Editor’s note: David Spitz is president, CEO and co-founder of Raleigh-based TxFS, Inc. (www.txfs.com), which offers a direct-to-bill payment network allowing consumers to charge purchases of digital content to their Internet service provider bill. TxFS is a demo participant at the Council for Entrepreneurial Development’s (CED) InfoTech 2005 conference, set for October 12 at the RTP Sheraton Imperial Hotel. In this column Spitz discusses the latest in broadband technology, a topic he will delve into further during a panel discussion at InfoTech 2005. This column is the latest in a series for LTW from the membership of CED.

RTP, N.C. – On July 17th, 2005, Amy Greer, a young woman from Lafayette, Indiana, secured her spot in media history by downloading the 500,000,000th song off Apple’s iTunes music service. Yes, that’s 500 million, as in a half billion downloads.

Perhaps more remarkably, it took iTunes just two years to reach this milestone, and it’s on track to break the billion-download mark early in 2006. And of course, Apple’s fortunes have turned dramatically with the iPod, whose sales are up five-fold year over year.

All of this is possible due to the penetration of broadband into the home, and for every winner like Apple, there’s a loser whose business model has been turned on its head by the convergence of broadband and media. When it comes to content, entertainment, and media, broadband Internet is a fundamentally different distribution channel, one where content and distribution are totally decoupled, fundamentally commoditizing access and distribution. That’s creating opportunities and headaches for the entire media industry, for young startups and billion-dollar enterprises alike. But for consumers, the future looks bright.

The Foundation: Old Monopolies, New Competitors

The opening salvo in the battle for broadband was launched when cable companies like Cablevision and Time Warner began offering commercially-viable telephone service using VoIP, or voice over IP, essentially mimicking traditional voice circuits using packetized data over the Internet (flat-rate pricing didn’t hurt, either).

Sensing a major invasion of their turf, telephone companies such as Verizon and SBC plan to offer television service (called IPTV since it runs over Internet Protocol) over their own lines to compete with cable as early as 2006.

And make no mistake: the stakes are huge, with an entire generation of media-hungry consumers hanging in the balance.

As a result of this new competition, broadband keeps getting faster and cheaper. Consumers in some areas can choose from multiple Internet service providers who offer connection speeds up to 10Mbps, or broadband for as little as $14.95 per month, as SBC is offering.

These lower prices and faster broadband speeds, coupled with increased demand for Internet applications like chat and email, and consumers’ desire to remain “always connected”, has led to record growth in broadband penetration.

In July of 2004, for the first time, more people connected to the Internet in the U.S. using broadband connections — 63 million — than over older dial-up, or “narrowband” connections, according to Nielsen/NetRatings.

New Opportunities

Naturally, increasing broadband penetration leads to innovative new applications (try Google Earth — earth.google.com — and I guarantee you will waste the rest of your day totally immersed and amazed), which further drives demand for broadband, creating a virtuous cycle.

Many consumers are familiar with downloading music from sites like iTunes, Rhapsody, Yahoo! Music, and so on. But also available are new movie download sites like CinemaNow and MovieLink, which allow consumers to legally rent and download movies over a broadband connection to their computer (in most cases, the files are digitally protected and expire after a day or two after being played, to prevent piracy).

It’s actually surprisingly easy to get a near-DVD quality movie streaming to your computer in just a couple of minutes, or even to your home theater system if connected to your computer. No wonder Blockbuster got rid of late fees — the Internet is the future of movie rentals.

Other nascent sites like DaveTV (www.dave.tv) offer a glimpse of what’s to come for television: a vast selection of television-quality content, available anywhere, any time.

And for consumers willing to ignore copyright law (and the occasional virus), virtually every television show is available via peer-to-peer networks like Bit Torrent and Grokster, although recent court rulings are making it tougher for peer-to-peer sites to operate under their current business models.

Of course, broadband is fundamentally altering the communication landscape as well, much as email has over the past decade. Millions of consumers have downloaded Skype (www.skype.com), a proprietary VoIP-like network that offers free unlimited telephone-quality calling from computer to computer over the Internet. Suddenly families can remain connected to loved ones at college or even overseas for nothing more than the cost of their monthly broadband connection.

In short, broadband is doing for communications and media what the Internet has already done for commerce: making every form of entertainment media instantly searchable, comparable, customizable and consumable, and putting pressure on distributors who cannot find new ways to add value.

New Challenges

All of these wonderful opportunities create a new class of challenges. The most pressing issue relating to media over broadband is piracy and how best to compensate content owners for their work.

The music industry claims to have lost billions of dollars in sales to music piracy on the Internet, and it’s not a difficult figure to believe considering that millions of songs per day are exchanged illegally over the Internet.

Video content owners, like movie studios and television networks, have bought some time because their content requires significantly more storage and bandwidth to transmit, although this is a disappearing advantage; a near-DVD quality movie can be downloaded in less than ten minutes on some home broadband connections.

The next challenge concerns advertising, the historical life-blood of entertainment media. With the advent of the Internet, which drew audiences away from television, and Tivo, which allowed consumers to conveniently skip over 30-second commercials, advertisers have been pressed to find new ways to connect with consumers.

This challenge will only increase with broadband since audiences will be further fragmented and will have unprecedented control over how and when to enjoy their media — not to mention how they pay for it.

What Consumers Can Expect

Over the next five years, it’s clear that the Internet will be the primary delivery channel for virtually all consumer entertainment and media, including television, radio, movies, and games; the music industry is already witnessing this fundamental shift. Broadband delivers economies of scale, not to mention a degree of precision and selectivity, unmatched in history.

What we think is an incredible innovation in Tivo will probably seem crude in just a few years when we can instantly select and watch any TV show or movie ever made, free from the constraints of time and place. Consumers will undoubtedly be able to interact with their shows as well — picking their own endings, camera angles, downloading them to computers and cell phones, and so on.

Indeed, technology-savvy consumers can already cobble together their own place- and time-shifted libraries using products like Tivo, Slingbox or Akimbo. And even the layperson can get all the music they desire — legally — over the Internet today.

And, as broadband speeds approach 15-20Mbps, full-screen HDTV will be available over broadband, offering a virtually limitless array of entertainment choices in a format that rivals cable and satellite.

In fact, the biggest problem consumers may face in the future is the confusion wrought by limitless choice as they swim in a sea of podcasts, songs from C-list artists who aren’t popular for good reason, and video blogs. Of course, by then, Google will already know what you want to watch, before you do.

And for the record, that 500,000,000th song Amy Greer downloaded was Faith Hill’s Mississippi Girl.

For more details on CED’s InfoTech 2005 conference, visit www.cednc.org/infotech.