OTT and 4K: Vaporware and a field of dreams

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Josh Wein, FierceOnlineVideo

Headlines from the Consumer Electronics Show in Las Vegas are heralding the arrival this year of two would-be milestones in online video: a full-fledged online pay-TV service and streaming 4K. For separate reasons, neither may ever materialize into mainstream consumer products.

I hope they do. As a consumer, I'd like to be able to buy (and cancel) pay-TV service with the same ease and convenience of adding or dropping a Hulu or Spotify subscription. And 4K sounds great. I haven't seen the demos yet, but reports seem genuinely impressed with its quality and prospects. In that way, it differs from the 3DTV, which elicited far more skepticism.

To mix metaphors a bit, 4K is a field of dreams while the online pay-TV service is still vaporware.

4K is more or less here. As Sony Electronics President Mike Fasulo said this week, it's not a science project. The TV sets are available at retail and production teams are shooting in 4K. That's a big part of the battle, but there's no guarantee consumers will care enough to go out and buy the new equipment needed to enjoy 4K at home. 4K TV set prices are coming down, with Vizio planning a $1,000, 50-inch set. But many Americans just upgraded their TV sets.

According to Leichtman Research Group, 75 percent of U.S. household had HDTV sets as of February 2013, up from 29 percent five years earlier. At that time, Leichtman estimated that nearly half of all TV sets in U.S. homes were HDTVs. My guess is a lot of those HD sets entered U.S. homes in 2009 and 2010 after local TV stations stopped broadcasting in analog. Are people ready to upgrade again? Probably not for a few more years.

Without a wide base of 4K sets, demand for 4K programming will remain low. Though the industry is building out the infrastructure to deliver it, it's not clear the viewers will come.

Online pay-TV has the opposite problem. The installed base of potential users is already here -- just ask Netflix (Nasdaq: NFLX), which counted nearly 30 million of them in the U.S. at the end of Q3 2013. With devices like the Apple TV, Roku, iPad and smartphones, millions of households have the ability to tune into an online pay-TV service.

But the service doesn't exist.

Sony just announced plans to test a "cloud-based TV service" later this year. That's a step toward delivering online pay-TV, but there's no guarantee the test will succeed, or that Sony will be able to line up the programming it needs to offer it. In fact, according to Re/code's Peter Kafka, no other pay-TV networks have signed on to Sony's planned service.  A lack of programming apparently altered Intel's (Nasdaq: INTC) plans for its never-introduced online pay-TV service OnCue.

The only provider to gain much momentum offering live, linear TV online in the U.S. is Aereo. To achieve it, Aereo had to come up with a unique (and legally unsettled) way of acquiring programming. It still lacks traditional pay-TV programming, but if the Supreme Court weighs in on its legality this year, Aereo could emerge as another would-be buyer of those rights.

A year from now, these questions may still be unresolved. I look forward to tracking their progress with you in 2014. --Josh

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