Showtime's No Fan of Free SVOD Fare

Showtime Networks Inc. expects to deploy subscription video-on-demand in several markets over the next 90 days, but it's urging operators not to give the content away for free.

"This would be a mistake," Showtime executive vice president of marketing Mark Greenberg said at a Kagan Seminars Inc. conference. "We believe [operators] can charge for it. We believe that the bundled price is a simpler, cleaner proposition."

Showtime has conducted focus-group research on SVOD that's shown consumers are willing to pay, Greenberg said. "People think there's a value to it," he added.

Showtime has tested an SVOD product offered free to the premium net's Adelphia Communications Corp.'s subscribers in Cleveland. For its part, Cablevision Systems Corp. has trialed a package that offered free SVOD content to subscribers of all three major pay TV programmers — Showtime, Starz Encore Group LLC and Home Box Office.

Showtime also has tested SVOD in a number of other markets, including places where subscribers pay extra for the on-demand feature.

"We're still figuring all this out," Greenberg said. "This is a very powerful tool."

But it's too early to conclude that operators can't generate revenue from the on-demand feature, he said. Pay TV itself didn't take off until the early 1980s, years after the launch of HBO, he noted.

And once a product has been given away, it's difficult to ask consumers to buy it later, he said. For evidence, Greenberg pointed to the Internet, where content providers have found it tough to charge for anything.

"We're trying to prove to our clients that there is money to be made," he said. "It's easier to drop the price to free than to increase it."

There's also a need for consumer education, he said. "The challenge becomes, how do we educate people to use it?" he asked.

Consumers are afraid to use SVOD, fearful that they'll be charged each time they access a program — even in free SVOD tests, Greenberg said.

And he isn't convinced that free on-demand (FOD) service will help reduce digital churn, or convince analog subscribers to upgrade.

"We think it's a bit of a stretch to get any benefit of digital churn, or that you'll drive analog basic into the digital realm," Greenberg said.

"Two-thirds of digital churn is actually basic-cable churn, and at least half of that results from customer moves," he added. "Migration to direct-broadcast satellite accounts for, at best, 10 percent. Extrapolating from that, you find that roughly three-tenths of 1 percent of digital cable subs migrate to DBS."

In markets where the digital penetration rate has reached 10 percent, according to Greenberg, digital churn stands at 6.3 percent. But in systems where penetration stands at 35 percent, churn drops to just 4.3 percent, he said.

"We may simply be analyzing digital churn too early in the product life cycle," he said.

About 70 percent of Showtime subscribers are digital cable or DBS customers, said Greenberg. And most premium digital-cable subscribers take more than one pay TV service, such as an HBO/Showtime or Showtime/Starz combination.

Bundling SVOD into any one-, two- or three-pay-service package is the most sensible approach, Greenberg concluded.