• by Steve Smith , Staff Writer @popeyesm, June 3, 2011

Replacement cycles, the on-demand habit and relaxed content distribution restrictions will help make over-the-top digital video available to 488 million households worldwide in five years, says The Diffusion Group. Which is not to say that all those eyeballs will be tuning in to your cross-platform video wares. TDG estimates that barely a majority of those homes (51% or 250 million) will access OTT. About 106 million worldwide viewed digital feeds on their TVs in 2010. But there is a huge gap between those who actually have the connected devices/TVs and broadband service and those who use them.

TDG argues that the melodramatic discussions over cord cutting have been a distraction from the real potential for OTT to erode interest in premium TV subscriptions rather than core cable or satellite service.

Well maybe. In another report out this week. IHS Screen Digest projects that HBO will see modest 1.5% compound annual growth in its revenue and the revenue per user will increase to $8.73 from $7.86 in 2009. IHS credits HBO with a forward-thinking multi-screen strategy that puts its HBO Go app on everything from iPhones to Google TV. It is using these apps to add value, not just in offering on-demand access to full series and films, but by accessing exclusive sneak previews and advance screenings of upcoming episodes. Since HBO Go requires an active HBO subscription for access, the app adds reasons for people to stick with the service rather than cut the cord. Personally, the HBO Go app on my iPad just made the subscription worthwhile. I am working my way through The Wire at long last. The only way I can get this from Netflix is one DVD disc at a time. HBO's moves suggest that adroit responses from premium TV service can mute some of the damage analysts are expecting OTT video to cause.

TDG expects game consoles to dominate the OTT space for at least the next several years. Net-connected TVs will also start moving in as will hybrid boxes that combine pay TV service with Web content and perhaps bring with them IP functionality to TV streams.

That consumers are discovering OTT video via game consoles was underscored this week when Microsoft announced that 40% of all Xbox activity is non-gaming. Frank Shaw, Corporate Communications VP at Microsoft posted the stats on the Xbox blog a few days ago, and claimed that the average Xbox now streams 30 hours of video a month.  "Around the world, the Xbox connects more people to online content and communities through the largest screen in the house than any other device," he writes.

He doesn't say anything about the living room wars that break out in my house when Dad wants to drill through his Netflix queue at the same time his daughter is locking and loading for zombies in another subwoofer-pounding session of Left 4 Dead 2.