With the maturation of video-on-demand technology, many basic cable networks are no longer content to view their on-demand offerings simply as a means to market or brand their network. They want to get paid.
“We are looking for a model that works for us. We don’t see [VOD] as just a promotional tool,” said Matt Murphy, VP, broadband and interactive sales, at ESPN.
At the crux of the quest to achieve a viable financial model is perhaps the most critical issue facing the on-demand business today-accurate measurement of on-demand usage. For basic networks to monetize their programming investments in the on-demand space, they need to know who’s watching what and for how long. That is the only way advertisers are going to invest ad dollars in the medium.
To date, neither advertisers, programmers nor operators have arrived at a consensus on a financial model for VOD. Comcast is a vocal proponent of building the business on a hefty base of free content to lure consumers into the platform, while Time Warner and Cablevision prefer VOD models that rely more on subscription content.
Programmers, likewise, vary in their financial approaches to VOD. Scripps contends ad-supported VOD is the best option; Turner and Fox expect a mix of subscription and ad-supported VOD will work; while ESPN is hoping operators are willing to foot the bill for its content and then offer it to viewers for free. They all agree, though, that a measurement system is needed to move the business forward.
Several options exist. Nielsen is exploring delivering ratings for VOD content, while companies such as Everstream and Rentrak have tests and deployments under way with operators to provide more detailed measurement of on-demand usage. Server makers Kasenna and SeaChange are among those that offer usage data to the cable systems they serve.
Within a year or two, usable VOD measurement will be up and running, said Tim Hanlon, senior VP, emerging contacts, at Starcom MediaVest in Chicago. “Advertisers are demanding accountability and aren’t going to spend on things that won’t get accounted for anymore,” he said.
Programmers are eager for information too. “We kind of have our hands shackled until we have such information,” said Channing Dawson, senior VP, emerging media, Scripps Networks.
Mr. Dawson is well known in the industry as a champion of VOD, and Scripps has been an early leader in the free on-demand category. Scripps reaches about 80 to 100 markets with its VOD content across Comcast, Time Warner, Insight and other operators.
VOD as a category reached only a little more than 12 million cable homes by the end of 2003. That number should rise to nearly 18 million by the end of this year, according to the latest research from Leichtman Research Group. While the growth rate is impressive, the vast majority of homes still don’t have VOD programming options.
That makes it impractical for HGTV, for instance, to run a promotion on its linear network encouraging viewers to watch its on-demand content, Mr. Dawson said. “We have cut back on our specific [VOD] marketing budgets until we can get the kind of data we need to justify an advertising business,” he said. “Until that comes and the industry decides what data is appropriate to give to the programmers so we can turn around and articulate that to the advertisers, advertisers will be somewhat loath to move over.”
First Things First
Installing the equipment and software and building the “large-scale data warehouses” needed to gather VOD usage data takes time, said Raj Amin, VP, business development, with N2 Broadband, which provides infrastructure software and services for VOD. “I think the frustration you are seeing from the content industry is driven by the fact that cable operators have had to build this infrastructure before providing content providers with the information they want,” he said.
Cable operators recognize that a valid measurement system is in everyone’s best interest, said Clint Stinchcomb, senior VP, Discovery HD Theater and VOD. “Our distribution partners tell us that VOD will be metered as soon as 12 months from now,” he said.
Time Warner and Comcast have begun to deliver the first level of basic VOD usage data needed to move forward with an ad-supported model, Mr. Dawson said. But programmers and advertisers need more information, such as how fast-forward, rewind and pause functions are being used, in order to know whether the ads were watched, he said.
More specific measurement would include number of views per program, length of viewing and “trick play data,” which includes the fast-forward and rewind information, said Ken Ripley, VP, new business development, and national sales manager for Discovery emerging networks. “Those are reasonable things for advertisers to expect,” he said.
Comcast is slated to begin a trial with Rentrak to test its VOD Essentials software, which delivers an in-depth analysis of VOD viewership. That should help operators and programmers better understand who’s watching what.
Comcast recently said that in its flagship Philadelphia system, 70 percent of digital cable customers had accessed on-demand programming in the previous 90 days before the end of the second quarter. The system logged 7.9 million orders in March-more than 15 orders per VOD user per month. HBO On Demand accounted for at least half of all VOD usage when it launched on Comcast last fall. HBO is still the leading category, but its share has now settled at under 50 percent, Comcast said.
In addition, overall VOD use doubled when HBO was added, which speaks to the impact of SVOD on the entire on-demand category. In fact, Comcast has seen an overall increase in VOD usage each time an SVOD service has been added to the on-demand offering.
Need for Measurement
Starcom’s Mr. Hanlon said he’s a proponent of a new measurement system for VOD usage, such as Rentrak, or other new entrants such as Predictive Media, rather than Nielsen.
“It’s going to be impossible for us to value what advertising might look like in an on-demand environment if we don’t have better forms of measurements than a Nielsen sampling system for VOD,” he said. “The expectation is that there has to be a greater level of precision in monitoring television consumption habits moving forward.” That includes information such as total VOD universe and verification of ad delivery.
A Rentrak or an Everstream is well positioned to provide tremendous amounts of data about the types of on-demand content that resonate with consumers, said David Cohen, senior VP, interactive media director, at Universal McCann. With that data, advertisers will have a better understanding of where to place ads in on-demand programming and will be better able to discern whether they should develop their own branded VOD channels. Such channels might include advertorial, behind-the-scenes or “the making of”-type content.
While Nielsen is certainly the currency for TV viewing, Mr. Cohen said he believes advertisers are willing to accept data from other sources, provided the data meets the rigors and standards of research. Such data is also needed to make networks “whole” again. For instance, if a cable show loses 40 percent of its linear viewership but makes that up in the VOD space, advertisers would be willing to pay for the split audience, much as if it were wholly delivered on one platform, he said.
He added that he expects ad-supported VOD content will be a part of next year’s upfront.
While an ad-supported VOD model could work, ESPN’s Mr. Murphy also believes programmers could end up being compensated for their VOD content from operators. “I don’t think it’s much different than the exchange of value we enjoy in our basic linear environment,” Mr. Murphy said. “We provide them with very valuable content. It’s well branded and we put a lot of marketing behind it.”
ESPN on-demand has been launched by Cablevision, RCN and Blue Ridge, but not yet by industry leaders Time Warner and Comcast.
Fox Cable Networks has learned that consumers are willing to foot the bill for some VOD content from basic networks. In
2003 Fox delivered an on-demand package of content, including top series “24” on Fox and “The Shield” on FX, in a subscription package for $19.95 total or $1.95 per view, said Lindsay Gardner, executive VP, affiliate sales and marketing, Fox Cable Networks. The economic model for a basic programmer will come in different forms-sometimes in brand value, sometimes in cash, he said.
High-definition content delivered on-demand also has been cited as another way to monetize VOD. Both Turner and NBC Universal are exploring the possibility of delivering HD content on-demand, while ESPN currently offers some.
Movies in HD will be available on-demand by the end of the year, said Sergei Kuharsky, senior VP, marketing, at VOD programmer iN Demand. In addition, Comcast is conducting limited tests in Virginia of HD over VOD.
This fall Turner Classic Movies is launching its VOD service, which will be priced a la carte for the movies. TCM movies in HD are an example of content that could command a higher price, said Kevin Cohen, senior VP and general manager, interactive and enhanced TV, Turner Networks. The TCM on-demand offering will include special intros from host Robert Osborne, movie trailers and short cartoons.
Mr. Cohen said such additional content, as well as material such as directors’ cuts, can help support a transactional model for basic network content on-demand.
Turner has not yet rolled out on-demand content for TNT and TBS. But operators are going to tread carefully before they charge a subscription for basic-cable content, said Judy Meyka, senior VP, programming, at Adelphia, which is just starting to enter the VOD space with its Los Angeles VOD deployment.
“We also don’t want to constantly turn to subs for more and more,” she said.