When the Wireless Technology Forum (WTF) cosponsored its recent “Future of TV: Disruptive Changes in Video Services” panel discussion at Emory University's Goizueta Business School, it opened with a showing of a Hulu.com commercial starring Alec Baldwin. In the spot, Baldwin describes Hulu as “An evil plot to destroy the world.” The commercial is meant to be tongue in cheek, but Hulu’s catch phrase emphasizes the stakes involved not only for cable and satellite service providers, but for an industry in transition.

This is why: Hulu.com offers streaming video of TV shows and movies in Flash Video format, including many available in high-definition (HD); Hulu also provides web syndication services for sites like AOL, MSN, Facebook, and Yahoo!—all via the Internet and at no charge to the viewer. The only catch, besides requiring a high speed Internet connection, is that viewers sit through brief ads before accessing content. 

In the same way that Web 2.0 and social networking led to profound changes in user behavior online, TV viewing habits are morphing, and at a rapid pace. Video is being treated as a collection of digital artifacts, and artifacts, notes Benn Konsynski, a chaired professor of Business Administration at Goizueta Business School, can be unbundled, bundled and remixed. Content sources, content production, post-production, viewing, exhibition, processes, decision models, and who has legal rights to content—it’s all in flux and the changes will transform the industry.

And the video industry is taking note of recent history—in particular, the fracturing of the music industry in the aftermath of Napster, file sharing, and MP3 players.

Konsynski, who moderated the Goizueta panel discussion, is encouraged to see the video industry’s major players moves to be proactive. “[The movie industry] is being much more intelligent about it. It’s getting control of very expensive assets early in the process,” notes Konsynski. “It’s rethinking the sourcing, distribution and exhibition of its content.”

Hulu is an attempt by network television to remain relevant. So far, so good. In March 2009, a mere two years after its inception, Hulu scored 41.6 million video viewers. While YouTube maintains a tight grip on the number one spot (it totaled 100.3 million unique visitors in March 2009), Hulu is gaining momentum.

Hulu boasts nearly 150 content providers and added a significant provider this past spring when ABC, Inc. (Disney) announced it would join Hulu’s joint venture partners, NBC Universal (GE) and Fox Entertainment Group (News Corp) by taking a 27 percent stake in the venture. Gartner Inc. research vice president Allen Weiner dubbed the deal “An extremely big blow to YouTube,” and described the amped-up Hulu on his Blog as resembling “your low-end cable system, with only CBS absent.” (CBS acquired TV.com last year, but Hulu’s trifecta of ABC, NBC and Fox gives it the apparent edge).

If Hulu.com—an “over-the-top” video distribution model owned by broadcast networks—keeps getting bigger and better and continues to give away premium content, what will that mean for cable and satellite operators who charge consumers to provide the same content?

Michael Quigley, executive director of business development, Turner Broadcasting, admits the new business model for video delivery “isn’t quite there yet,” he says, adding that the winners and losers in a new pattern of video creation and distribution have yet to be identified. But it’s clear that recent developments are causing tension. To take advantage of changes in the industry without “killing our existing business” is “a huge challenge,” admits Quigley. “We’re seeing encroachment from other folks who could take audiences from us.”

Time Warner Cable Inc. pays a significant amount of money to content providers to carry their programming. As more and more viewers bypass cable companies and satellite providers and access content for free, these companies will need new ways to grow their business. “We have to offer some complementary experience to TV,” says Quigley. “Enhance and complement the TV experience as opposed to putting you off TV and putting you somewhere else.” While sites like Hulu and YouTube generate a lot of interest, reminds Quigley, “Most video content is still taking place on TV.” But if Turner waits until new platforms emerge to get involved, Quigley admits it’ll be “too late.”

One platform that has shown promise is Internet Protocol Television (IPTV)—a system where digital television is delivered using Internet Protocol and a network infrastructure such as broadband. (Hulu.com is considered Internet Video or Internet TV, which travels over an open, public Internet. IPTV uses a private, managed network.)

In the recent past, IPTV was limited in scope due to a lack of broadband penetration. And the cost of upgrading fiber networks to accommodate IPTV isn’t cheap. AT&T and Verizon, the biggest IPTV players in the U.S., are busy signing up customers (AT&T recently surpassed the one million subscriber mark for its U-verse IP-based offering and Verizon’s FiOS bundled communications service—Internet, telephone and TV—boasts slightly over 2 million subscribers to FiOS TV).

But having a residence wired for broadband—eMarketer estimates the total number of broadband households worldwide will top 422 million by 2010—doesn’t mean that a household can (or will) tune in to IPTV. Only 139 million of the 422 million broadband-equipped homes will be capable of receiving IPTV. Telecommunications research consultancy BuddeComm estimates there will be between 20 and 25 million IPTV subscribers worldwide by 2010, up from the current total of approximately five million.

One of the biggest hurdles to IPTV’s quality experience is the inability to deliver large amounts of HD content via IP. While Cisco and Motorola are working hard to drive down compression rates and companies like AT&T and Verizon are getting more efficient at utilizing their networks, the ability to deliver HD content is “not there” says Mary Francia, managing director, Serowires, a consulting firm for technology marketing. “It’s something we need to get better at.”

While AT&T and Verizon continue to invest millions in IPTV, not all broadband providers are gung-ho about the platform. This past January, Qwest CEO Ed Mueller told DSLReports.com, “We’re not on the IPTV mission, but we do think there will be potentially ad-based video with QoS (quality of service) and high def signals and you won’t care if it comes via cable or DirecTV or the Internet.”

Qwest’s prime demographic group (teenagers) doesn’t use TVs to watch TV—and if they do, they’re most likely not watching when the shows originally air.  Additionally, with higher speed broadband packages and newer devices that share content—devices with possible hard drives inside—there’ll be greater opportunity for them to share that content.

Kevin Grant, VP Sales, MobiTV, Inc. says that calling sites such as Hulu or advances in IPTV disruptive may be “short-sighted,” adding, “It’s an evolution of experience.” While MobiTV has been on the scene a while, its service appears to be coming into its own. It currently claims over six million subscribers and offers content from popular TV channels like CNN, ABC News Now, Fox News, Fox Sports, ESPN Mobile TV, MSNBC, TLC and The Weather Channel. MobiTV also offers, via subscription, AT&T Broadband TV, a TV product for broadband users that gives them access to nearly three-dozen channels over the Internet.

Going forward, Grant agrees that content providers’ biggest fear is consumers paying less (or nothing) to receive content, but he thinks content providers will continue to net a fair price for their content as long as it’s of higher quality. Although it’s yet to be determined what consumers will spend to get great content, he points to HD as an example. “Everybody wants it. I’m amazed at the amount of money people are willing to spend for quality. I have friends who don’t watch shows because they’re not in HD,” Grant says. “Is over-the-top and free where this is going? No. [Consumers] are going to pay more for quality.”

It’s projected that consumers will pay more for increased connectivity as well. “People expect to be able to consume their assets—entertainment video, news video, home video—on a device that makes sense to them at any given time,” explains Peter Hill, vice president, Video and Converged Services, AT&T Labs. “Whether it’s on their cell phone in their living room or on a big plasma TV in their bedroom. They want to be able to move that content.” The ability to have devices communicate with each other is the point of The Digital Living Network Alliance (DNLA), a standard created by certain makers of consumer electronics, PCs and mobile companies to enable connectivity.

Connectivity is about more than TV and video content. Consumers, explains Francia, expect their entertainment and communication services to be bundled, and they increasingly expect connectivity to include access to their home’s security and energy systems as well. “IP video is just one of the subsets,” she says.

But connectivity raises an important question: If a consumer views a video on his laptop, sends it to his TV and forwards it to his cell phone, who gets paid? “Whose asset is it?” asks Konsynski. “What rights do I have to leverage that asset?” Beyond that, what should content providers charge for usage of an asset? Should it cost more to watch the Super Bowl than to view the NHL All Star Game? Will advertising, armed with widgets on set top boxes, become more intelligent as advertisers learn, in real time, what viewers are watching and send them relevant advertising based on their viewing habits? Would it be possible to charge viewers not to receive advertising? “Who makes money there?” Morton wonders.

And some consumers like commercials. “My kids have forced me to watch commercials,” notes Grant. “It’s amazing. They’ll go back and watch again.” While there may be a place for niche advertisers, Grant expects that advertisers, in general, “will follow big content,” he says.

As consumers have more options in terms of what to watch and when, the audience becomes fragmented and advertisers will need to rethink the process of reaching their target audiences. “Rather than 15 million people watching a program at once,” he says, advertisers might have to go through a dozen programs to reach the same 15 million consumers.

Given that the digital space itself is global, who, if anyone or anything, should regulate the IP space? “What tends to happen is that users want what they want and if they can’t get it conventionally through fair, legitimate means, they’ll seek alternatives,” says Hill, and Francia points out “there’s a lot that’s not regulated over IP when it comes to video.” While technology tends to advance more quickly than the rules and regulations designed to guide industries that rely on it, Hill believes “a lot of basic principles of fair use are still very valid.”

As these issues begin to work themselves out, the bundling of entertainment and communication continues. While Hulu gains momentum and the tension between the site’s network owners and the cable and satellite service providers grows, Quigley believes the two sides will come together to figure things out. “It’s in both our interests to solve this,” he says.

Other sponsors of the “Future of TV: Disruptive Changes in Video Services” event include The Claus M. Halle Institute for Global Learning and the Information Systems and Operations Management department at Goizueta.