Say bye-bye to your Blockbuster

Feb 17, 2003  •  Post A Comment

This is the year of video-on-demand. Cable TV operators from Comcast to Time Warner have rolled out the on-demand film service to nearly 10 million homes. Viewers can select a movie from more than 100 releases and watch it instantaneously. It’s like having a video store in your television-minus the rewind fees, out-of-stock films and traffic to and from the store.
Skeptics have long said the technology would never achieve critical mass due to the high cost of digital cable upgrades. But VOD is here and it’s expanding fast. The cable industry has made the service its No. 1 priority and it could reach up to 20 million homes by year-end.
“[VOD] is poised to completely change the face of television as we know it as more families demand to watch television on their schedule,” says Michael Doyle, president of Comcast’s Eastern division, which just launched its VOD service to 2.5 million homes in Pennsylvania, New Jersey and Delaware.
Cable officials are so giddy because they believe VOD could be the thing that finally buries satellite TV, which does not have the technical capacity to deliver on-demand services. DirecTV, the nation’s leading dish service, offers more than 50 pay-per-view channels every day. However, the films cannot be viewed instantaneously; start times run from every 30 minutes to up every two hours, less than ideal for today’s impatient consumer.
In addition, video-on-demand could slow the growth of digital video recorder companies such as TiVo. With VOD, viewers can pause, record, fast-forward and rewind films and TV shows just like a DVR. Cable’s digital recording feature does not include many of the popular features found on TiVo and ReplayTV, such as commercial skipping. (Many cable executives are sympathetic to Hollywood’s copyright concerns; Comcast CEO Brian Roberts has compared TiVo to Napster.) But for many consumers the bare essentials may be enough.
In addition, the growth of VOD will likely change the way premium movie channels do business. After all, how many movies can one viewer watch? Channels such as HBO will likely invest even more money in new, original programming to attract and keep viewers.
However, VOD’s biggest impact is likely to be on the neighborhood video store. In fact, I predict that the video retail business will be out of business within a decade.
Think about it. Would you invest in a start-up business that requires its customers to:
Drive to a store.
Search for a product that is often sold out.
Drive back to the store to return the product-if it was available in the first place.
Pay a surcharge if the product is returned even a day late.
Pay yet another surcharge if the product is not returned in the exact condition it was received. (Rewind fee.)
Well, you might say no, but the video rental industry now generates sales of more than $8 billion annually. Why? Americans have been conditioned to believe that renting videos makes their lives “more convenient.” What’s a little hassle when you can watch Vin Diesel or Jackie Chan kick some booty in the comfort of your living room? It seems like a fair trade-off, particularly for a movie fan who still remembers how exciting it was to get his first VCR.
But the video rental business is about to experience a whole new revolution. VOD will be in 20 million homes by next year, and cable operators (and satellite companies) will soon add high-speed Internet connections to our TV set-tops. With broadband, the TV viewer could download a film from thousands of selections.
Sony, which is a partner in Movielink, the online on-demand film service, could begin offering broadband VOD via its PlayStation 2 video game console this year.
With the explosion of on-demand services, it’s no surprise that research firm Alexander & Associates says video rental revenue will drop approximately 20 percent by year-end.
Of course, the video retail business is aware of the dangers that lie ahead. Blockbuster, the nation’s largest video retailer, has experimented with some video-on-demand partnerships, including one notorious failure with Enron. At this time, Blockbuster does not have a VOD play. But most industry analysts believe that Blockbuster will soon enter the on-demand business. With its brand name, Blockbuster would be an attractive partner for a cable operator. (In fact, Blockbuster now has a brand partnership with DirecTV’s pay-per-view business.)
However, if the video giant does not move forward, it might find its business suddenly on rewind.#
Phillip Swann is the president and publisher of TVPredictions.com. He can be reached at Swann@TVPredictions .com.