Following the successful launch of high-speed data service in numerous markets worldwide, broadband network operators are moving forward with further revenue-boosting services. Chief among these is video-on-demand (VOD).
With VOD servers such as these from SeaChange International, broadcasters can provide more choices for their viewers as well as boost their revenue.
VOD provides an interactive gateway to vast video content libraries, allowing viewers to control and personalize what they watch. It also enables content providers — namely broadcasters, television networks and studios — to extend their assets and brand. Delivered at the click of a remote, and at a reasonable cost, VOD promises to transform television from purely scheduled broadcast programming with an array of on-demand options.
To secure this value proposition, all the top U.S. cable operators have launched successful VOD services or trials, and most are in the process of full-scale roll-outs in metropolitan markets, many planned for thousands of hours in on-demand content libraries. Much of the content comes from television networks eager to capture viewers in this burgeoning medium. About 15 million cable subscribers in the U.S. can select VOD today; that’s one-fifth of all cable subscribers there. To date, all signs from these launches indicate these providers will more than meet the revenue goals forecasted by business models.
In short, VOD is working. Consumers want it, and the services are generating revenues, and loyalty, beyond costs. Further, regional and national broadcasters are testing the waters for their previously aired programming.
Supporting standards and content opportunities
With hard numbers already demonstrated in the USA, and the cost-per-stream continuing to drop below E400 because of advances in transport, software, edge device and server technologies, analysts forecast the next wave of VOD growth will occur in Asia and Europe. However, there are significant hurdles to widespread VOD in these markets, hurdles that conditions in the USA mitigated. U.S. providers, for example, have traditionally only dealt with two set-top box (STB) manufacturers, two programming guides, three major VOD vendors and a limited number of middleware vendors. Also significant is the fact that standards dealing with almost every aspect of VOD are in place in the USA, as opposed to a conflicting array of choices (or the non-existence of agreed-upon standards) in Europe and Asia.
By far the most pressing concern for content providers, however, is the absence of content aggregators and digital rights management (DRM) controls in emerging VOD markets. Top studios are especially reluctant to release first-run films, the kind of content for which viewers are willing to pay a premium, for VOD distribution. Another inhibiting factor is the local nature of many European and Asian markets, which need to offer language- and culture-specific content to make a compelling value proposition to customers. Further, content aggregation in the USA has matured and still needs to be defined in Asian and European markets.
But the positive side for these emerging markets is that, in many cases, they can learn from mistakes others have made. In building scalable, robust and reliable on-demand networks, they can select VOD technology vendors that have proven track records of success in integrating all the diverse elements. Finally, they can take advantage of price drops that continue to lower cost-per-stream.
VOD’s launch requirements
The challenge in launching a full VOD service begins with preparing the network by integrating the appropriate technology, from servers to transport to edge devices to STBs in the customer’s home, and the software to automate, monitor and provision. (See Figure 1.) Unfortunately, as many VOD providers have discovered, network operators do not have the manpower or expertise to be good systems integrators.
Figure 1. Launching a full VOD service begins with preparing the network by integrating the appropriate technology, from servers to transport to edge devices to STBs in the customer’s home, and the software to automate, monitor and provision. Click here to see an enlarged diagram.
That makes vendor selection more important than with any previous voice, video or data offering. Lacking the huge, centralized testing labs enjoyed by U.S. cable operators, European and Asian VOD providers face challenges in ensuring their components will work together. In addition, a large-scale VOD launch places a huge strain on networks to maintain rigid quality of service (QoS) standards necessary to ensure a viewing experience subscribers will value. Service plays a critical role. While some vendors in the VOD delivery chain offer round-the-clock support, others have limited capabilities or charge extra. Vendors experienced with integration can support an end-to-end VOD solution, rather than one isolated component that then has to be integrated by a system operator.
Scalability goes hand-in-hand with service and network integrity, and it breaks down into two problem areas: content propagation, or the collection, storage, and dissemination of video from various sources to various points along the network; and software that can manage schedules, collect metadata (such as program synopses and movie posters) and automate billing. Ramping up for a full-scale VOD launch, and planning for future technologies or service enhancements, requires solutions that address these issues.
The financial turbulence of prior years has led to many costly VOD mistakes. Vendors can go out of business or get acquired, which in turn can change their priorities in product offerings and support. Operators must frequently re-integrate technology as a result, which with a large-scale deployment bears steep costs. Therefore, careful selection of experienced and integration-savvy vendors is critical.
The picture in Asia and Europe
European VOD efforts, focused primarily in the telco space, have been hampered by numerous handicaps, beginning with the fallout from the telecommunications meltdown.
Large-scale deployments have been held up by the slow pace of standards agreements, problems integrating technology from dozens of STBs, middleware and other vendors, and the difficulty of developing country-specific interfaces and programming guides, as well as acquiring country- or language-specific content.
The most high-profile standards effort, the Multimedia Home Platform (MHP) interactive TV standard, is a well-intentioned attempt to make the STB “agnostic,” or free from proprietary software. But the MHP drive has been stalled by high application development costs and middleware vendors charging extra for MHP extensions — increasing overall cost-per-stream.
Shown here is the SeaChange VOD link overlay for the Discovery Channel.
Nevertheless, VOD launches are going forward. The return on investment is extremely lucrative, with capital payback numbers in the 6-month range, depending on services offered. Standards, content, integration and support needs can all be overcome, and the industry is well on its way to doing that.
VOD trials have been running in several Asian markets for about five years, but to date there have been no large-scale deployments. While high-speed data has seen spectacular success, particularly in markets such as South Korea, broadband network operators have been reluctant to take the plunge into VOD for several reasons.
First, limited bandwidth of many of these networks made it hard to achieve speeds of more than 4Mb/s, which raised QOS issues as video streams were plagued with jitter and video artifacts. Also, component costs were prohibitive. Cost-per-stream ran to E500 or more, and STBs cost E500 apiece. With revenue prospects limited, operators could only manage small trials.
Finally, and of special significance for Asia, where video pirating runs rampant, good content was scarce. Operators failed to cut any significant content deals for top theatrical product. That left for VOD only secondary products, including much that was loosely termed “educational” and held little allure for viewers.
But the stars are aligning quickly for Asia. In the last couple of years, operators have upgraded networks and integrated new video compression technology, delivering higher quality video using less bandwidth. STB and video server costs have plunged, to under $200 for the boxes and less than $150 per low bit-rate stream. Adding the final piece to the puzzle, content providers are beginning to open their vaults, as DRM solutions find their way into network operations.
Gear-up for a new era in television
Difficult economic times force tough choices on broadband network operators. Skittish financial markets over the past three years have placed a stranglehold on capital. It’s easy to see why new services, network upgrades and other investments have been put on hold. In part, the USA is ahead in the VOD game because cable operators there upgraded their plant before the big chill.
But the harsh climate has also weeded out weaker technologies and vendors, reinforced the need for strong partnerships and put the focus where it should be — on demonstrating proven revenues.
While VOD already has success on the revenue front in the USA, its true promise lies in its ability to change behavior. Through using VOD, viewers grow accustomed to receiving on-demand content, navigating interactive programming guides and customizing their viewing, particularly with the use of accompanying digital video recorders (DVRs).
Ultimately, VOD plays the key role in giving customers control over their viewing and bringing them into the new era of television interactivity. Viewers want to be free of schedules and limited choice. They like selection and convenience, and experience shows that operators, broadcasters and other content producers, and advertisers have a tremendous opportunity to usher in a new era in television.
Yvette Kanouff is corporate vice president of strategic planning for SeaChange International.
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