M2B hopes viewers will PONY up for on-demand.

To the seemingly myriad digital platforms being ballyhooed as alternatives to traditional television, add Internet Protocol TV, which uses a broadband network connection and a set-top box to distribute video content over the Internet.

One of its leading proponents is Los Angeles-based M2B World Inc., a U.S. subsidiary of Singapore's Amaru Inc. The firm set up shop in town earlier this year with the goal of acquiring content for the network, from independent and major studios--and has already inked a 500-picture deal with Sony Pictures International this year to distribute Sony and MGM films on-demand over the M2B network.

M2B just released its "PONY" set-top boxes in the United States and is in the midst of its "soft launch." The devices provide a lineup of about 50 channels of on-demand Asian and U.S. programming to consumers with broadband connections in their home or office.

"Five years ago broadband was just beginning, but it was easy to see it would be come very popular and a credible advertising platform," Amaru Inc Chief Executive Colin Binny. "We wanted to bring in concept of the digital living room--video conferencing, shopping, travel and the like through the television."

The American launch will cover 14 cities. Most of the targeted areas have strong broadband penetration, including Los Angeles, New York, Boston, San Francisco and Chicago, all of which have 60 percent to 70 percent broadband concentration. The service will also launch in Australia and Canada by the end of the year.

In addition to entertainment programming, the IPTV network boasts video-conferencing service, called "Face2Face," as well as video email, shopping services, travel guides and booking services and Web browsing. And the company claims to have amassed the biggest broadband content collection for shopping, fashion, classic Hollywood films, travel, comedy, documentaries and learning channels. The box and the M2Btv service are priced at $25 per month in the U.S.

The early U.S. launch is part of a strategy in which the firm will move from a subscription-based model to one supported exclusively by advertisers over the next two years.

"Our service will be more viable from an advertising basis once we launch in the United States," Binny said. "The U.S. market has the ability to attract advertising. We want to amass that audience and subscription base and then send it around the world."

The PONY box is bundled with a "smart" remote, camera and microphone and other accessories, such as a wireless keyboard, are also available.

The box can currently be purchased online, though it will be available through local distributors and retail chain stores by the end of the year. Binny said the company is looking to manufacture 50,000 boxes in the next 12 months (in addition to the 10,000 that have already been sold), and is hoping to exceed sales goals of 2,000 to 3,000 boxes a month.

Limitations and hurdles

There are limitations to IPTV systems, stemming from the requirement of broadband accessibility and set-top box equipment, similar to digital satellite or cable-type services. And the service is currently limited to video-on-demand alone services programming, rather than 24-7 live broadcasting.

Diffusion Group senior analyst Colin Dixon said that another challenge facing M2B's acceptance is that it tides on an existing broadband connection and streams over the Web, rather than storing the content on a hard drive in the box, which means variable quality for viewers.

"Sometimes it will look absolutely great, but during peak usage times, say 5 p.m. or 6 p.m. it may not look as good at all," Dixon said. "The system is probably set up better in Singapore, where there are multi-dwelling units and the population density is high, so they can guarantee broadband service a little better because of the way they've deployed it."

That means the revenue potential for IPTV as a stand-alone product is limited at best, said Ben Macklin, a senior analyst at eMarketer, who authored a report on 1PTV released late last month.

"However, as part of a bundle of services, which includes broadband and fixed and mobile voice, the value of IPTV will be in its ability to reduce chum and to perhaps recoup some revenue lost to cable companies offering voice services," Macklin said.

According to Forrester Research data, about 29 million households in the U.S. now have video-on-demand capabilities, more than twice as many as three years ago--bringing the number to and at a level that rivals digital cable. Macklin's report projected that by 2010, IPTV will reach 8.7 million households in the United States alone, up from 300,000 in 2005.

"They have jumped in with both feet," Dixon said of Amaru's PONY launch. "It's just streaming and aggregating their own content, not partnering with telco or cable service providers, so it's kind-of a first. It's niche content, a lot of it Asian right now, but the great thing about the Web is it's a great distributor for niche content."

Despite its grand plans and profitability, the company is tiny. In the second quarter 2006, Amaru's reported revenues increased 123 percent year-over-year to $7.4 million (the company reported a loss a year earlier), with income from operations at approximately $900,000 up from a paltry $30,000 last year.

Amaru has about 153 million shares of common stock, and Binny said his goal is to move the company from the pink sheets to the senior board in the U.S. in the next few years.