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Insight's Challenge: Market VOD 2.0

Call it VOD Version 2.0 — Insight Communications Co. spent the better part of 2002 rebuilding its video-on-demand technology and content platform, piece by piece.

The late 2001 demise of VOD content provider Diva Systems Corp. sent Insight's engineering, marketing and programming executives back to the drawing board with a pair of challenges: to create and deploy a new VOD content and technology strategy while maintaining service to existing users.

"It was a massive switch-over of technology and the user interface and content," said Insight senior vice president of marketing and programming Pam Euler-Halling. "All the elements had to get moved over.

"We started working with new suppliers. We had to run a tandem system until we made switchover to SeaChange [International Inc.] servers. We developed a new user interface. And, for the first time, we were coming up with own programming and content strategy."

To Insight executives, the conversion work for VOD was worth it, forming part of a strategy to blunt subscriber losses to direct-broadcast satellite providers.

"We love it," Halling said. "And we think it's a great business."

While chief technology officer Charles Dietz and company handled the technology questions (see page 6A), it was up to Halling's crew to both replace Diva's programming and deliver the new fare to the 10 markets where VOD had been rolled out. The result: A more mature line of on-demand products.

The resident hit movies and library titles are all there, along with adult product. And the children's VOD premium tier has been bolstered with programming from The Walt Disney Co., Turner Broadcasting System Inc. and Discovery Networks U.S.

Mag Rack — Rainbow Media Holdings Inc.'s assortment of specialty video services — is a brand-new addition. And Halling is eyeing premium VOD fare, as well as a sports and news package from the basic networks.

Taking charge

For the second time around, Insight will exert more oversight over the nuts and bolts of its VOD business.

"We wanted to manage the servers and decide what content was going on there," Halling said.

First on the agenda: content delivery. Insight chose TVN Entertainment Corp., and the satellite VOD provider began delivering content to the MSO last July, Halling said.

TVN had already inked transport deals with many large studios, the premium cable networks, scores of basic programmers and several independent content sources. The vendor also had affiliate deals with many of those providers.

On the content side, Insight played mix-and-match, said Halling.

In some cases, Insight took advantage of TVN's licensing deals. In other cases — particularly with cable networks — Insight licensed VOD content directly from programmers.

"It's been a combination of TVN and our contracts," Halling said.

Currently, Insight is carrying new movie releases from Sony Pictures, Universal Studios, New Line Cinema, and Metro-Goldwyn-Mayer Inc., all through TVN; and with Warner Bros., which inked a deal directly with Insight.

TVN is working on an agreement with Twentieth Century-Fox, said Halling, who hopes that will be signed shortly.

Like most major MSOs, Insight does not yet have access to new releases from Paramount Pictures or The Walt Disney Co.

"We want to have all the titles," Halling said.

Insight's VOD buy-rates improved in the second half of 2002, after the Diva conversion was completed. But they're still lower than their historical highs, when Disney was a product supplier, she noted.

Buy rates are up

"In December, we have doubled the buy rate from the lower point over the summer, but it's not back up where we want to be," Halling said. "When we first launched, usage was 30 percent to 35 percent. It dropped to 10 percent and now, we're in the 20 percent usage-rate range."

That means about two homes in 10 order a VOD program every month, Halling said.

Insight's servers store about 60 movies from the new-release category. Titles are priced at $3.99. There are another 65 or so library titles, giving the MSO 250 hours of movie movies on the server.

"We're trying to manage the library titles," she said, since, in general, "the buy-rates aren't that high."

The second major area in which Insight was required to replace Diva content was in the children's arena. The vendor had supplied a relatively popular package of kids' content.

"We have come up with same number of titles and hours as with Diva," Halling said — 80 programs that account for 50 hours of content.

The package is priced at $9.99 per month, but now includes content from ABC Cable Networks Group, Turner and Discovery.

TVN chips in with Sesame Street, plus some other children's fare. (No matter the program source, all of Insight's VOD content is uplinked via TVN's master control center in Burbank, Calif., and downloaded to TVN docking stations at Insight headends.)

"Intuitively, there is a real appeal for a children's SVOD package," Halling said. "We're going to try it again, but with much more compelling content."

No ads will appear in the children's SVOD content, she said.

Mag Rack is a new addition to the VOD lineup. It's offered as part of the $7.95-per-month Insight Digital Gateway service.

"We're getting a lot of qualitative feedback that it prevented subscribers from going to the satellite," Halling said.

Pasta and pilates

Insight is taking Mag Rack's 40-hour-per-month package, which includes about 100 segments within 24 "magazines," or programming clusters geared to specific interests. It's important to have a balanced amount of niche content, Halling noted.

"I don't think you need hundreds of hours to attract people to your digital product," she said.

Yoga and pasta-cooking techniques have been among the top Mag Rack performers on Insight systems, she said.

Insight is working on creating a sports-and-information SVOD tier, similar to the children's block, but at perhaps at a lower price point. The company is looking at fashioning a package of content from ESPN, Fox Sports Net, Speed Channel, ABC News, Cable News Network and Bloomberg Television.

With respect to packaged SVOD tiers, "nobody knows what to charge," Halling acknowledged. Too many $10 and $15 packages will frustrate consumers, she said, suggesting $5 a month may be a better target price.

In April, Insight intends to launch HBO On Demand, with the idea that SVOD packages from Showtime Networks Inc. and Starz Encore Group LLC will follow.

"We will charge for that, and we're looking at the models now," Halling said. "We're trying to determine how to create the best value for premium subs, keep it simple and make it easy for [customer-service representatives] to explain and sell in."

A key element in making SVOD successful will be the ability to order service on an impulse, she added.

Insight sells its adult fare in two packages of four- to five-hour blocks. A milder version of the content costs $9.99 per block, Halling said, while a less-edited version costs $11.99.

In the first quarter, Insight will begin to run cross-channel and print ads for VOD. Mag Rack also is sending out a mailer, Halling said.

Later in 2003, a separate campaign will launch to tout kids' programming.

"Our goal is to get the buy-rate back up to 150 percent," or an average of 1.5 titles per home per month, Halling said.