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One of Qwest's video bets may be struggling to get streaming

 

By Andy Vuong
The Denver Post

March 4, 2010

During a keynote speech in December, Qwest then-executive vice president Neil Cox boasted about a strategy of delivering movies, shows and other video content to television sets over the broader Internet.

Qwest favors such "over-the-top" video services over IP-TV, a more expensive technology embraced by AT&T that distributes content over a dedicated network.

"We see these walled-garden IP-TV plays or cable-television models kind of breaking down," Cox said at an industry conference in Orlando, Fla. "All of this over-the-top stuff is coming, and we at Qwest aren't going to stand in the way."

As it turns out, one of Qwest's early bets on over-the-top video ZillionTV may break down before it launches.

Qwest poured $10 million into the Sunnyvale, Calif.-based startup in February 2009, according to court documents tied to a discrimination complaint filed in January against ZillionTV.

A former contractor claims ZillionTV made "serious misrepresentations and false claims" about its financial backers, technology and other information. The company allegedly had just 170 set-top boxes in test markets in late 2009, not the 20,000 it publicly stated.

ZillionTV's set-top box connects to a TV set, and ad-supported video is streamed on-demand through a broadband connection.

The company has delayed its commercial launch from the end of 2009 to the second half of this year, and in October it replaced its chief executive and reportedly laid off a third of its staff of about 100.

Spokeswomen for ZillionTV and Qwest declined to comment.

Cox, who oversaw Qwest's product development, was ousted in January as part of an "organizational realignment."

With $12 billion in annual revenue, Qwest has said its investment in ZillionTV is "very small, or immaterial." But the Denver company is one of ZillionTV's largest investors. Legal and regulatory documents show the startup valued itself at $30 million last year.

As customers continue to drop land lines, having a video offering as part of a bundle of services is key for phone companies.

AT&T and Verizon are spending billions of dollars developing their video services.

Qwest, which resells DirecTV service, stopped developing its own video play in December 2007. Qwest CEO Ed Mueller shifted the company's focus to technologies such as over-the-top video.

While Roku's set-top box has garnered some success by providing access to Netflix and Amazon's online video libraries, broader adoption of Internet TV may be years away.

"There are several obstacles still facing providers such as Roku and ZillionTV," said Ronald Lewis, an independent Denver technology consultant. "For one, we have 34 percent of Americans without broadband access. And two, we still have roadblocks with licensing."

Acquiring the rights to broadcast content from HBO and others is expensive, said Kurt Scherf, principal analyst for research firm Parks Associates.

It's unclear what type of deals ZillionTV has secured, though the company's website says it is working with the likes of NBC and Warner Bros.

"It is going to be a challenge for any kind of upstart to get a toe in the door of providing pay-TV services," Scherf said.

Andy Vuong: 303-954-1209, avuong@denverpost.com or twitter.com/andyvuong