Will VOD Drive Digital?
Judging by the widespread excitement generated at the National Cable and Telecommunications Association (NCTA)'s annual confab in New Orleans, video-on-demand (VOD) is the one "real" interactive application MSOs are counting on to combat the direct broadcast satellite (DBS) industry and make digital television profitable. At least that's what's they're hoping.
In numerous markets across the country, the addition of VOD to the digital tier is already proving its value in reducing digital churn (customers turning off service) among subscribers, according to the NCTA. Once it catches on with the public, the cable industry expects VOD to bring in a significant portion of the approximately $8 billion that the home video rental market reported last year.
VOD's main attraction is convenience. Unlike existing pay-per-view (PPV) and near video-on-demand (NVOD) services that require the user to watch a movie title at times determined by the cable operator, VOD empowers the consumer to watch it anytime, and as many times, as he wants within a set window of access; usually 24 hours. This on-demand service also allows the user to pause, stop, and start the title at will.
The big question is whether consumers will use the service once it's available. Although industry-wide usage numbers from initial test markets thus far have not been made public, some individual MSOs have reported that the average household buys from two to 10 titles per month. And that's with the current generation of Motorola and Scientific-Atlanta (SA) set-top boxes (STBs). Next-generation STBs will include faster processors that will make the VOD experience that much more pleasant.
Looking around the NCTA convention floor (among both technology manufacturers and programmers) everyone appeared optimistic that VOD would succeed long-term; even if that optimism has been scaled back from earlier predictions.
"Many of the analysts made overly optimistic projections that just were not realistic," said a representative at New York-based MSO Cablevision. "We are totally committed to this technology and its potential, lucrative revenue streams."
While VOD and subscription-VOD (SVOD, where a consumer pays a monthly fee for unlimited access to content) has been experimented with for at least eight years, the lack of capital investment in new fiber optic and video server infrastructures has delayed wide-scale deployment. In addition, various syndication agreements continue to hamper VOD's universal acceptance, as most of the popular shows are tied up in existing off-network TV deals that don't expire for several years and thus are not available. Content owners are said to be waiting until VOD usage increases before committing to any new partnerships.
Cablevision has roughly 17,500 digital subs using its VOD service since its introduction late last year. Using SeaChange International video servers, the company's DTV strategy is to provide three types of VOD offerings: full-length movies, SVOD (for access to specific episodes of popular TV shows from HBO, Showtime, and Starz Encore), and Mag Rack, a new digital service that features a number of special interest video "magazines." In parts of their systems, Cablevision digital tier subscribers now have access to over 600 movie titles (40-60 are recent releases).
Most agree that the key is to be creative in your offerings so that you appeal to the widest audience. At Cablevision, recently-released movies are available for $3.95 (for 24 hours). The company is also offering hybrid HTML/VOD interactivity for some of its cable news programming, so that a consumer can pick and choose the stories he wants to see, in the order he requests; and multiple, viewer-selected camera angles are available during many major on-demand sports events.
Similar strategies are being played out across the country by AOL Time Warner Cable, AT&T Broadband, Charter Communications, Comcast, Cox Communications, and Insight Communications, to name a few.
Server Success Stories
Along with interactive software to interface with the customer, video servers are used to deliver an individual title to a specific home when requested. Because of this, the three major server vendors that target this market ---SeaChange International, Concurrent Computer Corporation, and nCubeÑall report that, even in the current tough economic times, business is good.
SeaChange International has reported over $10 million in VOD revenue per quarter in 2001. Yvette Gordon-Kanouff, corporate vice president of Strategic Planning for SeaChange, said that the SeaChange MediaCluster video server allows movies to play out efficiently while enabling thousands of customers to access a single copy of a title. Related software includes a content management system to store and manage all content and its metadata.
An experienced cable systems engineer, Gordon-Kanouff described how cable operators are using a near storage/far storage strategy for VOD implementation, where popular titles are stored on a hub closer to the consumer's home. They've done this, she said, because the network transport cost of sending video files from a headend to a hub has been substantial.
"Cable operators like this model because as usage increases and the amount of transport increases, hub-based servers only have to add streams and storage locally, there are no additional network costs," said Gordon-Kanouff.
As for VOD's ROI potential, Gordon-Kanouff said typically, an MSO will spend about $300 on a digital set-top box. Revenue for this, she explained, works out to about $10 a month. Currently, VOD costs about $60 per subscriber to implement. Revenue for this is $5 a month for SVOD and possibly $10 for movies.
"Even for very conservative return estimates," she said, "VOD is a good investment and pays back in about a year. Many other applications have either no solid capital payback plans, or are many years in length. Therefore, VOD is the most logical new application that can be launched today."
Jay Schiller, senior vice president of Broadband Strategy and Product Management at nCube, said there's no turning back now that the cable industry is heavily invested in VOD. "Deployments have continued to grow, despite some people's negative opinions," he said. "Cable operators took their time to get it right and now I think they have. I think consumers are ready as well."
Although no numbers are available for last year, in 2000 nCube reported over $17 million in revenue directly from VOD applications. It recently closed a large deal with AOL Time Warner Cable in Los Angeles, where three nCube n4 Streaming Media Appliances (video servers comprised of 77 MediaHubs) and nCube's nABLE interactive management software will facilitate over 9,000 simultaneous streams between the cable headend and Time Warner's 363,000 digital customers.
When completed, one part of the L.A. operation, the West Valley system, with 35 MediaHubs, will house one of the largest single video servers in the U.S., capable of simultaneously delivering 4,200 streams from a single piece of MPEG-2 video content. This same server can scale to 30,000 streams to accommodate future on-demand entertainment options and additional subscribers.
The nABLE software includes such features as asset and bandwidth management, administrative billing, and usage information to help an operator closely monitor the server system remotely via the Web.
Schiller said that his company has been working with several interactive software vendors to make VOD work with existing Motorola DCT-2000 and SA Explorer boxes, acknowledging that MSOs have been hesitant to deploy more advanced boxes due to cost. "There's enough enabling technology in the market to provide solutions to make VOD work today," he said. "We're not going to wait for the next generation of boxes."
Also enjoying the fruits of VOD, Concurrent Computer Corporation claimed $12.4 million in revenue for the company's second fiscal quarter (ended December 31, 2001) alone. Its MediaHawk broadband VOD system, made up of the company's MediaHawk video server and MediaHawk Business Management System (BMS) software, is in use by six major MSOs serving one-and-a-half million digital subs in 25 markets across the U.S. MediaHawk video servers are designed to operate in both a distributed network architecture and a centralized network architecture, minimizing physical space requirements and incremental facility costs. The BMS software includes features for managing content, subscriber demographic information, transaction and usage analysis, billing, and order fulfillment.
Concurrent's first deployment of VOD was with Time Warner Cable's Oceanic system in Hawaii, the industry's first commercial deployment of VOD, in 2000. Oceanic currently has 85,000 digital subs and its revenue has jumped 30 percent since VOD was offered, according to Joe Parola, vice president of Product Marketing for Concurrent. This, as existing analog PPV and NVOD revenue continues to decrease (except in the Adult category).
The real stimulus behind VOD, Parola said, is fighting off competition from satellite-delivered movies and TV: "The question really is, can cable afford to not offer these advanced services in light of DBS?"
Whatever the motivation, VOD is a technology whose time has come. Consumers need only ask and (hopefully sooner than later) they shall receive. "This is an incredibly exciting time for television," said nCube's Schiller, "and I think [VOD] is the first step in changing the broadcast paradigm into a one-to-one, personalized TV model that will benefit everyone."
Kevin Mortimer is a contributing writer for DigitalTV.
Concurrent Computer Corporation
National Cable and Telecommunications Association
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