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Operators Eyeing Range of Video-on-Demand Models

Jun 23, 2003  •  Post A Comment

Cable operators, networks and program suppliers are likely to hammer out a standard model for video-on-demand services within a year as the players grow anxious to monetize the technology.
Among the issues currently being debated is whether free or subscription-based services should drive VOD awareness, according to executives.
Also under consideration is the organization of how content is presented to consumers. In some cases, product is offered by brand, while in others it’s offered by genre. In other words, a standard has not yet been set for whether viewers will select Disney Channel programs from a screen that groups all of The Walt Disney Co.’s offerings or from a kids page.
Comcast is a proponent of the free-VOD model, while Time Warner believes the subscription, or SVOD, model will drive the business. SVOD generally means a package of content from a premium provider is offered for a monthly fee.
If Comcast has its way the overall model may be based on the multiple system operator’s great Philadelphia experiment. In fact, Comcast CEO and President Brian Roberts used his forum at last month’s general session of the National Cable & Telecommunications Association’s National Show to tout buy rates for its Philadelphia system, which is the company’s VOD proving ground and the model for all subsequent rollouts for Comcast. In that market, 65 percent of customers who have digital cable have used the on-demand service in the past four months. Half use it “all the time” for about 15 shows a month, he said.
Comcast said it will roll out VOD to an additional 2 million customers in New England by the end of the year. “I think we will drive pretty hard to make this work for us,” said Mark Coblitz, Comcast’s senior VP of strategic planning. “If it works for us, then we’ll see what the industry does.”
Comcast believes the vast amount of free content it offers in Philadelphia and other markets will serve as the entry point for VOD. That in turn will build awareness and drive consumers to the transactional on-demand content. The on-demand package includes more than 600 programs available free-of-charge from basic cable networks and Philadelphia-centric content from Food Network and HGTV, along with local news, sports and more than 140 hit movies. There is also subscription VOD content from Showtime and The Movie Channel offered at no additional charge. In some areas of Philadelphia take rates are as high as 60 percent with the average market usage at about 50 percent.
Time Warner, on the other hand, views subscription video-on-demand packages as the launching pad for interest in the on-demand category. The operator charges $6.95 for all premium on-demand services, so that customers pay one fee to receive HBO, Showtime, The Movie Channel and Cinemax on demand if they subscribe to those premium channels. Time Warner Cable counts 500,000 SVOD customers. “SVOD allows customers to become familiar with the on-demand experience with less risk,” said Kevin Leddy, senior VP of strategy and development for Time Warner Cable. “After you try it, you tend to depend on it.”
Mr. Leddy added that when the network is more stable, he would like to offer free SVOD weekends in much the same fashion that cable operators have traditionally done with premium networks. “I think we need to give on-demand services for free,” he said.
Though Time Warner’s model is different from Comcast’s, Mr. Leddy said if the localized model works, Time Warner will follow suit.
Cablevision offers an a la carte model in which consumers pay $4.95 for each premium on-demand package, but most operators and analysts don’t expect that pricing structure to win in the long term.
Another business model issue that will play out over the coming year is whether on-demand content should be brand-centric or genre-specific, said Dallas Clement, senior VP of strategy and development for Cox Communications, which plans to tests a variety of content and pricing models.