Web video’s new middlemen: here’s what’s wrong with consumer electronics

Online video was supposed to free us of the middlemen, and offer us access to all kinds of content without the interference of pay TV providers and TV networks. But in place of the old gatekeepers, there’s increasingly a new guard — except that this time, consumers know even less about who is interfering with their choices.

In a way, utopia really has arrived. There are millions of channels on YouTube (S GOOG) alone, and thousands of small and independent web video publishers produce all kinds of niche content that would have never made it on TV. Want a sports channel just about table tennis? You got it. How about a channel about goth makeup, or a channel with obscure Turkish TV dramas? It’s all there, in the vast and sometimes messy world of web video.

But as this type of content moves to the living room, onto smart TVs and connected devices, those choices are subject to a whole lot of behind-the-curtain negotiations, and more often than not, the guys with the deeper pocket books win.

Give me shelf space, and I’ll carry your app

Consider this, for example: During a recent press briefing about the PS4, Sony (s SNE) Entertainment VP Michael Aragon told me and others in a surprisingly frank fashion that the company isn’t interested in giving just any online video publisher access to the game console.

No, these kinds of partnerships need to have some value for Sony — either monetary, or through ways that help the company sell more game consoles. So if a retail chain that happens to also operate a video service offers the company some in-store promotion, then it will in turn be able to get its app on the console.


This relationship with the big-box retailers goes both ways, and way beyond that particular device. That’s because by now, all the big chains have their hands in the online video market: Walmart (S WMT) owns Vudu, Target (S TGT) recently launched its Target Ticket service, and Best Buy (S BBUY) has been running its own CinemaNow service for some time.

The retailers use these services to make you pay for things even after you’ve walked out of the store with a product under your arm, and they’re not shy about pushing their services onto consumers. Just go to any Walmart, and try to find a streaming media device or Blu-ray player that doesn’t feature an app for Walmart’s Vudu service…

About those branded buttons on your remote control

Negotiations about the carriage, placement and promotion of apps can be tough, even when no retailer is involved. One executive at a video service told me recently that his company tried to get its app on one of the big connected devices, but simply couldn’t afford to pay what was being asked. A source with knowledge of that deal told me that another slightly bigger publisher found itself in the opposite situation: It exclusively launched on a well-known consumer electronics device because the device maker agreed to foot the bill for the app development because it thought it could benefit from the promotional effect.


Money also changes hands to promote apps and services on smart TVs and connected devices. Consumer electronics makers frequently boast that they have simplified their devices by adding dedicated buttons for services like Netflix and Pandora to their remote controls. That’s one way to look at it; The other part of the story is that Netflix and others pay consumer electronics makers to include that branded shortcut on your remote control.

Roku recently went one step further by integrating the video service M-Go as well as AOL’s (s AOL) news offering right into its start menu. The company’s streaming players still offer access to over 1,200 channels from a wide variety of sources, which to its credit makes the platform a lot more egalitarian than others out there. But if you access “movies” or “news” from Roku’s home menu, it automatically takes you to the offerings of its partners M-Go and AOL.

You gotta make money somehow

In a way, it’s understandable that a company like Roku was looking to team upt with big players like AOL. Most consumer electronics companies sell their products at razor-thin margins, and anything that adds a little extra to their bottom line can make all the difference. In fact, Roku’s CEO, whose cheapest streaming box sells for just $50, told me recently that his company’s services business is the fastest-growing part of its operation.

But the danger is that these deals could result in a kind of two-tier system, where there are preferred partners whose offerings get heavily promoted, and small app publishers whose offerings get lost in the rest — if they even make the jump on the platform of their choice at all. And consumers are left in the dark about all of this, bound to make their content choices based on the apps that their device maker agreed to carry or promote.

Middleman, meet multiscreen

The good news is that this era of gatekeepers is bound to be disrupted soon. That’s because the artificial scarcity of smart TV platforms is colliding with the abundant world of mobile apps. Apple (S AAPL) made the first move when it allowed an iOS developer to add AirPlay to its apps without having to worry about getting on the Apple TV first.

And now, Google is taking similar ideas to the next level with its Chromecast streaming stick that directly couples the phone to the cloud, and reduces the TV to the role of a browser, waiting to render whatever web app you throw at it. Right now, Chromecast still only supports around a dozen apps. But Google has said that it wants to open up the SDK for developers soon, and Google VP of Product Management Mario Queiroz recently said that he wants to bring as many apps as possible to the device. “There will be an expectation from consumers that any and every app will be ‘castable,’” he said when I caught up with him last month.


Not only will Google allow pretty much any publisher to make their app cast compatible, Chromecast also does away with a number of other barriers. The device doesn’t have a UI, so there’s no risk that Google will treat some app makers (or even its own services) better than others. There’s also no remote control, which takes care of those branded buttons. And because Chromecast is made by Google, which makes 90 percent of its money with ads, you won’t have to fear any backdoor deals that give retailers any preferred treatment.

Of course, Chromecast is just one of many devices — but Netflix (S NFLX) and Google have made significant progress in bringing multiscreen features to platforms from a number of consumer electronics makers. And as consumers get accustomed to the idea that they should be able to castanything they want from their phone to the TV, the influence of the new online video middlemen may slowly evaporate.

Featured image courtesy of Flickr user TheTruthAboutMortgage.com.