Ever since I sat down with Reed Hastings, the CEO of Netflix, at our NewTeeVee Live conference this past November, I have a new-found appreciation for the Los Gatos, Calif.-based company and its plans to capture the video-over-broadband market. (Watch his conversation with Chris Albrecht and me, in which he talks about the broadband TVs, at the bottom of this post.) In his keynote, Hastings said:

We want to watch what we want, when we want, where we want, and discover the content how we want. So how well are we doing in the areas of “where,” “when,” “what” and “discoverability”? We’re about 15 percent of the way to “what you want,” 100 percent at “when you want,” 15 percent towards “where you want,” and 25 percent for “discover your want.” To get even farther we need a standard for connecting thousands of video web sites and many devices.

While the bulk of its business today comes from renting DVDs via snail mail, the company is preparing for the future and is signing up partners, such as set-top box maker Roku, that are embedding its Netflix on Demand service in their broadband devices. Netflix first introduced its instant streaming service for PCs in January 2007. Another of Netflix’s partners, LG Electronics, is going to announce a new range of “broadband HDTVs” that will essentially have a small tiny Linux-powered, Internet-friendly computer embedded in the back of the display and will be able to get video right off the Internet. These televisions will now be able to get Netflix on Demand at the click of a button on the remote control. In addition to these new broadband-enabled televisions, LG will embed Netflix’s instant streaming service in five new Blu-ray players. And LG isn’t the only company toying with the idea of broadband televisions. Several TV makers — desperate to revive their slowing sales — are looking to embed computers directly into their televisions, making it easier for folks to stream movies or watch Hulu on their big screens.

Broadband TVs, if done right, have the potential to be truly disruptive (especially since Netflix is streaming in HD), for they will introduce online video into a whole new market. ABI Research recently predicted that Net-connected televisions would help online video viewers grow to more than 940 million by 2013, up from 563 million at the end of 2008. I’m not sure if I buy the timeline, but the general theme has a lot going for it.

With one less dedicated device to muck around with, most consumers are going to find it easier to watch video over broadband. In other words, this isn’t good news for tiny startups with big set-top box ambitions. The rapidly falling prices of memory and the availability of ever faster and cheaper microprocessors and other chips is going to eliminate the need for dedicated set-top boxes. (These set-top box makers are also facing competition from gaming consoles and new DVD players with built-in video-over-broadband capabilities.)

Broadband TVs will also give the carriers major migraines, because they’ll bring the Internet based offerings to compete with the cable and telephone companies’ video-on-demand offerings. The carriers have spent billions of dollars building out their networks and are hoping for a VOD payout. Unable to compete with Internet-based offerings because of their business models, most of them (Comcast, Time Warner Cable, AT&T and others) are embracing tiered broadband services, making it prohibitively expensive for consumers to buy video elsewhere.

The very potential of this market is why guys like Cisco, Intel, and Yahoo are spending a lot of their energy on broadband televisions.

Related Posts:

* 2008: Set-top boxes set-up for a fight.

* Intel, Yahoo look to widgetize the living room web.

* The battle over your TV

* Why tiered broadband is the enemy of innovation.

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