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Along with the compression and transport technology, Matrixstream has written subscription, billing, and digital rights management software that any content provider could use to set up and manage its own broadband HDTV network. The PC player program – which can also run inside a simple set-top box, eliminating the need for a computer – includes controls that allow users to pause, rewind, or fast-forward an Internet HDTV program just as they would a DVD. Says Chung: “The experience is exactly like satellite or cable TV or better.”

Matrixstream is in negotiations with Internet service providers, mainly telephone companies, to get the company’s set-top boxes out to broadband subscribers. It is also partnering with Movie99.tv, a Blaine, WA-based company that’s building a library of high-definition movies and other programming for streaming to Matrixstream’s PC player. “Right now most of [the content] is still niche channels and movies, because the big content companies don’t understand our technology yet,” says Chung. But he predicts that broadcast TV networks will be providing high-definition feeds to Matrixstream customers within two years.

IPTV’s first commercial application has already revolutionized how video production and distribution work. IP-based networks are far more economical to build and operate than microwave or satellite transmission systems, and major news organizations are adopting systems from companies like Seattle-based Streambox to extend their reach around the world. “All they need is a reporter, a photographer, a camera, a microphone, a satellite phone, and one of our encoders, and they can get video back to headquarters live from anywhere in the world,” says Jeff Woiton, technical sales manager at Streambox.

Telephone companies such as Verizon and AT&T are also investing heavily in IP networks, since they can handle video, voice, and data simultaneously. The phone companies hope this “triple play” will help them compete with cable companies like Cox Communications, which already provides TV, digital telephone, and high-speed Internet service to its customers through the same coaxial cables.

One of the companies helping the telcos realize this vision is Cambridge, England-based Vidanti, which supplies software and equipment for delivering high-definition video to set-top boxes over telephone companies’ private networks – and for returning data from the home, enabling applications like video conferencing.

Vidanti CEO Paul Walsh says IP networks are a great way to transmit HDTV signals, but only if they’re guaranteed not to be jammed with other traffic. “In the industry we work with, we’re talking about sending broadcast-quality, state-of-the-art HD – the full pay-TV experience,” Walsh says. “You can’t rely on best-effort transmission for that. I’m quite fond of YouTube – but it isn’t what I’d rely on for my evening TV.”

The challenge for Matrixstream and other companies sure to explore Internet-based HDTV may be finding an audience that doesn’t mind the occasional network hiccup, and that values a large variety of quirky, niche content over mainstream TV shows. As it happens, that’s exactly the group Matrixstream is going after first: independent content producers who could use high-definition Internet IPTV to reach niche audiences with premium programming that makes today’s streaming video look primitive. “We’re talking about the real long tail,” says Chung. “Instead of 500 channels, you’ll have a million. Or, to put it another way, you’ll have just one channel – yours.”

That could give pause to big media companies and further upset the chaotic ecosystem of digital entertainment, where cable, satellite, broadcast, telephone, software, hardware, and Internet companies are all competing to sell content and services to the same consumers. “The telephone companies are trying to move into the entertainment space, and the cable companies are trying to move into the voice space, and they’re both earning very skinny margins,” notes Walsh. “The only place you can think of to look not just for revenue but for profit is the interactive space. That’s what makes IPTV a big ‘gotcha’ for them.”

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