HDTV sets made by LG Electronics are to become the latest device to be linked to the Netflix Watch Instantly service (see here for our previous post on the Netflix/Xbox360 tie-up).

What should we make of this?

In fact, LG is not the first TV set manufacturer to have come up with the idea of broadband-enabling its receivers to receive Internet content, so obviating the need for a separate device such as a games console or set-top box. Sony announced a module called the Bravia Internet Video Link at CES in 2007 for streamed video, and both Samsung and Sharp showed Ethernet-enabled receivers at CES a year later.

There are clear advantages to playing back disintermediated OTT services seamlessly on a TV set. Linking a laptop playing back OTT video material to a TV set works, but it is clumsy, depends on having the right connectors, and requires the viewer to control the experience via a keyboard rather than a remote control.

Significantly, the LG deal represents the first time a TV set maker has tied such technologies to an Internet service backed by a substantial amount of relatively high-quality content (although early-release blockbuster films still elude Netflix). According to the press release, Netflix members pay “as little as $8.99 per month for unlimited instant streaming and unlimited DVDs from a catalogue of more than 100,000 DVD titles in more than 200 genres.”

Although LG will embed the Netflix streaming software in some of its TVs, it does not appear to have gone as far as also including an Internet browser. Thus, viewers will have to use the Netflix website to add movies and TV episodes to their individual ‘Instant Queues’ before these appear as options on the TV screen. This is therefore a classic ‘walled garden’ service - no content will be viewable that is not available to the Netflix user base.

There are pros and cons to such an approach : judging by the plaudits the Netflix Watch Instantly service has garnered so far, its progressive download model appears to work well, so there is an implied quality of service associated with it. On the other hand, buyers of LG’s ‘broadband HDTVs’ , who are likely to be familiar with what the OTT universe has to offer on a PC or laptop (Netflix is an online service, after all) may wonder why that same experience is not available on their TV.

The interesting question is whether or not it will be in the TV set manufacturers’ interests to move to a paradigm in which their broadband-enabled TVs will come with an Internet browser enabling their customers to access any video content they like. It is difficult for them to earn any ongoing revenue streams from such a model, whereas they can from a ‘closed’ deal like the LG/Netflix one - through bundling subscriptions with TV set purchases and/or agreeing subscription or pay-per-view revenue splits.

Of course, this should make a ‘proprietary’ TV set less expensive rather than more, since such revenues can subsidise the cost. Surprising, then, to see reports that the LG broadband HDTVs are going to cost an extra $200-300 - especially since, on Connected TV’s reckoning, the bill of materials for the upgrade should only add a few tens of dollars to the price.