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A New Generation of Web-Connected TVs

That oldest of questions -- "Anything good on TV?" -- may soon get a new answer: Music.

A new generation of Internet-connected TV sets are emerging as potentially useful tools for the recording industry in its ongoing quest to extend the reach of digital music into living rooms.

Judging from the buzz that connected TVs from Samsung, Sony, Vizio and LG generated at the otherwise subdued International Consumer Electronics Show in Las Vegas in early January, Internet access may soon become as important a feature to TV buyers as screen size and resolution.

Attempts to bring online connectivity to TV screens are hardly new. What's different this year is that instead of pitching such TVs as a way to browse the Web, TV makers are touting their ability to deliver a wider range of entertainment options.

The biggest draw, of course, is expanded video programing. Connected TVs don't require a separate box to download movies from Netflix or Blockbuster or to watch viral videos on YouTube.

But music isn't far behind. Rhapsody, which is already available through TiVo DVRs, recently signed a deal with TV maker Vizio of Irvine, California, to integrate its music subscription service into the manufacturer's new Connected HDTV models coming out this fall. That will enable Vizio owners to access Rhapsody without a separate device.

Negotiations required

Yahoo (NASDAQ: YHOO) and Intel (NASDAQ: INTC) have teamed up to launch TV Widgets, a technology that lets users access Web sites and online services through a TV while watching their favorite shows. Access to sites like MySpace will be preloaded into connected TVs this fall.

Digital music providers are also negotiating with cable operators to make their services as accessible as HBO. That will require extensive negotiations with cable operators and record labels to bring down monthly costs. Until then, digital music services will be focused on TV hardware.

Until now, most efforts to stream digital music into the living room required expensive solutions like the Sonos multiroom wireless system or media bridges like the Roku Soundbridge. Gaming consoles like Microsoft's Xbox 360 have also provided a means to stream online music, as have a series of Internet-enabled radio receivers, some of which have Rhapsody or Napster built in.

Yet none of these systems has found a mass audience. Market research firm Parks Associates estimates there are only about a half-million digital media adapters installed nationwide.

"It's a niche category, and the really good products are priced at a premium," Parks Associates vice president/principal analyst Kurt Scherf said. "You're looking at a very specific market segment that will adopt these."

Digital TVs drive sales

But HDTVs have already reached the broader consumer market. And TVs are one of the few bright spots in the consumer electronics industry's brutal sales outlook. MasterCard estimates that sales of consumer electronics and appliances between November 1 and December 24 fell 26 percent from the same period a year earlier.

A recent Forrester Research report says that almost half of consumers expect to spend less on tech purchases this year than they did last year.

But that same Forrester report says that HDTVs are expected to fare better than other consumer electronics in 2009. And the Consumer Electronics Association predicts that digital TVs will be the primary revenue driver for the industry, with 15 percent of sales.

Helping demand is the coming transition to digital-only TV broadcasts, which will render obsolete analog TVs that lack a cable set-top box. The CEA expects digital TV shipments will increase 6 percent this year to 35 million, 77 percent of which will be LCD-display flat screens.

Internet-connected versions of these TVs are a small subset of the overall market, and most won't be available until at least the fall. But digital music executives are encouraged about the trend and are angling to integrate their services in these new devices as a sort of beachhead strategy.

Neil Smith, vice president of business management for Rhapsody, is one. The company's deal with Vizio is just the first of what he hopes will be other TV-related partnerships in the coming months.

He said that making Internet access a built-in feature of a TV rather than making it available only through an external device is akin to how PCs internalized modems in the mid-'90s to do the same.

"This will not be the year of the connected living room," Smith said. "But this will be the year the push begins to get the needed equipment installed."