Set-Top Boxes Invading Store Shelves

Call it the invasion of your TV set.

Technology firms want to feed the couch potato with new ways to consume movies and TV shows. But will consumers bite?

Recently announced products include a set-top box from Netflix NFLX that downloads movies from the Internet. Another company, Sezmi, introduced a system that combines Internet and TV broadcast signals to offer TV and movies along with some Internet video.

Then there's newcomer ZeeVee with a device that connects a PC to a home's cable line to show anything on the Web through users' TV sets.

So far, consumers have shown just a light appetite for set-top boxes and related gadgets that give consumers alternative viewing choices.

Not even Apple TV, a set-top box introduced by Apple AAPL one year ago, has met expectations, despite Apple's success with the iPhone and iPod. Analysts expected more than 1.5 million Apple TV boxes to sell in the first year. Apple won't say how many it sold, but analysts say Apple fell some 600,000 short.

Apple TV lets users rent or buy movies and TV shows. The device downloads content from the Internet and displays it on the user's TV.

But Apple TV doesn't play or record live TV. Users can only access what Apple makes available based on content deals it strikes with show producers. The $100 Netflix box, made by Roku, works in a similar way.

Akimbo Closed Its Doors

"The number one thing Apple TV is missing is TV," said David Allred, senior vice president of Sezmi.

It's not a proven business model.

Movie rental service MovieBeam, once backed by Walt Disney Co. DIS, Intel INTC and Cisco Systems CSCO, shut down three months ago, stranding people who paid $200 for a useless piece of hardware. The MovieBeam box stored 100 movies that were refreshed through a wireless connection. Backers invested some $50 million in the venture.

Another victim in the set-top box market is Akimbo Systems, which last month closed its doors. Like MovieBeam, an Akimbo box cost about $200 along with a monthly fee to view a mix of alternative TV channels streamed via the Internet.

Critics pin the failure on a mix of factors. Some devices were too complicated to set up and run. Some didn't offer enough movies and TV shows to justify their price.

"Getting new technologies into the household is never easy," said J.T. Taylor, director of product marketing at Scientific Atlanta, the cable set-top box maker owned by Cisco.

Taylor made the comments at a recent conference in Los Angeles on Hollywood and digital technologies.

"Consumers don't want to spend the weekend setting up a home network," he said. "It must be simple and meet an unmet need. Most consumers want current life better, not the next big thing."

He used TiVo as an example. TiVo TIVO pioneered the digital video recorder market and collected a devoted, albeit limited, audience. It wasn't until cable companies began adding DVRs to their own set-top boxes that DVR use really took off.

Other players offering Internet-to-TV service include Microsoft MSFT with its Xbox Live Marketplace, Sony SNE with its PlayStation 3, TiVo's partnership with Amazon's AMZN Unbox service, as well as products from Netgear NTGR and D-Link. Another, Vudu, has a set-top box that delivers thousands of movies and TV shows on demand.

The amount spent to view content delivered over the Web is small but growing. Consumers spent $712 million last year to view movies, sporting events and TV shows, up from $357 million the year before, said Tom Adams, president of Adams Media Research.

"There's a blizzard of possibilities at this point," he said.

Only At First Step

But none of these products has scratched the surface of over-the-air and cable TV broadcasting, which has an audience of 111 million households.

"People want to turn on the TV and have all programming options available with the click of a few buttons," said James McQuivey, an analyst at Forrester Research.

Current products on the market don't do that. Some are good at accessing Internet content, and some are good for accessing TV shows or movies.

"The future solution will encompass all those experiences," McQuivey said. "Apple TV is a good first step, but it's woefully inadequate for the long run."

Allred believes Sezmi got it right.

With one set-top box and a clicker, consumers will get over-the-air network TV stations, a bundle of popular cable channels and video over the Internet -- though not full, unfettered Web access for now. That will come later, Allred said.

Sezmi hasn't announced which cable channels it will carry, only that the feature is coming.

"We're in the process of getting all those licensing agreements done," Allred said. "Many are completed and others are still in negotiation."

The service will launch commercially in a few cities later this year and expand across the U.S. over the next two years. Its partners include Harris Corp. HRS and Sun Microsystems JAVA.

ZeeVee demonstrated its Internet-to-TV product for the first time last month, in Los Angeles. The box and clicker setup, scheduled to ship June 30, costs $499 and can broadcast high-definition Web channels. It comes with an optional wireless device and keyboard to simplify Web surfing on the couch. It's available for pre-order at Amazon.

"We think it was a significant breakthrough to achieve this level of innovation," said Vic Odryna, ZeeVee's chief executive. "We solved some very difficult problems."

ZeeVee arrives at a time when TV and movie content on the Web is exploding, as is viewership on the PC. According to comScore Video Matrix, U.S. Internet users viewed 11.5 billion online videos in March, up 64% from a year ago. Google GOOG led the pack, followed by News Corp.'s NWS Fox Interactive Media. Other popular sites included Viacom and Disney, along with Disney's ABC and ESPN sites.

And more video is coming. Venture capital firms pumped $461 million into online video startups last year, up from $267 million the year before, according to Dow Jones VentureSource.

Waiting in the wings, however, are the cable companies and digital set-top box makers. Over the years, they've upgraded their technology to provide more video on demand and DVR features. The missing ingredient, for now, is full-fledged Internet access. AT&T T and Verizon VZ have also entered the TV-delivery market. They are striving for the all-in-one package.

"Cable companies say this will be their territory, but they need more time to figure it out," McQuivey said. "Cable will have to open up their boxes to access every content source out there."