Future Multi-Function Set-Top Boxes Expected to Combine Cable TV and Gaming Functions In One Unit

That scenario would broaden the functionality of set-top boxes, and “the notion of purpose-built hardware that can be used horizontally for entertainment as well as gaming will start to happen,” Kocho said. The emergence of multi-function boxes will be good for the industry and consumers, he said, because “it forces competition and it'll do all kinds of interesting things.” As services become more converged, several “large-name entities” with interests both in entertainment and gaming “can generate lucrative hardware margins there,” he said. “It will become a much more open playing field in the relatively near future,” he said.

FiOS is using its IP reach to extend the programming it offers, said Maitreyi Krishnaswamy, director-interactive video services for Verizon’s FiOS TV group. She referred to the new FiOS media server that delivers the standard QAM channels as well as IPTV channels for international, sports and HD content. “We're creating a newer tier for broadband video distribution,” she said. She called the “highly niche” content it will offer the type that would normally be distributed to a PC or a Roku box. “We believe we can be a great aggregator,” she said, and plans to bring that capability “to the forefront of the set top.” As Verizon looks at renewals for content, she said, it isn’t just negotiating agreements for distribution to a set-top but is trying to negotiate upfront for multiple devices.

Meanwhile, the number of customers using second-screen devices as their primary TV screen is on the upswing, Krishnaswamy said. Until last year, the primary consumption device was the traditional TV and the cable box, Krishnaswamy said, and there’s been a “pretty dramatic shift” showing that more than 30 percent of FiOS users have migrated to “other consumption devices as their primary device,” she said.

Jo Holz, Nielsen senior vice president-client research initiatives, said the 30 percent figure is “hugely overstated,” citing the minimal number of people who have actually “cut the cord.” Nielsen research indicates that people who use an iPad or mobile phone as their primary viewing device are doing so in situations where they're using “the best screen available.” Krishnaswamy said the 30 percent figure was not for full-time viewing, and FiOS users tend to be at the high-functioning end of the technology spectrum, owning, on average, “three-plus tablets."

Krishnaswamy sees those users as the future of TV viewing whose “mind shift” represents a chance for content providers to move TV viewing into a more interactive stage through prompts and other means. She acknowledged the challenge of moving viewers from a passive experience to a responsive one, comparing the situation to early days of interactive TV where the industry needs to “mature in how we're training customers to engage with second-screen apps.” Consumers had to learn to use their remote controls to engage with programming on Home Shopping Network, for instance, and “once they were trained, adoption really expanded,” she said. Today, certain segments -- gamers and avid sports fans -- are engaging with TV content through second screens with, but “the vast majority” of users “don’t know how to engage,” she said. Operators and content providers need to step up and enable mobile notifications that tell subscribers “now is the time to engage with apps,” she said. The interactive strategy is “still evolving,” but once the industry simplifies engagement with consumers, “you're going to see more immersive apps coming in,” she said. At the same time, she said, “we also don’t want to burden customers with downloading 50 different apps."

Holz of Nielsen said most second-screen viewers are “not doing anything related to the program” on TV. Instead, they're checking email, multi-tasking, or on Facebook, where they're “not necessarily talking about the show or what they're watching.” She did, however, report a “small but growing phenomenon going on here,” in second-screen viewing and said TV networks “are very threatened by this and trying to figure out how to take advantage of it.” Networks have to balance satisfying advertisers who are also trying to figure out how to create second-screen experiences with engaging consumers who tend to turn to the second screen during commercial breaks, she noted. A second-screen experience for advertisers to keep viewers watching might be a game or a “check in,” she said, “but it’s hard to make that appealing."

FiOS has seen a change in the viewing habits of its users, which it has gleaned from social media, direct contact with tablet users and 2,500 customers that are part of an “incubator” environment, Krishnaswamy said. In 2011 most active users spent between 28-30 minutes per session on a tablet. Today, using an iPad customers are spending 46 minutes and more, she said. The Xbox app uses a different interface and “takes customers to a whole new level,” by taking advantage of the Connect platform’s voice control capability, she said. “The customer doesn’t have to pick up the remote,” she said.

Consumers’ interest in engaging with programming via app depends on the programming, said Holz. Fan groups are motivated to engage with their show “any way they can,” and will take the time to learn how an app works, she said. “Many others don’t see the point,” she said. She cited “a lot of experimentation going on” in the app world, calling some “wonderful” and others “a lot of noise made by a relatively small group of people who love engaging with these things.” She compared apps with the early days of video streaming when “it was about the technology, the capabilities and features and not much about the content or how it fit with anything."

On where smart TVs fit into the Over The Toppicture, panelists cited multiple platforms and changing designs as issues. “These guys don’t know how to run platforms,” said Emil Rensing, chief digital offer for Epix. “Forget about the part where they don’t want to destroy their $50 margin on a television by putting a CPU in it,” he said. Epix is building apps for “pretty much every CE device you can put out there,” he said, saying the platforms constantly change along with decisions about which models support which platform. Epix has deployed apps on four individual platforms for one “large CE device maker,” he said, including Yahoo Widgets, Adobe Air and Google TV. “They deploy these promotional infrastructures that they don’t know what it costs to manage,” he said. “Even the guys you would think would have the foresight to manufacture computers and game consoles say they're going to have one platform to rule them all,” he said. “Then we build it and launch it and they say, ‘Just kidding, we're making a change,'” he said.

The one company Rensing admires is Apple “because they have the balls to tell people no,” he said. The Android platform is a double-edged sword, as “Android fragmentation in my shop is the number one thing that people hate,” he said. “But they love Android because they can do whatever they want to do” on it, he said, “and they don’t have to ask anybody for their permission.” Every time a phone with a different screen resolution comes out, content providers have to examine which version of the user interface to use based on resolution and screen size, he said. Apple’s restrictions “level the playing field,” he said.