Time for video on demand

Mar 19, 2001  •  Post A Comment

Video on demand looks like a natural for cable TV, especially since by the end of 2000, out of 69.3 million households receiving cable, 9.7 million or about 14 percent, were receiving it digitally, according to the National Cable Television Association.
Researchers at the Yankee Group in Boston are convinced the business is moving quickly and predict that by 2003 there will be nearly 8 million people subscribing to video on demand, generating more than $1 billion for cable operators.
Adi Kishore, an analyst with Yankee Group, says the business has stumbled during the past three years, but in the past few months both the technology and the infrastructure have grown noticeably less expensive, and VOD is beginning to live up to its billing.
All this may put Diva Systems Corp. (DivaTV), which just signed an agreement with Insight Communications, in an enviable position. This appears to be the first multiple-system-operator-wide VOD agreement, and Insight is the eighth-largest cable operator in the United States. The agreement extends Diva’s VOD solution to Insight’s remaining systems in Indiana and Illinois and those in Kentucky. This combined with Diva’s additional MSO contracts, expands Diva’s VOD reach to more than 4.5 million basic-subscriber homes.
What makes Diva different from its largest competitors, nCube, SeaChange International and Concurrent Computer Corp., is it offers cable systems an end-to-end solution. That includes handling nearly every aspect of service, from technology at the headend server to network control, administration management software, content acquisition and marketing.
Pam Euler Halling, senior vice president of marketing and programming for Insight-which has been working with Diva since before its VOD system launch in 1999-says one big reason the company turned to Diva was the breadth of the service. “There were some integration issues, as there always are with launching new services, but it was so easy, and we know if we can do it, others can do it as well.”
VOD is offered as one of Insight’s $6.95 a month special-interest tiers-users can buy one or several tiers to get favorite programming, including access to Diva’s film library, children’s programming and specialty shows. Subscribers pay an average of $3 to view a movie. Diva also recently introduced an interactive program guide.
Ms. Halling believes introducing VOD has had a measurable impact on the system’s ability to ward off the competition from satellite and overbuilders. “Once we launch digital product, we can eliminate competitive disconnects, [and] we start to grow in nondigital areas. We attribute that to a very solid approach to pricing and packaging-customers feel they get good value for the money,” she said.
It’s not just the library of old and some new movies that pleases viewers, insisted Bev Doughty, vice president of marketing and programming for Diva. She says other specialty content has appeal with viewers. “While I believe in the short-term, new releases and the film library are drivers, I don’t necessarily believe that those will be the long-term drivers of on-demand service.”
Plus, the simple convenience is hard to beat, she said. Using a remote control, users have VCR-like control over their television sets when watching VOD programming. They can pause, fast-forward, rewind and stop a movie. Within a 24-hour period, they can watch a movie as often as they want and save it to a VCR tape (although with some loss of quality). It also eliminates trips to the video store and late fees. Diva’s technology can potentially provide virtually everything that a service such as TiVo provides without requiring the purchase of additional hardware, since Diva works with most existing digital set-top boxes.
So what’s keeping this technology from spreading everywhere? And will cable be the majority player as its popularity increases? Michael Salerno, an analyst with Adams Media Research, thinks the big issue holding back VOD is access to first-run movies. About half of the studios won’t make them available, and those that already do are talking about splits as high as 75 percent to 80 percent. “The cable companies can deploy VOD right now and sell the digital tier, but without feature films, it’s not going to fly,” Mr. Salerno said.
Studios are holding tight to their movies for a couple of reasons. First, they are heavily invested in the video store system, which is profitable for them. But the plum possibility that keeps them holding content close, Mr. Salerno contends, is the idea of providing their own movies over the Internet and cutting out the cable middleman.
As anyone who has ever tried to watch a movie on a computer knows, the technology for Internet delivery isn’t very good yet, but those issues undoubtedly will be resolved. And when they are, cable may or may not emerge the winner, Mr. Salerno said.
That raises another potentially troubling issue for Diva. Of the competitors providing similar technology, only Diva limits its infrastructure to cable. SeaChange, Concurrent and nCube are developing customers among an array of VOD innovators relying on all the delivery methods.
The segment of the market feeling the most threatened is the corner video store. It’s an $11 billion business, and Forrester Research expects it will lose 15 percent of its market to cable by 2005. Said Forrester analyst Jeremy Schwartz: “Once consumers try [VOD], they’ll never go back.”