recently featured the headline, "What will it take to move VOD forward?"
My answer is that video-on-demand must play a differentiated role in the existing television landscape, promoting its own intrinsic value for consumers. A good place to start is to establish what I refer to as "basic VOD," a package of unique on-demand programming, from both existing and new brands, made available to digital cable customers at a nominal cost.
Over the next three years, Jupiter Research projects that VOD will be available in over 33 million households. But how much is it being used today? To better understand the current levels of awareness and satisfaction among on-demand customers, Frank N. Magid Associates conducted a phone survey among 1,300 digital cable subscribers.
The study revealed that 95% of the respondents are fully aware they have access to on-demand service. Of those who have used it, 84% are satisfied with its ease of use and 76% are satisfied with the performance of their equipment. However, only 50% of digital customers have actually purchased an on-demand title.
Why this modest buy-rate on what many have touted as the "killer app?" We certainly need to recognize that VOD is still a brand new concept to many consumers, and there is much marketing to be done to increase awareness of its benefits. But we should also look at what's happening concurrently in the home-video marketplace.
Over the past seven years, DVDs have given new life to home video and are now available in more than 43 million households. The growth of DVDs is not only evident at the local video store. Online rentals are have also experienced explosive growth, with some sites touting more than 1 million subscribers, who pay $20 per month to rent DVDs through the mail.
So what makes people buy DVDs and replace their videos and VCRs? Consumers have embraced the added value of DVDs. They enjoy the higher quality picture and sound, but they also put a value on the dynamic user interfaces and the exclusive bundled content, such as actor interviews, alternative endings, behind-the-scenes footage and more. For VOD to compete in this changing landscape, it will need to offer savvy viewers more than just the convenience of on-demand.
Also worth noting is the increasing impact digital video recorders will have in the marketplace over time. The ability to personalize and time-shift linear content is a compelling proposition and, once over the hurdle of equipment costs, viewers are essentially left with what is perceived as a free on-demand experience — and one that is personalized.
Jupiter projects DVRs will grow to be in about one in every three homes over the next three years. As prices come down and storage capacity increases, the definition of "on demand" will continue to be blurred, by both satellite and cable operators who deploy DVRs to their existing subscriber base.
So, as DVDs and DVRs continue to proliferate in the marketplace, where does that leave VOD? The answer may be in the content. Cable companies have invested more than $70 billion rebuilding their infrastructure, in part to support on-demand functionality. VOD should not be perceived as a high-end storage device, but a venue for new content and new brands.
In some respects, the VOD opportunity is no different than the Internet of 10 years ago. While some companies chose to repurpose their content on the Internet, it was ultimately companies such as eBay, Amazon.com and Yahoo! that embraced the technology and created entirely new services, emerging as brands synonymous with online services.
Similarly, diginets seeking linear distribution today should embrace the new technology and instead focus on packaging their products for VOD. That's what digital customers want — not more channels, but more and better choices for on demand.
Basic-on-demand, as the potential birthplace of unique new television experiences, is a promising business model to help differentiate and brand VOD. The real objective here is not necessarily to generate incremental revenue today, but to create a deeper, more compelling and actively programmed content package. This will showcase the true value of on-demand and drive digital growth.
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