Monday, December 13, 2010, 10:38 PM ET|Posted by Will RichmondThe WSJ is reporting that Comcast is testing a new connected set-top box that offers a selection of online video alongside traditional linear, VOD and DVR programming. The project is part of Comcast's "Xcalibur" initiative headed up by Sam Schwartz and would follow other connected set-tops already in the market from competitors like Verizon, AT&T, DirecTV and others. It's a smart move by Comcast; many of its subscribers have been buying inexpensive broadband set-top boxes so why shouldn't Comcast just offer the online services itself and simplify its subscribers' lives?
While it's not clear what online video would be offered, if it's a "closed" model, where only certain apps/sites are available, then it would be akin to boxes like Roku, Apple TV and the connected Blu-ray players, among others. This approach would contrast with "open" boxes that allow full Internet browsing such as Google TV and boxee's new box from D-Link. My hunch is that Comcast would focus on a closed box to start. That would also reduce the complexity of delivering online video in a consistent, high-quality manner, especially given the numerous formats, encoding levels, etc. It's also not clear that consumers yet want a full Internet experience on their TVs and Comcast more than likely would look to be a fast follower rather than a pioneer.
Assuming for a moment that it was a closed box and that as a result Comcast had to approve and integrate any service that was available, the most intriguing question to ask is "would Netflix's app be available?" Netflix is unquestionably the most popular app for people using connected devices, and Netflix has integrated with the largest assortment of connected devices. Netflix has also benefited from the shift to online viewing to a greater extent than anyone else, adding almost 4.7 million subscribers in 2010 alone. As a result, Netflix has gained notoriety as a potential cord-cutting motivator, though it has insisted that it's actually complimentary to pay-TV subscriptions.
So how would Comcast play this? If it were to include Netflix it would be a surprising twist, instantly granting Netflix new-found legitimacy alongside Comcast's own VOD, and driving its usage even higher. It would also be a relatively bold move to place Netflix's much-vaunted UI side-by-side with Comcast's Xfinity which is still a work in progress. On the other hand, if Comcast didn't include Netflix, it would undermine the potential value of the new service, because it would leave many subscribers still in the position of needing a standalone connected device to access Netflix and other services. It would also incent cynics to suggest that Comcast is using its weight to help or hurt other video services as it sees fit (adding fuel to the fire that Level 3 recently started).
So while the Xcalibur move is smart and strategic, clearly there's an interesting balancing act Comcast will have to pull off. And Netflix is just the one example. There's also Hulu Plus. And the countless online video sites that compete to one extent or another against the cable networks that Comcast carries. And on it goes getting quite complicated quite fast. How this unfolds in '11 will be interesting to watch.
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