For a decade now people have been babbling about "digital convergence". The typical vision involves some proprietary set-top box from your company name here and the grandiose plan to be unify radio, TV, and Internet in one market-dominating service. That hasn't happened, but it turns out digital convergence is already here in our living rooms and no one has quite noticed yet. The driving factor isn't the consumer electronics manufacturers or the cable companies. It's Internet services like Amazon Unbox, Netflix, iTunes, and Youtube.
Youtube is now a full-fledged content provider on both Tivo and AppleTV. I can watch Youtube on my TV just like I watch Comcast. There's plenty of random things to browse and search as well as actual edited programming with YouTube's Featured Videos. YouTube on Tivo is great for bored channel surfing, particularly since you can quickly bounce around related videos. The video quality is atrocious, of course, but it starts playing fast and it feels like watching TV, not browsing the web.
YouTube isn't the only Internet service I can watch on my TV. Amazon's Unbox is also on Tivo with online rentals available for download right next to recording off the cable. Netflix is about to stream to the Xbox 360 if you haven't gotten around to spending $100 on a Roku player yet. Of course iTunes delivers TV and movies to AppleTV.
Internet companies are now making the end-run around cable and satellite distribution that's been predicted for years. If you have fast Internet in your home you can get something to watch Internet video for very cheap. The big sticking point is quality; streaming HD is still generally unavailable. The same A/V setups that can stream low-res content from the Internet are mostly being bought by people to play HD content, and watching a crappy 80 kbytes/sec YouTube video blown up to 1920p is a bad experience. Internet HD is doable; decent quality 720p AVI files are about 200kbytes/sec, within reach of home broadband. But it's a significant expense to provide that bandwidth to hundreds of thousands of customers. Also, I imagine content owners are loathe to license HD copies of their video for streaming. So traditional cable and satellite video distribution isn't doomed quite yet.