Look Like a Zillion Bucks?

ZillionTV has morphed the concept of free, ad-supported television for the Internet age.

With some of the biggest TV and movie studios as content partners and investors, the Silicon Valley startup has developed an Internet-based set-top box that hooks into high-definition sets for a service that will deliver a fully on-demand, personalized television experience with highly targeted, interactive ads.

But ZillionTV, which hopes to launch its service in the fourth quarter of 2009, isn't strictly a direct-to-consumer play. Instead, it's looking to strike deals with telcos, cable operators and other Internet service providers as distribution channels, said ZillionTV CEO Mitch Berman.

“We're looking to partner with the MSOs,” said Berman, a longtime cable executive, who has previously worked for HBO, E!, OpenTV and C-COR. “We don't intend to go over the top.”

ZillionTV already has agreements to carry content from Disney-ABC Domestic Television, 20th Century Fox Television, NBC Universal, Sony Pictures Television and Warner Bros.

And it's looking to cater to Americans' love of free stuff.

By the time it launches commercially, ZillionTV plans to deliver upward of 15,000 ad-supported TV shows and movies — for nothing more than having to sit through a commercial or two (which can't be fast-forwarded). What's more, ZillionTV is promising advertisers that its platform will deliver highly targeted, interactive and actionable TV spots to those viewers.

“Almost nothing trumps free,” said Rich Doherty, research director for consulting firm Envisioneering Group. However, he added: “The grief of installing a new box should not be underestimated. Nobody wants to install a new box.”

ZillionTV's investors include Visa, set-top chip manufacturer Sigma Designs — which provides the media processor used in ZillionTV's set-top — the five media companies and two venture-capital firms, Sierra Ventures and Concept Ventures. Berman noted that the media companies collectively hold about a 15% stake in ZillionTV.

According to Securities and Exchange Commission filings, ZillionTV raised about $18.4 million through the end of 2008. The company said it is currently raising a Series B round of funding.

In ZillionTV's go-to-market strategy, ISPs would offer the broadband VOD service as an enticement to move to higher-speed tiers. The startup currently is conducting field trials with partners in several markets nationwide.

“Telecom providers are becoming service aggregators,” said Patrick Gauthier, ZillionTV's senior vice president of marketing and strategy. “Some of those services will generate within the operator.”

Berman, who has spent most of his career in cable, has recruited several other executives from the industry. Charles Cataldo, senior vice president of digital entertainment, was previously HBO's senior vice president of broadcast and studio operations, overseeing its playout facility in Hauppauge, N.Y., and studio and post-production operations facilities in Manhattan, and senior VP of advertising Bonnie Stone previously was Turner's head of ad sales in Los Angeles.

Here's how the ZillionTV system would work: A consumer would pay a one-time “service-activation fee” (the company has not settled on the exact number) to receive the ZillionTV set-top and remote, which Berman said could be co-branded with an ISP partner. Alternatively, an ISP might waive the fee as an upgrade incentive.

The viewer would then browse a catalog of VOD titles by category with ZillionTV's remote, which uses the motion-sensing technology developed by Hillcrest Labs and includes no alphanumeric keys. Before their selected content plays, viewers would see a certain number of preroll ads, which could be interactive. Over time, the service would “learn” a user's preferences and suggest new video titles.

Besides having no subscription fee, another difference touted by ZillionTV is that it plans to offer a loyalty program, designed to reward viewers for watching programming they're interested in and interacting with advertising from categories they've personally selected.

The loyalty points could be redeemed for material goods — like a Gap gift certificate, for example — or for a “material and emotional” reward, according to Gauthier, a former Visa executive: “Maybe you get to watch the new Harry Potter movie one week before everyone else.”

In addition, while ZillionTV expects most viewers to opt to watch TV for free, it will also provide a sell-through option. Users can choose to watch targeted and addressable ad-supported content for free; rent content; or “buy-to-own,” depending upon what options are offered by each content owner tied to each specific program. For example, television content from NBCU will be available via buy-to-own.

“We've gone from passive viewer, where content is pushed, to an active viewer who pulls and chooses what to watch, and what marketers to interact with,” Gauthier said.

TV commerce is also in the cards. ZillionTV, whose backers include Visa, is working with the credit-card provider to create a way to make purchases through the service. By linking their Visa card with ZillionTV, viewers will be able to purchase products directly from their TV by using a “buy now” button on the remote control.

ZillionTV, which streams video in MEPG-4 format, is targeting subscribers with at least a 3-Mbps connection.

The video wouldn't actually traverse the public Internet; rather, ISP distributors would collocate VOD servers in their own facilities for optimal performance. ZillionTV is basing its on-demand server infrastructure on Edgeware's flash-based units, which can serve 32,000 streams in a 1-rack-unit “pizza box.”

At A Glance