create for themselves an advantageous situation,” Kidd said. “Under these circumstances, emerging media competitors must work more directly with the network owners before getting their services off the ground—as opposed to around them, as they may have previously hoped.”

That means giving them exactly what they want — a piece of the action and control over the content that crosses over their wires to broadband consumers.