At the World Economic Forum meeting in Davos last month, Bill Gates predicted that the Internet would revolutionize television within the next 5 years. The basic premise for this forecast is the merging of PC, the Internet and TV. The results could range from targeted advertising to highly interactive experiences on the big screen in your living room.

Over the last decade or so, the widespread growth in digital multimedia has certainly changed many forms of audio-visual content. Consumer digital photography, digital music and more recently digital video have replaced their analog counterparts: CDs replaced vinyl records in the 1980s, DVDs have largely replaced video tapes and camera-phones have replaced wet-film cameras.

Over the last 5 years, a single product has emerged as the worldwide leader in digital music: the ubiquitous iPod. Increasingly you see them plugged into the sound-system. Apple’s iPod & iTunes online music/video store have transformed the music business and is now making serious inroads into the TV and film business. It’s possible to hook some iPods up to your TV but not many do that – more on that below.

By far the most visible addition to living rooms for years is the widescreen digital television. In the last 12 months, dramatic price reductions have seen plasma and LCD flat-panel televisions selling at ever-reducing prices. Many of these have a stack of boxes with them: digital TV set-top boxes, DVD player/recorders, hard-disc recorders and so on. Most of these have their own remote-controls and their own arcane user-interfaces.

PCs have been talking to TVs for some time – in games consoles. More developed and mature consoles like the Playstation and Xbox are essentially general-purpose computers – but their main purpose was to play games. They also extended gaming online. Now, Playstation 3 and Xbox 360 are special-purpose gaming and home-entertainment consoles. Support for better and sharper video devices like BluRay and HD-DVD to support standards like 1080p TruHD are the key improvements. For now, the TVs that do those things justice are still expensive and hence rare.

In the early 1990s, Microsoft began making technology investments in digital video under the code-name "Tiger". Since then, Microsoft has commoditized the home-entertainment computer with Windows XP Media Center Edition – a way to control the TV, digital music, digital photos and so on. Home Theatre PCs (HTPC) are made by a variety of other companies. Now, some versions of Windows Vista include the Media Center functionality. Apple TV, to be released in March 2007, is a simpler, cheaper and more integrated hardware & software offering – basically an iPod for your TV. The user-interfaces on these newer HTPCs are dramatic improvements on the stack of consumer-electronics boxes. They also have one (and only one) remote control! Expect to see more HTPCs in living rooms.

Unsurprisingly, Apple TV is highly integrated with Apple’s iTunes. Not to be out-done, Microsoft has partnered with others to put movies and music online in certain geographies (Telstra for movies and Sanity for music here in Australia). Equally unsurprising, Microsoft’s Vista and Xbox 360 interoperate at a much higher level. For example, a traveling Dad can use his Vista computer in a distant hotel room to play and Xbox games with his children on their living room TV at home.

While some TV has been "streamed" onto the Web to be viewed on a PC, a few providers are putting entire cable TV services directly onto the Broadband Internet to be viewed on a TV. Among others, Microsoft has a technology platform for telcos and pay-TV companies to do this. Recently, at the Consumer Electronics Show in Las Vegas, Gates announced that this service would be available on the Xbox 360. Currently this is a limited service offered by only 5 companies in the marketplace with another 11 companies working with Microsoft towards it. Also, there is some acrimony between Microsoft and their key partner, Alcatel, on this technology.

IPTV does more than change the way TV is carried down a cable; it makes TV much more 2-way. That changes the landscape for exiting services like video-on-demand and interactive TV. It also enables new services like much more targeted advertising and the melding of TV with computer-based visualization services. It will change the Broadcast-based business model of the television industry. Telcos, cablecos, media conglomerates and IT firms will all participate in this new ecosystem.

A movement towards standardizing IPTV is well underway. IPTV services will become available. Much more Home Theatre integration will come. Within the 5 years that Gates talked about in Davos last month, a single box underneath a large oblong screen with one remote control could be a commodity consumer item that controls all home communication – TV, Internet & telephony. These services would all come down a single wire or a piece of fibre. They could even become wireless in time. One thing is for sure: the PC & TV will become much, much close to each other. Together, they’re going change the living room.