Video-on-demand viewership skyrocketed 600% between September 2003 and December 2005, according to Nielsen Media Research. While the jump was partly because VOD was rolled out to more viewers during that period, Nielsen also attributed some of that growth to “increased and improved program offerings.” But on-demand usage is already leveling off. The reason could be variety, or the lack thereof.
According to a July 2006 Leichtman Research Group report, “On-Demand TV 2006: A Nationwide Study on VOD and DVRs,” less than half (45%) of respondents strongly agreed that VOD has a good variety of programs; 46% somewhat agreed and 9% disagreed.
“Everybody would always like more, and they want it for free,” said Bruce Leichtman, the firm’s president and principal analyst.
NEW ON MONDAY
Networks typically refresh about 25% of their content each week. That amount is determined partly by how much they’re willing to spend on repurposing content for VOD and partly by how much on-demand content cable networks can handle. “That’s not a perfect model, but it was a negotiation point with the MSOs,” said one network executive who requested anonymity.
“Consumers want to see fresh content up there as often as possible,” said Doug Hurst, senior vice president of affiliate marketing and VOD at Scripps Networks. “If we were able to produce more content more frequently, and if the operators could take it more frequently, then we probably would.”
Refresh strategies vary widely, but there are a few patterns, and they’ve conditioned viewers to expect certain things at certain times.
Home Box Office, for example, pushes the vast majority of its new on-demand content to head ends on Thursday for distribution the following Monday. “On occasion we’ll also send rush titles: things such as live events and boxing from over the weekend,” HBO executive vice president of program planning Dave Baldwin said.
Showtime uses the same approach for boxing. “I think that consumers now expect that content will be up the next day,” Laura Palmer, head of VOD marketing at Showtime Networks.
HBO has about 30 movies on VOD at any given time, and it refreshes 25% of them every four weeks. Specials such as stand-up comedy and documentaries are on the same schedule. The network uses a different strategy for series, where the refresh rate and selection depend partly on whether the series is currently running new episodes on linear.
“We’ll put up [past episodes] half a season at a time when we’re getting ready to bring a new season onto linear, primarily for catch-up purposes,” Baldwin said. New episodes appear on VOD the Monday after their linear premier. “We keep all of those episodes on for the duration of the series and an additional three or four weeks at the end to allow everybody to catch up.”
Showtime has a similar strategy, as do many non-premium outlets, such as Food Network and Home & Garden TV, which put new episodes of their highest-rated shows on VOD as soon as the Monday after their network debut. “We want to make sure that we deliver on consumers’ expectations that the day after [a new episode] premieres they can catch up,” Palmer said.
Even so, Showtime has been testing other options. This season, new episodes of Brotherhood debuted on VOD up to two-and-a-half weeks before their linear appearance. “We’ve done that with just about every series that we’ve rolled out this year,” Palmer said. “We’re evaluating strategies that look to put content up earlier than the linear premier.”
Some networks mine their libraries for programming that can be repackaged around a theme for use on VOD, even if it came from different shows. One example is Scripps Networks, which has a library of more than 21,000 hours across all of its properties.
“You might see Kitchens From Around the World — kitchen segments from different shows that have been compiled into a new asset,” Hurst said. “Compilations always do really well. I think that a lot of that has to do with consumers liking the editorial nature of having a very fine theme that they’re getting multiple options for.”
OLDER SHOW SUCCESS
Networks say that older shows often do surprisingly well on demand, even when they’re no longer on the linear network. “We’re seeing success with some of our older Cartoon Network series,” Turner Networks vice president of programming Marc Buhaj said. “Courage the Cowardly Dog is often among our top four or five shows. That’s telling us that people are discovering it, and that there’s still a huge following for it.”
HBO uses a similar strategy for popular shows such as Sex and the City and The Sopranos. Although they’ve been sold in syndication, HBO has retained the right to show them on VOD. “We want a sprinkling of these 'evergreens’ to always be there,” Baldwin said. “We know they have a big fan base. We’ll generally keep a handful of episodes across five or six series.”
Refresh rates sometimes vary based on the type of programming or the target demographic. “The kids products stay up a little longer because they can watch the same episode 127 times,” Baldwin said.
But that’s not the case with all young demographics. For example, Ripe TV caters to men ages 18-24 with a Maxim magazine-style video-on-demand lineup.
The network has found that based on data supplied by operators and services such as Rentrak Corp., each episode generally is viewed only once, even though none are more than 9 minutes long.
“Each show is different,” said Ryan Magnussen, CEO of Ripe, which launched one year ago and has no plans to add a linear service. “Some shows might get repeat views because that episode is really funny or it just grabs someone. So it’s based on the episode’s content.”
But it’s difficult to get information about how viewers are using video on demand — such as whether they fast forward — let alone who is watching, networks say. “We can tell how many streams or views we’re getting on the various platforms, but we don’t get the age or gender splits yet,” said Turner’s Buhaj. “That’s something I’m looking forward to over the next couple of years.”
So is Baldwin, whose company currently relies on Rentrak and operator data. “It’s probably the only thing we’ll have until Nielsen gets fully deployed with its measurement of on-demand television,” he said. “That shouldn’t be later than 2007 or early 2008. Then we’ll get much better information.”
For now, networks can supplement that information by soliciting feedback from viewers. Scripps, for instance, does outbound customer surveys each quarter to gauge attitudes toward VOD content.
OPERATING AT CAPACITY
For viewers who want more on-demand fare, the good news is that networks would be happy to oblige — except that they often can’t. That’s partly because most operators don’t have the server capacity necessary to support more than 150 hours. But that situation is likely to change.
“From what I read in the tech trades, server capacity and memory are getting cheaper and larger by the minute,” Baldwin said. “Maybe there will be some increases in capacity over the next few years.”
As MSOs and telco TV providers add capacity, networks could find themselves having to accommodate a variety of capabilities.
In April, Cablevision Systems Corp. expanded its Cinemax On Demand lineup to 150 hours, an increase of 300%. But not all operators have that capacity, forcing networks to decide whether they can make a business case for delivering more content to only some markets.
“We have a national product, and we’re not in the business of providing different versions for different companies,” Baldwin said. “The exception is Cablevision. We’re still out there pitching a 150-hour model to everybody. Sooner or later, there will be a paradigm shift where we can drop the 50-hour model and do only the 150-hour model.”
One wild card is telco TV. Telcos could opt to offer a wider variety of VOD as a market-differentiator against cable and satellite. But even if telcos have the capacity to support more than 150 hours per network, that doesn’t necessarily mean that programmers will rush to fill that time, especially if it’s significantly more than what MSOs support.
“We’re trying to keep our on-demand deals on the same model for efficiencies,” said Scripps’ Hurst.
In terms of being able to add more hours of VOD, another consideration is high-definition TV. As more consumers buy HDTV sets, networks will have to increase their HD content, including on VOD. But they’re likely to run into an MSO bottleneck that could force them to reduce their total number of on-demand hours.
“HD on demand obviously will require some server capacity,” said Showtime’s Palmer. “We don’t expect that an HD version of Showtime On Demand would be 150 hours. Our expectation is more in the 30- to 50-hour range.”
And then there’s the basic question of what is the right VOD business model.
“We’re still trying to monetize this business,” said Hurst. “Increasing our refresh rate means dramatically increasing our costs. There’s a little bit of a chicken-and-egg thing going on there. If we refreshed 50% every week, and I’m doubling my expenses, I guarantee that I’m not going to be able to double my revenues. So at this stage, I’m probably not going to push to refresh.”
To make a business case for refreshing more often or offering more content, a network could look to advertising to recoup the additional costs. The catch is that although some operators are testing dynamic ad insertion, its roll-out depends largely on how much cable operators are willing to spend on the equipment.
“Dynamic [ad] insertion probably is the biggest key to monetizing this part of the business,” Hurst said. “Until that’s up and running, you’re limited on how much you can monetize this with an advertising model.”
Many networks now offer streaming programming on their Web sites. If operators can’t handle additional on-demand programming, why not put the overflow on those Web sites? Those outlets also offer immediate advertising opportunities, such as banner ads, to help defray the cost of more programming.
“Broadband is another way that we’ll be able to reach our viewers,” said Turner’s Buhaj. “We’ll be having world premiers on VOD, on broadband and on wireless over the next few months. We’ll look at how viewers react to that.”
Other networks argue that just adding more content isn’t necessarily the answer to meeting consumer demands, even if viewers say that’s what they want.
“We know that there are a lot of tweaks yet on the content mix that probably are more important than the refresh rate,” Hurst said. “It’s not as if viewers are consuming everything we put up there in the first 24 hours and then sitting for the next four weeks.”
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