War for TV: inside the fight for the living room

The broadcast TV business has had a rough run this season and next season isn't looking much better. Starting from last fall when their new shows debuted, all four major US networks saw a drop in viewers in the age 18-to-49 demographic, the group most prized by advertisers, The Wall Street Journal reports today. Fox saw ratings for this group decline 23 percent through March, ABC's ratings declined eight percent, NBC's by seven percent, and CBS's by three percent. As audiences tune out of broadcast, analysts fully expect that advertisers will follow them.

In 2010 Steve Jobs sat on stage at the D: All Things Digital Conference and took a question from an audience member. “Do you think it’s time to throw out the interface for television?”

Steve replied instantly with a confident, multipart answer. “The problem with innovation in the television industry is the go-to-market strategy,” he said. “The television industry fundamentally has a subsidized business that gives everybody a set top box for free or for $10 a month, and that pretty much squashes any opportunity for innovation, because nobody’s willing to buy a set-top box.” Ask anyone about their success selling set-top boxes, he said. Even Apple. “A lot of people have tried,” he said. “They’ve all failed.”

We’ve spent the last week and a half digging into the players, companies, and history of the ongoing battle for the living room. To see where television could go next — and why it’s been stuck for so long — we spoke to to everyone from the Boxee CEO Avner Ronan and Vizio CTO Matt McRae to The New Yorker’s TV critic Emily Nussbaum and former FCC Chairman Michael Powell.

Almost every major player in the tech space is competing to disrupt the space, but even the best minds at Apple, Microsoft, Google, Sony, and Amazon haven’t been able to figure it out. None have been able to offer the perfect mix of live television, premium shows, and sports that the cable industry has locked down. Things are hardly settling down, with sources confirming confirming that Microsoft’s planning a set-top box in 2013, and there's always the ever-present rumor of a TV from Apple on the horizon.

It’s easy to take Netflix for granted. These days it seems like every tech and telecom company with a pulse offers you streaming video to rent and buy. Sure, it blew your mind the first time Netflix delivered you a DVD and you could return it WHENEVER, but those little plastic discs are so outdated these days that even Netflix doesn’t want to sell them anymore.

But you’ve got to remember that the company’s DVD by mail model was the straw that broke the back of the rental industry dominated by Blockbuster and its ilk, fundamentally changing how people rented movies. Since then Netflix has consistently set the pace for all-you-can-eat video over the internet. Despite the growth of Hulu, Amazon Instant Video, and other competitors, Netflix remains synonymous with streaming video in the US, where it’s estimated to take up about a third of downstream broadband traffic. But though Netflix still has the lead, its position as the final destination for streaming video seems increasingly threatened by the fact that it doesn’t own the content it plays or the platforms it runs on.

Michael Powell — yes, that’s Colin Powell’s son — has been a driving force for change in the telecom and TV industry for years. After serving as an FCC commissioner under President Clinton, he was appointed Chairman by President Bush in 2001, beginning an active and controversial four-year run. As Chairman, Powell pushed to leave the exploding broadband market free of legacy telephone regulations while still maintaining support for net neutrality and fining internet providers for blocking VoIP services. Powell also stood watch over the FCC during 2004’s infamous Super Bowl "wardrobe malfunction," which led to a series of enormous fines for broadcasters who violated federal decency rules.

Powell is now the president of the National Cable and Telecommunications Association, the largest cable lobbying group in the country. With members ranging from enormous cable companies like Comcast to cable networks like A&E, Powell is witness to both sides of the cable debate — and while he believes we’re in a golden age of television, he made it clear when we spoke that content companies are in the driver’s seat when it comes to change.

The idea of cord cutting — replacing your cable or satellite contracts with web services — remains an aspirational goal to many. In the US, thanks to services like Hulu Plus and Netflix, cord-cutting has never been easier, but without a cable subscription you’ll be unable to watch many programs on the day of broadcast, and accessing premium content from the likes of HBO is impossible. Over in the UK, however, things are starting to look a little brighter. The past five years has seen virtually all of the major players embrace digital content in some way, while American giants like Amazon and Netflix have invested heavily to capture the attention of the world’s second-largest (native) English-speaking population.

The UK has around 50 free-to-air, terrestrial channels that can be accessed by anyone with an aerial or a satellite dish. Pay TV is fairly popular, with around 50 percent of households subscribing to cable, satellite, or other premium TV services. For comparison, in the US around 85 percent of households subscribe to some form of pay TV.

“And that’s the way it is.”

For two decades, whenever Walter Cronkite said those words to end his nightly CBS newscast, people believed him. Cronkite was the most trusted man in America, the person we tasked with telling us what was happening and how we should feel about it.

The Xbox 360, PlayStation 3, and Nintendo Wii are nearing their end. As powerful as they have been in the living room, gamers want more. They want better graphics, new user experiences, and more mobility, as much as those things can be at odds with one another. A new wave of game consoles is rising to meet some of those challenges, but perhaps not all: the Nintendo Wii U doesn’t seem to be that much more powerful than an Xbox 360, and the next Xbox and PlayStation are rumored to use what amounts to mid-range PC hardware in order to save costs.

Meanwhile, PCs haven’t stood still. There’s never been a better time to build a gaming PC, thanks to cheaper components and the amazing catalog of inexpensive games you can find on digital distribution platforms. I say "digital distribution platforms" because I don’t want to be unfair to the likes of Origin, Impulse, and Good Old Games, but I’m really talking about Valve Software’s Steam, which has steadily become a juggernaut of gaming. Steam now has 50 million users, of which five million are simultaneously active at the peak of any given day. Xbox Live has somewhere north of 40 million subscribers, by comparison. Admittedly, you don’t have to pay $50 a year for a Steam account, and both the PlayStation 3 and Xbox 360 have each sold about 70 million units in total, but it sounds like Steam could also have the audience of a game console.

Titans like Apple, Microsoft, and Google have been grappling for ownership of the living room for years, but no matter how many new hobbies or revamped interfaces roll out, none of the major players have become the de facto standard for home entertainment just yet. As a result, numerous competitors have rushed in with their own take on the streaming media box. While companies like Roku and Boxee focus exclusively on entertainment solutions — with varying degrees of success — there are also options by brands you’d never associate with the living room. From Western Digital to Netgear, it seems like anyone that can slap an HDMI port into a plastic shell wants in on the game.

The benefit of these other players, ostensibly, is choice: instead of buying into an integrated hardware and software ecosystem, you use a selection of third-party services that meet your needs. To get a sense of what it would be like to run my entertainment life out of the independent side of the spectrum, I spent a week with four different media boxes: the Netgear NeoTV Pro, the Roku 2 XS, Western Digital’s WD TV Live, and the new Boxee TV.

Somewhere in the past two decades, TV evolved from a wasteland rotting our minds into the premier medium for truly groundbreaking comedy, drama, and storytelling. Series like Buffy the Vampire Slayer, Oz, and The Sopranos showed that TV could stand on its own against the creativity and vision of movies and novels. Now TV’s experiencing its own golden age with Louie, 30 Rock, Game of Thrones, Breaking Bad, and dozens of other ambitious series competing for our attention. We’ve come a long way since Seinfeld and ER dominated the airwaves, and The New Yorker’s TV critic Emily Nussbaum sat down with us to talk about how Twitter’s affecting live viewing, the massive technological changes of the past decade, and the future of TV.

The business side of TV is changing a lot, but then there’s the cultural side. Television binds people together in way that nothing else does. So I really wanted to talk to you about what the future of TV means for the actual culture of television.

Vizio has long been one of the bestselling TV brands in the US — the biggest brand in the country until April of this year when TV sales began to decline overall and Samsung took the lead spot.

Searching for ways to grow Vizio’s business and find new markets falls to CTO Matt McRae, who’s always been blunt in addressing challenges for the tech industry. McRae presided over Vizio’s entrance into the Android tablet market in 2011 and a line of Windows PCs earlier this year — moves that reinforce his belief that one day we’ll all just be buying a series of screens that connect to the internet.

As Microsoft, Apple, Amazon, Google, and many other players all battle for control of the boxes and the content ecosystems that sit next to your television, there's an equally important fight to sell you the device that sits next to your couch: the remote. The basic concept of a "universal remote control" may have reached critical mass years ago, but many companies have bigger plans for the gadget you actually use to interact with your entertainment system. Eventually, you may not even need any gadget at all.

Today, though, the story isn’t pretty. The unsightly basket of outdated and poorly-designed remotes found in most homes can be replaced with something more elegant, but just barely. Even the most sophisticated universal remotes sold at retail rely on antiquated setup processes that are anything but user friendly. And sadly — even now, in the age of ubiquitous Wi-Fi — the universal remote market still is tied to the control method most home entertainment system components depend on, the lowly infrared beam. It’s the same infrared we’ve been using for remote control since the 1980s, and it’s still fraught with negatives: it requires a line of sight to the box you’re trying to control, it’s incapable of transmitting large amounts of data quickly, and it’s susceptible to jokers with TV-B-Gones.

I’ve always held a grudge against Apple devices, yet somehow I’ve come to own nothing else. My first smartphone was a Motorola Droid. I had it for two years. In that time, I probably spent a total of $10 on apps. I spent more than that on my first day with an iPhone.

Read next: The Apple TV review.

As anyone who’s spent much time in Japan can tell you, rumors of a technological paradise have been greatly exaggerated. While the country may be a world leader in things like high-speed rail and mobile payments, a lack of public Wi-Fi and an over-reliance on fax machines persist. So it is with the transition to digital content, where — despite the country’s huge appetite for consumer electronics — Japan continues to lag much of the world in offering services for the living room and beyond.

In fact, while we’ve been covering the fight for the living room all week, the lack of a traditional “living room” in Japanese homes may be partly to blame. With typically cramped living quarters, it’s not particularly common for families to have regular access to a large screen for movies and so on — witness the Wii U, heavily pushed as a “second screen” so that you don’t dominate the TV — and Japanese people have in the past been happy to get as much done as possible on their phones, being as they are the most personal of devices.

There’s already an endless amount of video entertainment available online, so it’s a bit weird to think that the era of internet television is just beginning. And yet it’s true – studios are still figuring out what to make, viewers are figuring out where to find it, and advertisers are calculating how much to pay for it.

The messy, developing world of online video entertainment reminds Dawn Ostroff of the stuff that was being made for cable television starting in the 1970s. Ostroff is the head of Conde Nast’s new Entertainment Group, the premium publisher’s exploratory foray into digital TV and other watchable diversions, which will be based off the articles published by its magazines including The New Yorker and Wired.

Nintendo is very good at gimmicks. Virtual Boy and those stupid miniature GameCube discs aside, Nintendo’s track record on “it will never work” devices is astounding. It started with the DS, which even Nintendo was skeptical about — holding back its vaunted GameBoy name just in case the dual screen gimmick didn’t pan out. And then the Wii, with its absurd controller configurations — a “Wiimote,” a “nunchuck,” a “Wii Fit,” a “MotionPlus” add-on. Last time I checked, even the 3DS was doing pretty well — not well enough to save Nintendo singlehandedly, but well enough for a gaming only device released in the smartphone gaming era. (Ed. note: Nintendo recently released sales numbers, and the 3DS is up 64.8 percent to 5.06M in the first half of 2012)

Even if you’d like to say the Wii never delivered on its promise, never had “the games,” you have to admit that it changed the industry. Sony built Move, and Microsoft built Kinect, as a direct response to the Wii’s popularity. Now that our iPad games look as good as our Xbox 360 games, with cameras and gyroscopes to boot, home consoles are going to have to get more immersive to hold onto users, not less.

A high-end TV today isn’t much different from a Motorola RAZR back in 2005: excellent hardware mixed with abysmal software. "Smartphones" weren’t yet smartphones, and certainly today "Smart TVs," which flaunt apps and gesture-based navigation, aren’t even close to "smart." Adding apps doesn’t make a TV stop acting like a TV: a slow, sluggish box that’s pretty but dumb. So where do TV apps go from here?

TV makers today seem to make software largely so they can stick the word "APPS!" on the side of a box. Every cool device has apps these days, so why not TVs? Some refrigerators even have apps, I hear. The problem is that TV apps are almost always slow, bloated, and feature incomplete versions of their small screen predecessors.

Twenty-two million. That’s how many books, movies, TV shows, songs, apps, and games that Amazon boasts are accessible through its Kindle Fire tablets and other devices. The massive internet retailer has made a very aggressive play to be as synonymous with your living room entertainment as it is with online shopping.

I’ve spent the past few weeks living in Amazon’s ecosystem, attempting to make it my sole source of entertainment in my living room and beyond. Unfortunately for Amazon, there are still a number of holes in its offerings, despite its wealth of content. As with other streaming video services, using Amazon alone caused me to miss out on things like live TV, sports broadcasts, live news events, and awards shows. Amazon does offer some really cool services to sync my video content across multiple devices, and for watching movies and episodes of popular TV shows, it’s a great option. I used the Kindle Fire HD tablet to view much of the content from Amazon (with it plugged into my HDTV through its HDMI port), but I also appreciated being able to watch the same videos on my laptop or iPad.

The war for the living room will ultimately be won not by gadget manufacturers, but by content companies — the people who make and distribute TV itself. But it’s a two-way street: the internet is changing how even the largest producers of television think about their products.

Vivian Schiller has been on the front lines of change for years. She was the first general manager of what has become the Investigation Discovery channel, then the senior vice president of NYTimes.com, and then the CEO of NPR. Now she’s the Chief Digital Officer for NBC News, overseeing the company’s online efforts — including the newly-acquired MSNBC.com, which is now simply NBCnews.com.

It's the most common retort to cord-cutters, the first word of caution to anyone looking to get rid of their cable subscription: live sports. You'll spend a lot of time in bars, I tell people, because without a cable subscription watching games becomes virtually impossible.

There's still a lot of truth to the statement — live sports are the least-supported thing most cable-cancellers might want — but there's a surprisingly large amount of content out there available without a cable subscription. Of course, when you add up the costs of getting the games you want, you're probably better off just getting cable again, but the idea that you can only watch sports on your television is quickly becoming antiquated.

Sony and the PlayStation brand have gotten a bit of a bad reputation in recent years. The PlayStation 3 was extremely expensive when it launched, the company infamously removed features from the console after the fact, and a massive hack job brought Sony’s online infrastructure to its knees and revealed consumers’ private info in the process. Most of these issues have been remedied, but Sony's damaged reputation has made the PlayStation brand a bit of a tough sell.

However, Sony's also done a lot right in the nearly six years since the PS3 launched. Back in 2006, it was an overpriced Hulk of a machine, but revisions and refinements over the ensuing years turned it into an attractive, reasonably priced, jack-of-all-trades living room component. Even when it launched, the PS3 was more than just a game console; after all, it was one of the first and most affordable Blu-ray players. Now, your PS3 can serve as a one-stop shop for a wide variety of music, movies, TV shows, and games (naturally).

Bob Pittman’s parents always found it strange when he would crank up the volume on his AM radio to listen along to his favorite shows while doing his homework. "Some people have always been multi-taskers," says Pittman, with a smile, during an interview last week. "People talk about how we’re always checking our smartphones or tablets these days while we watch TV, but really, human behavior hasn’t changed. It’s just new gadgets giving it a different expression."

Pittman’s passion for radio paid off with a gig as an announcer when he was just 15. He transitioned into programming, taking control of the flagship WNBC in New York when he was 23 years old. From there he moved to television, eventually earning a spot in the history books as one of the creators of MTV. He joined AOL in 1996 and stayed through the glory days of the Time Warner merger. In his current role as the CEO of Clear Channel, Pittman has returned to his first love. He’s overseeing a vast radio empire, helping hundreds of local stations around the nation to succeed in an era of web streams and mobile apps.

Putting a computer in the living room has been the holy grail in one form or another for three decades, but it hasn't really happened. Everyone’s still trying to disrupt the cable box.

The majority of homes are still on traditional set top boxes — their experience has not changed much over the past couple decades. The biggest change has been DVR and video on demand. Even in homes that have a connected TV or a connected Blu-ray player or there's Netflix on Xbox — if you look at the amount of time spent actually consuming entertainment, the majority of the time is spent with the traditional box and the old UI. That's the reality right now. People want to watch their favorite shows or live TV or news, and that content is available only on a set-top box. That's where people are spending all their time.

I need to express one important caveat to this very harsh assessment at the outset: I'm a "cord cutter," and so I am not speaking to one of Google TV's core features: the ability to easily search cable TV content when connected to a DVR or cable box. Even so, that situation is also fairly grim. Beyond the relatively small hurdle of owning a cable box that puts out HDMI content, support for directly controlling or searching DVR content only works with a few of Dish Network’s boxes.

In terms of available content, now that Google offers TV and movies for rent or purchase from Google Play, finding video to watch has become a bit simpler. In our list of top 25 movies, five were simply unavailable — but they also weren't available on other living room ecosystems like Apple TV or Xbox. Searching works and works well, but browsing is another matter: there are simply too many places to do it with too many different UIs and feature sets. You can often find what you’re looking for, but as you do you’ll find yourself using one of several different interfaces to get your video. If you search for, say, "Psych," you’ll get results from Amazon, Netflix, and Google Play — but Amazon dumps you in a glorified web browser, while Netflix and Google Play each have their own disparate app interfaces.