But despite all these new offerings, that content still only reaches a few million customers, a number largely unchanged from this time last year. Such low adoption rates in the face of so much effort leads me to think that while the market of delivering content to the TV will grow, it is unlikely to do so at the rate that many in this industry would like to believe. In fact I don’t think we’ll see these devices having a combined impact in any measurable way for at least another 3-4 years.

Here is a breakdown on the number of devices on the market and some data on the volume of content being consumed on them:

Xbox 360: Microsoft has so far sold 15.1 million Xbox 360 consoles in North America, according to NPD. Since the Xbox LIVE Video Marketplace launched in November 2006, there have been more than 42 million downloads of entertainment content, which includes movies, TV shows, music videos and featured trailers, Redmond told me, while Xbox 360 owners have downloaded nearly 12.3 million hours of video content from the Xbox LIVE Video Store.

Xbox/Netflix: As of February, 1 million Xbox LIVE Gold members had downloaded and activated the application for streaming Netflix movies to the Xbox 360 console. Meanwhile, users had watched more than 1.5 billion minutes of movies and TV episodes from the Netflix Watch Instantly library.

TiVo: While TiVo doesn’t break out how many Series 1, 2 or 3 units have been sold individually, it has 1.6 million standalone TiVo subscribers. I estimate that 65 percent of those are Series 2, which means that there are roughly 525,000 Series 3 TiVos today. The company has said that 85 percent of its HD TiVos are connected via broadband, which puts the number of units capable of getting content via Amazon or Netflix at around 445,000. For DVRs that can get YouTube content the number is likely higher, since YouTube only requires a Series 2 DVR.

Roku: Roku won’t say how many units it’s sold to date, but if we estimate that 3 percent of Netflix’s 10.3 million subscribers at the end of the first quarter bought the $99 unit, a total of about 300,000 Roku units have been sold.

VUDU: VUDU told me it’s sold “five figures” worth of devices, which I believe is less than 50,000 units.

Apple TV: Published reports put the number of Apple TVs sold at less than 500,000. Notably, of course, Apple has, on multiple occasions, acknowledged that the device hasn’t been nearly as successful as the company had hoped it would be.

Blockbuster Mediapoint Player: The company has never offered up numbers as to how many of these have been sold, nor has anyone really bothered to hazard a guess. Bottom line: Blockbuster has no online video strategy of any kind and while the Mediapoint player was first unveiled some five months ago, when you visit the Blockbuster.com web site, it’s nowhere to be found.

Broadband-enabled TVs: There are more than 50 broadband-enabled TV models due out in 2009, but analysts estimate that only about 3 million total sets will be sold in the next two years combined.

Broadband-enabled Blu-ray Players: To date, 9.6 million Blu-ray players have been sold, but less than 2 million of them don’t include the PS3, according to DEG. While new broadband-enabled players continue to be released into the market, the total number of sales to date has to be less than 50,000.

Even with all these numbers, they don’t truly give us an idea of the growth, as there are a lot of unanswered questions. For starters, Microsoft won’t say how many of the 15.1 million Xbox 360 consoles are connected to a broadband connection. And while Netflix says that a million Xbox LIVE members have downloaded and installed the Netflix app for their Xbox 360, since Netflix offers free 48-hour streaming trials to Xbox 360 owners, we don’t know how many paying Netflix subscribers are using the service today. With Netflix spending about 5 cents to stream every movie to the Xbox 360, clearly content offerings such as this are not yet making any money due to the small number of devices in the market.

While some may suggest that the Wii gaming console is missing from this list, so far the Wii doesn’t really offer up any content. Whether or not set-top boxes should be included in these numbers is debatable. It’s my belief that the cable companies are the ones that should be winning in the market when it comes to delivering Internet-based content to the TV or premium content with all-you-can-eat models. But so far, I don’t see the cable companies doing a very good job at this.

On the surface, some of these numbers look really big. But once you break down how many of these devices are being used via a broadband connection and how many consumers have more than one of these devices in their living room, the actual number of individual consumers content owners are reaching via these devices is still very, very small.

Dan Rayburn is EVP of StreamingMedia.com, has his own blog at BusinessofVideo.com and is a principal analyst with Frost & Sullivan.

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Apple dominates music and consumer mobility. The MacBook is selling in record numbers. But despite making consumer-friendly products for the whole family, Apple has failed in an increasingly important market that includes TV, movies, music and gaming, and will soon encompass videoconferencing, education and more: The living room.

If Apple wants to be the digital hearth, it will have to do better than AppleTV, and the impending announcement may launch just such a product. So what would the perfect Apple consumer device look like?

• TV tuner and set-top PVR to take on TiVo, with streaming and synchronization to Apple’s mobile devices, the way Slingbox does, handled through a more reliable MobileMe
• Controllers with accelerometers and a set-top App Store to rival what’s on the iPhone and iPod Touch
• Videoconferencing-capable features to connect a distributed family via iChat
• Computing features (mail, documents and so on) that make it a decent set-top computer terminal
• Broad support for emerging wireless standards, so it looks like a file server to other devices
• Better integration with stereo systems, tied into the whole family’s iTunes accounts, on par with Roku or the audiophile-friendly Squeezebox
• Good cosmetics so it can mount cleanly to a wall or behind a flatscreen

Why should Apple get serious about the living room?

1. Get iTunes into the home. Apple has the industry’s most successful entertainment delivery infrastructure, and Jobs has strong ties to the industry through Disney. But the company has failed to connect that infrastructure to consumers beyond iTunes and the iPhone. AppleTV is little more than an iTunes connector for televisions: Not enough TV to tackle Tivo, not enough mobile streaming to supplant Slingbox. Apple CEO Steve Jobs called it a “hobby.”

2. Push back at the consoles. Gaming has given Microsoft, Nintendo and Sony a shelf slot next to the TV. Nintendo’s Wii has especially broad appeal and is encroaching on learning and teaching with almost Apple-like individuality. But with the exception of casual iPhone games and some Mac software, Apple is shut out of the lucrative gaming industry.

3. Casual gaming. The success of Apple’s App Store (with 100 million downloads in the first 60 days) has given Apple a glimpse of how lucrative gaming can be. Casual gaming, which the industry estimates is a $2.25 billion industry, has a much broader market appeal than hardcore gaming — think boomers and kids weaned on Webkins. With an Intel-based chipset and plenty of casual games, the company could make iPhone games run on a set-top box and ink a deal with Disney to target the younger set.

Apple’s strong notebook and phone sales mean the company has a chance at mainstream households. If it’s going to win that war, it needs to leverage its mobile and entertainment strengths and take the fight to the heart of the household with a strong set-top offering.

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When looking at any new technology offering, however, market penetration rates are crucial. As we’ve seen in the past, the best technology is not what always wins — all that matters is what consumers adopt. With that in mind, here is a breakout of the numbers for these TV-connected devices and content offerings:

• Xbox 360: 10.5 million units sold in the U.S. (source: NPD)
• Netflix: 8.2 million members (source: Netflix)
• PS3: 4.9 million units sold in the U.S. (source: NPD)
• TiVo Series 3: 250,00 units sold (estimate). While TiVo won’t say how many have been sold, they did say that 750,000 Series 2 and Series 3 units are connected via broadband. Estimate assumes that two-thirds of them were Series 2.
• Apple TV: Roughly 350,000 units sold (estimate). While Apple won’t say exactly how many have been sold, published reports put the figure at less than 400,000, missing Apple’s goal of 1 million units.
• VUDU: 15,000 units sold (estimate). While VUDU won’t confirm a number, they did say that sales are in the “five figures.”
• Netflix Player by Roku: 10,000 units sold (estimate). Roku isn’t saying how many they’ve sold, but realistically speaking, how many could they have sold in just a couple weeks before they ran out?

By adding up the above numbers we’re left with 19.3 million units sold. On paper, that seems like a half-way decent number. But if we break down these numbers even further, the real number of consumers capable of getting these content offerings is much smaller — so small, in fact, that they barely register.

Take for instance the recent Microsoft and Netflix announcement. While neither side will say just how many consumers have both an Xbox Live account and a Netflix account, it’s clearly less than half of Netflix’s 8.2 million members. So if we estimate on the high side and assume that a third of Netflix’s members have an Xbox 360 console and an Xbox Live account, we come up with a mere 2.7 million consumers.

As for the PS3, Sony only launched their online video service late last week, so it’s hard to estimate any numbers. But of the 4.9 million PS3s sold in the U.S. to date, not all of them are online. Estimating that 20 percent of them are not connected via broadband, we’ll use an install number of 4 million consumers.

When it comes to TiVo, you have to estimate how many of the 750,000 broadband-connected TiVo units are Series 3. Estimating that a third of the units are Series 3 would give us 250,000 consumers. But how many consumers have more than one TiVo? I have two Series 3 TiVos in my house, so while I am counted as two units, I’m only one consumer. TiVo won’t say how many customers have more than one unit, but taking that into account, the number of real consumers that TiVo is reaching with the Series 3 is probably more like 200,000.

That leaves us with the Apple TV, the Netflix player by Roku and VUDU. Using the numbers above, I estimate they reach 375,000 consumers combined.

Adding up all of the new numbers gives us just over 7.2 million consumers, far lower than the original 19.3 million hardware units that have been sold. And this 7.2 million number is even more skewed in that it does not take into account unique consumers. How many of the 7.2 million consumers have an Xbox 360 and a TiVo or an Xbox 360 and a PS3? If you estimate that 20 percent of them have multiple devices, you’re left with 5.7 million unique users. That’s a very small number. And then you have to estimate what percentage of those consumers will adopt and use the new services, and over what period of time?

Even if you had 50 percent penetration from day one, which you won’t, that would still be less than 3 million consumers using these devices to get Internet-based video to their TVs. While it is good to see more content options coming to consumers, adding up all of the install numbers for these devices gives a stark picture of just how small the install base really is. The market is still too fragmented, with too many different devices, all limited by a lack of premium content.

In the long run, the cable operators still have the best shot at bringing Internet-based video to the TV. Set-top boxes still have the most penetration with consumers and provide them with multiple ways of getting content. Unless of course you’re like me and only have TiVo, in which case the single-stream cable cards that most cable operators use don’t allow for any of the functionality of cable TV set-top boxes.

Dan Rayburn is EVP of StreamingMedia.com and has his own blog at BusinessOfVideo.com.

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And as soon as the DirectTV deal closed, Shea sought out an operating challenge he hadn’t yet faced: a startup.

Since January, Shea has been working alone out of his house on Project Maestro, an online marketplace for connecting experts from any number of fields to individuals that want top-dollar tutoring. So a retired minor league pitcher, for example, might be matched to a high schooler aspiring to earn a college scholarship on his fast ball, or a gerontology nurse might be matched to an investing club for Baby Boomers. Maestro will also handle the scheduling and billing, much like a virtual talent agency might.

But starting an online marketplace is different from running a consumer electronics outfit. I asked Shea what lessons from ReplayTV he can apply to Maestro. What he shared was a simple recipe for incremental execution that will benefit any founder — one that doesn’t include a draft business plan until month six.

“The main lesson I got at Replay was the importance of metrics and milestones,” he said. Prior to its acquisition by DirectTV, he explained, Replay was owned by a Japanese company. “They stressed the importance of metrics. It was their culture, so it became our culture.” Replay subsequently starting published what it called the “Daily Flash,” a simple one-pager that showed daily service activations, the top three customer calls, DVR box returns and its total user base, “so we could see our churn.”

The measurable results proved to be especially valuable when DirectTV came calling — after all, investors need data to build their financial models. Venture capitalists do, too. So Shea recreated “Daily Flash” for Maestro, which he has graciously shared with us:

1. January: Create Vision
Daily task: Talk to 3-5 people about my idea to socialize thoughts. Did they get it? Transcribe notes.
Weekly task: Discuss idea with one potential adviser.
End of Month: Find 5 competitors that lack right product offering; use as anchor for counterstrategy.

2. February: Discuss Vision
Daily: Talk to 3-5 people about market problem. Transcribe notes.
Weekly: Begin discussing potential customers and product features. Transcribe notes.
Month end: Find 4 advisers on whom I can lean each day to discuss process, who will take me through the development of vision.

3. March: Prepare Written “Vision Brief”
Daily: Edit vision brief; consult advisers; edit again.
Weekly: Create contact list of people to receive brief; list specific feedback needed from each.
Month end: Complete 2-page vision brief; begin developing metrics for ‘Go/No Go’ on business, such as: Is potential consumer base big enough?

4. April: Test Vision
Daily: Send vision brief to 10 people. Personalize each email.
Weekly: At week two, begin scheduling daily meetings for face-to-face feedback from respondents.
Month end: Will have sent business brief to 300+ people.

5. May: Vet Feedback, Validate Vision
Daily: Take 3-5 live meetings with vision brief reviewers. Take notes, transcribe daily.
Weekly: Compare respondents’ feedback for common denominators in perceived market problem, and desired solutions.
Month end: Validate Maestro’s solution against commonalities. Decide whether to launch company.

6. June: Draft Business Plan
Daily: Chart growth phases and performance metrics; edit plan
Weekly: Source a law firm. Begin product specifications; begin talking to developers and consultants.
Month end: Complete draft business plan.

“How you filter information in the first six months is really critical to your learning,” Shea said. Setting up these “deliverables to himself” made it easier. “I could see clearly that if executed properly, this could be big. I should launch Maestro.” Shea is now in phase seven of his startup’s Daily Flash: “The Customer Development Brief.”

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When Dell purchased Zing last year it got technology that streams music and video content to a handheld device via Wi-Fi. The Zing software connects to a variety of content providers with which Zing had signed deals, such as Yahoo and YouTube — there’s no browser, just a direct connection to the content over Wi-Fi. It also scored a management team led by Tim Bucher, who helped develop the iMac at Apple. The team of former TiVo, Microsoft, Napster and Palm executives wanted to unlock content from devices. So the dream of some kind of open consumer gadget (maybe a tiny, cheap cloud computer for emerging markets) from Dell is hard to kill.

But when it come to the consumer, Dell has flopped. Reinstated CEO Michael Dell said upon Garriques’ hiring that the new exec would “…create a new global consumer organization that will set new standards for innovative product design.” So far the company has shifted its distribution strategy to include retail stores (huge, but not earth-shattering, from a product standpoint) and was pretty low-key at CES. Meanwhile it has bought three enterprise software companies and storage company EqualLogic. Consumer is about 10 percent of its sales, so Dell can’t afford to take its eye off the enterprise ball as it manages its turnaround.

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