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2001: A Video-On-Demand Odyssey

One of the worst things I think executives can do is publicly declare, "This is the year of [fill in the blank]." Year after year, the bigwigs declared, "This is the year of pay-per-view," only to see their predictions fall short.

So I had to chuckle when, in recent weeks, I heard executives declare, "2001 will be the year of video-on-demand"-especially since 2000 was supposed to be VOD's year.

But I won't belittle these folks, because I'm going to make a similar prediction. I hereby proclaim that 2001 could be
the year of video-on-demand.

Whew! I really went out on a limb with that one, huh?

Well, the reason I'm being wishy-washy is because predictions about VOD depend on the answers to certain questions, including how one defines the technology.

Cable has several on-demand options, which are:

  • True video-on-demand (VOD) with virtual VCR functionality;
  • Near video-on-demand (NVOD), which offers more titles but without virtual VCR capability (it's like drinking near beer-a similar experience but not the same kick);
  • And subscription video-on-demand (SVOD), which furnishes access to a programming library for a monthly fee.

There are also emerging technologies that will make their mark on the on-demand market. Currently, personal video recorders (PVRs), also known as digital video recorders, are the biggest wild card.

Two broadband technologies-digital downloading and video streaming-will receive lots of attention. They also could have a tremendous effect, but probably not until after 2001.

The on-demand route operators choose depends largely on their system capabilities, economics and consumer interests.

The costs of VOD technology have dropped to the point where cable operators use words like "home run" and "no brainer" when discussing deployment decisions, though I doubt they use those same terms when seeking budget approval from their boss.

True VOD, first introduced by Time Warner's Full Service Network six years ago, provides a compelling viewing experience and enables a consumer to order a digital-quality movie and use their remote to handle it like a VCR-rewind, fast-forward, pause, etc.

Until recently, the costs were prohibitive. During a Western Show panel on VOD, Charter Communications Inc. senior vice president of advance technology Tom Jokerst said the cost per stream has fallen to about $500 to $750. His MSO is rolling out VOD using Diva Systems Corp. technology.

Costs per stream are a key measure of VOD expenditures and include all the technology involved except the set-top. Estimates vary depending on certain components that get included, so it's wise to account for a range.

Charter's Atlanta area system is supporting 10 customers per stream, though Jokerst said the technology could support up to 15 per stream. With no marketing, Charter is receiving monthly incremental revenue of $6.60 per subscriber among VOD households, about twice that of NVOD households.

The capital expenditure recovery is expected to take a relatively short 40 months, he said.

NVOD lacks VOD's pizzazz, but for certain operators it can provide an economical alternative. By offering more movie titles at more start times, a system can boost buy-rates and keep pace with the expansive libraries offered by direct-broadcast satellite services.

SVOD could provide a means of leveraging cable's vast programming libraries.

A chief advocate, Starz Encore Group president of distribution Que Spaulding, noted that monthly subscriptions would provide a more predictable revenue stream than individual title purchases.

"You don't buy one Chiclet at a time," Spaulding explained.

Yet the technological demands and economics of providing multiple SVOD streams are uncertain. Providers need to determine how to price SVOD packages and whether those fees would exceed individual buys.

HBO, which has talked about an HBO on Demand service since the days of FSN, and Showtime Networks are exploring on-demand options. Basic networks have expressed interest in mining their libraries but have offered few specifics beyond Comedy Central and In Demand's slate of South Park

What's made available via an on-demand format also depends on the resolution of contractual matters between the involved parties.

During a PriceWaterhouseCoopers conference last fall, Turner Broadcasting System Inc. COO Steve Heyer said a CNN on Demand was realistic, but Turner needs to work within the context of its operator contracts.

Most Hollywood studios provide some movie rights for VOD within the PPV window, but it's still a watch-and-learn situation.

Holly Leff-Pressman, senior vice president of worldwide pay-per-view and video on demand at Universal Television & Networks Group, told the Western Show audience studios have three main issues: signal quality, windows, and copyright protection.

Looming over cable's VOD decisions is the potential effect of PVRs, digital downloading and video streaming. But I won't write about that until I've played with my new Christmas present, a TiVo Inc. PVR.

Operators will need to do serious number crunching to determine which on-demand strategies work best. There are many possible variations on the theme. So.

Happy On-Demand Year!

Craig Leddy has created Interactive
TV Works to help resolve digital dilemmas. Contact him at Leddy