John Kenneth Galbraith said some time ago that “Banking may very well be a career from which no man really recovers”.

The debate regarding Consolidated Media and the intentions of the sparring parties will continue for some time but in my view will end up being all about the following.

Marrying the internet and television has been the Holy Grail for the past decade.

Now, the convergence of TV and the internet may finally be at hand and could reshape the entertainment industry in the process. A new, more powerful grassroots trend is taking hold that may disruptively reshape the entertainment business.

Time Warner Cable CEO Glenn Britt recently warned "we are starting to see the beginnings of cord cutting where people, particularly young people, are saying, all I need is broadband, I don't need video”, as more TV content is being put on the web. The shift could endanger cable-network revenue, according to Britt.

Indeed, this has been our recent observation, with teenagers and college students increasingly asking the question: "If I have my laptop computer and broadband, why do I need TV for video entertainment?"

A recent survey found that 72 per cent of people aged 18 to 29 have watched online video, versus 34 per cent of people aged 50 to 64. A recent study by Yankee Group found that consumers are now spending 11 per cent more time online that watching TV, with internet video emerging as "the key platform for delivery of on-demand video services. In December 2008, US internet users watched a record 14.3 billion online videos, up 41 per cent from 10.1 billion in the same period the prior year, and a 13 per cent sequential increase from November. Nearly 150 million people watched videos over the Internet in December, representing 78.5 per cent of the total US internet audience.

The average viewer watched over five hours (309 minutes) of online video. Business models based on downloading videos, such as Apple's iTunes model, has a role to play in the industry, particularly for young families where children like to watch movies multiple times. But, streaming video appears to be the preferred business model to scale, particularly in the US where bandwidth remains relatively low.

Google's YouTube led the increase, accounting for 49 per cent of the incremental sequential month-to-month gain. YouTube and other Google sites tallied 5.9 billion videos viewed in December, a 41 per cent online video market share – with 100.1 million unique online video viewers.

However, Hulu.com, the joint venture between NBC Universal and News Corp, is coming on strong. Hulu drove 241 million video views, up six per cent from November with an average online video view of 10.1 minutes, higher than any other service. In contrast to YouTube, which offers "user-generated content", Hulu provides professional, studio-produced TV shows, the same content seen on broadcast TV, but instead available on demand, with content from over 110 partners.

Whereas advertisers are reluctant to back user-generated content on YouTube, Hulu has over 100 advertisers, including McDonald's, Bank of America and Best Buy.

The shift also has ominous implications for major studios, because they typically generate 75 per cent of their $19 billion in annual US feature film revenue, post-theatre, from DVDs and TV sales, according to Adams Media Research.

Recently Walt Disney CEO Robert Iger revealed that lower DVD sales were behind the 64 per cent drop in studio operating income. Iger noted that the DVD business may be experiencing more than a cyclical downturn, due to increasing consumer choices, including videos available through multiple outlets.

Cable networks are also vulnerable because they often generate over half of their revenue from fees paid by cable and satellite operators, per The Wall Street Journal.

The future for internet TV may be seen in South Korea. South Korea provides a valuable porthole into a potential broadband future because the nation has had one of the world's highest speed internet networks available to the majority of its population for years.  Last year, South Korea's median download speed was 49 Mbps versus 2.3 Mbps in the US.

Now, South Korea is building a nationwide super broadband infrastructure by 2013 that will provide an average speed of 1 Gbps. The project will require 1.3 trillion won ($935MM USD) from the government and 32.8 trillion won ($23BB USD) from the private sector. The new network is expected to produce 17.7 trillion won of incremental value.

As a result, feature films will be able to be downloaded in one or two seconds versus 20 minutes to an hour plus in the US, depending on the broadband connection speed.

As the TV and the internet converge, the variety of content will continue to grow exponentially, increasing the need for search engines to navigate it.

Program schedules may disappear and the migration of advertising dollars from traditional broadcast TV to the internet will accelerate, due to better targeting and accountability. Indeed 10 per cent of all advertising dollars are expected to be allocated to the internet this year, up from less than half of one per cent ten years ago.

Ultimately, video advertisements may be purchased based on who will see the ad instead of what show is playing alongside.

Netflix Inc in the USA is an online movie rental service. Its share price is currently trading at $44.25 which is close to its rolling 12-month high, the company has a service called Watch Instantly which is in its infancy, however the service has been expanded from a PC only viewing experience to the TV via connected devices.

The company is positioning itself for the transition from DVD rental to digital download, Netflix continues to leverage its core strengths and grow into more of a web company.

The pricing model being investigated looks to be in the range of $7.99 per month to $8.99 per month for unlimited titles. With that pricing available the appetite for larger bandwidth capacity would be self-fulfilling.

In the recent report for President Obama titled, The Digital Road to Recovery: A Stimulus Plan to Create Jobs, Boost Productivity and Revitalise America, which was released in January 2009 the following point was made:

“Spurring investment in our nation’s infrastructure is an effective strategy for getting Americans back to work during an economic downturn, particularly one that is expected to be longer than normal in duration. Although projects to improve the country’s traditional physical infrastructure (e.g., roads, bridges, sewer systems) are necessary and important, investments in certain parts of our national information technology (IT) infrastructure—America’s digital infrastructure—will have a greater positive impact on jobs, productivity, and innovation. And economic stimulus measures that go to consumption, as opposed to investment, will have a less beneficial impact on productivity and innovation than infrastructure investments.”

The Obama Administration has been understood to also be discussing $20 to $30 billion in tax breaks for companies extending broadband to un-served and underserved areas, and boosting speeds, according to Business Week.

As part of this vision, companies building broadband networks in regions with no services could get up to 60 per cent of their investment back in tax credits, with companies boosting the speed of existing networks receiving up to 40 per cent of their investment back.

A $10 billion investment in broadband could generate 498,000 jobs in one year, including 50,000 in the telecommunications industry, 14,000 in direct capital equipment, 166,000 in "indirect and induced jobs", and 268,000 from the "network effect," according to the 22-page report prepared for the Obama Administration by the think tank Information Technology & Innovation Foundation (ITIF).

Ninety per cent of underserved individuals can be connected with $3.6 billion in tax incentives and up to $5 billion in grants for higher-cost regions.

Unlike conventional public works, investing in digital infrastructure creates the "network effect", leading to an additional employment growth multiplier. Broadband investments could be viewed as the contemporary equivalent of the 1950s Eisenhower Interstate highway program, which helped foster growth of businesses, such as automakers and national retail chains.

Communities with broadband grew one per cent more than towns without it, between 1998 and 2002, says one study. Another study by the Brookings Institution and Criterion Economics found that every percentage point increase in broadband penetration raises employment by 0.2 to 0.3 percent, or about 293,000 jobs nationally. Over 40 per cent of US households still lack broadband connections.

Additionally, research by Connected Nation suggests that every seven per cent increase in broadband adoption could create 2.4 million jobs and have a $134 billion direct economic impact.

The incremental broadband penetration would also reduce annual health care costs by $662 million, provide annual fuel savings of $6.4 billion, generate $18 million in carbon credits associated with 3.2 billion pounds of CO2 emissions per year, and provide 3.8 billion hours saved by accessing broadband from home, due to less driving and increased e-commerce and telecommuting.

The appeal of these kinds of investments is that you not only get the stimulative effect but also build a platform for productivity gains and long-term growth.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.