Obstacles Linger as Key Rival Digs In

Feb 3, 2008  •  Post A Comment

About 34 million digital cable homes have access to video-on-demand. That’s a lot of homes, but advertisers and programmers remain frustrated with the limitations of the service. The same problems hang over the business—poor search, a cumbersome user interface, the need for better metrics and the biggest one of all, the lack of dynamic advertising insertion.
Cable operators launched VOD in earnest more than five years ago. While the service has worked tremendously well as a retention tool and a competitive differentiator against satellite companies, it has yet to fulfill its promise as a next-generation advertising medium.
Now, VOD faces challenges from broadband. Both cable and broadcast networks have invested more energy and resources in broadband delivery of TV shows in the past two years than they have in VOD. What’s more, consumers are quickly becoming conditioned to watching television shows on the computer or an iPod rather than on VOD.
However, VOD is still a better viewing experience. At the end of the day, watching on a big screen trumps watching on a smaller one.
VOD expert Paul Rule talked with TelevisionWeek contributing writer Daisy Whitney about what the VOD business needs in 2008. Mr. Rule is president of Marquest Media & Entertainment Research and he focuses on the VOD business.
TelevisionWeek: Let’s talk about the elephant in the room. It seems as though broadband is kicking VOD’s butt.
Paul Rule: That may be an illusion because broadband is limited in two ways. There is a smaller pool of people who are willing to get TV via broadband, given the technical aspect of finding what’s out there and watching it on a computer screen. And it’s not the kick-back potential of watching on your couch. Also, broadband is getting dangerously close to a capacity problem. To relay all that network-intensive traffic without clogging up into a traffic jam is tough, and ISPs are talking about putting their users on a meter.
TVWeek: How closely can we compare the two?
Mr. Rule: One thing we have seen with VOD is it is tending to a very broad swath of viewers in terms of age and demographics. The growth occurring in the number of people watching VOD has occurred across all age groups, though that doesn’t mean it’s the same in all groups. People 18 to 34 use VOD twice as much as people over 55. But all of those groups are growing. With online, there is very little use of it for TV viewing when you get past 35 years old.
TVWeek: What does that tell you?
Mr. Rule: VOD is still a better opportunity to get the typical television viewer.
TVWeek: What do operators and programmers need to do to bring more people to VOD?
Mr. Rule: Promote, promote, promote. They have to do a better job letting viewers know that what they like to watch can be found whenever they want to see it on-demand. The only network really doing that is HBO. I would like to see other networks do it.
TVWeek: What do you think of Apple TV and iTunes movie rentals?
Mr. Rule: It does compete directly with cable, but they will have a long time before people are aware of it. Apple is way behind cable operators.
TVWeek: Why is it when I go through VOD on a Friday night I feel there is nothing to watch?
Mr. Rule: You could go through all your linear listings and probably not find anything to watch either. But at least on VOD, you have a lot more to reject than you did a few years ago.
TVWeek: How is VOD doing with the ad models?
Mr. Rule: You put the ad on there and you hope people don’t fast-forward, and you try to limit to 15 seconds. I haven’t seen anyone come up with something too creative.
TVWeek: What progress do you see in VOD on the ad front this year?
Mr. Rule: None. I don’t see cable operators have managed to find an approach to advertising insertion in VOD that is solving the problem.
TVWeek: What will happen in 2008 with VOD?
Mr. Rule: You will see increasing viewer interest and viewer usage of VOD and rather glacial progress in the area of making it a commercially viable ad vehicle. In four or five years, more and more people in the ad industry will realize they are missing out on an important opportunity. There are eyeballs watching VOD instead of something on linear. When more people realize this on the content and distribution side, you will see more effort and money going in to how to capture the eyeballs.
TVWeek: How would you describe the state of VOD right now?
Mr. Rule: Comparing it to a journey through high school, VOD by now is a sophomore. It is off the ground and has reached the critical point where it’s in enough households to use on a fairly regular basis. As recently as three to four years ago, digital cable was not in as many households, and a lot of cable systems, even if they had digital, they weren’t really offering VOD yet. That has changed considerably. More people now have digital and the great majority of cable systems that have digital have VOD.
TVWeek: Where will VOD cap out?
Mr. Rule: Virtually all cable subs will be converted to digital over the next four to five years and everyone in effect will have VOD in four to five years.
TVWeek: What does that mean for the business of VOD?
Mr. Rule: It means it is available and it is up to the system operator to make sure they are offering a robust selection of VOD material, and then it’s up to the programmers, networks and other suppliers to make sure there are plenty of programs available. Compared to two years ago within each network’s offering, there is a far greater selection than a couple of years ago.
TVWeek: Is that enough?
Mr. Rule: It’s not enough that in the sense that I as a user would like to have the luxury of anything I see running on HBO I want to call up on HBO On Demand. I would like to see the whole catalog rather than the few episodes in a series. I’d also like to see library content, sports training, do-it-yourself, cooking. While there is some of that, it doesn’t offer enough of the sort of library you might like to see. If you want to do wood finishing or antique finishing you might want to see different things you can do, but there’s not a lot of that material.
TVWeek: Will VOD be everything on-demand?
Mr. Rule: We are dealing now with technical issues, how you distribute, how to store it, and a lot of what we are dealing with may be simply storage capacity.
TVWeek: Are broadcasters moving fast enough to get broadcast fare on VOD?
Mr. Rule: It doesn’t really seem like it’s happening at all. I can’t see where broadcast networks have made any significant movement toward VOD in the past few years.
TVWeek: Why aren’t they?
Mr. Rule: They believe they can accomplish all they want through broadband.


  1. “VOD expert Paul Rule”….
    Where is the “credibility” references, so that we know Mr. Rule is qualified and a real person? Usually, this comes in the form of “employee of”, “director of”, “professor of”, etc.
    I know there are advantages with VOD/Tivo/HD Recorder, over the internet based viewing. One being the saveability of shows… for good or bad intent. Personal viewing is one good intent. Distribution over the internet or LIMEWIRE, torrents, etc., is a bad one.
    The bad part of VOD v Broadband, VOD can make for advertising dollars, but those dollars are illusional, since spots and clusters can be skipped. Therefore, the audience is not reached by the advertiser. This differs from the site showing spots in places clusters would occur, to make the viewer continue to the next portion of the show.
    I clearly see that there is a threat. My local cable provider (Buckeye CableSystem) is hounding its customers to buy VOD, making note that all but 2 news stations hold their newscasts on it. You see the promos in most of the local breaks, hear the message on hold, etc. However, as an educated consumer, I’m calling this effort by the cable company “additive, not source alpha”. It’s too much effort, not really reaching out. I don’t know of a single person who uses it. It appears that VCR and Recordable DVD seem to be better, since they are free of all overhead costs, from the cable company or technology company.
    Forther more, Some stations are not on VOD, if they are not on cable TV. Take WPXD-TV, Ann Arbor, MI (ion network). I cannot be on cable and record ION Health. “Buckeye” refuses to put that on cable. Therefore, That is not potential content on VOD, as you can search out on the internet to find in a podcast or streamed episode.

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