Still Bullish
Despite hurdles, Programmers and Operators predict Big Things for on-demand Platform
By George Winslow -- Multichannel News, 10/7/2007 8:00:00 PM
While video on demand has given cable a key competitive advantage against satellite providers and has proven popular with consumers, the predicted explosion of VOD revenue and content has yet to materialize.
The format still faces some challenges. The range of available content is limited by programmers withholding most of their most popular fare, while the user interface remains clunky. And VOD revenue is still just a tiny part of the multichannel business.
Magna Global estimates that VOD advertising will total only $140 million in 2007 and PricewaterhouseCoopers forecasts that VOD revenue will reach just $2.1 billion this year. In contrast, PwC predicts that consumer spending on multichannel TV will top $66 billion in 2007.
Still, operators, programmers and vendors remain bullish that what might be termed next-generation VOD will cure many of those problems.
Most cable executives predict that in the years ahead the amount of VOD content will expand to tens of thousands — or even hundreds of thousands — of hours, with new navigation and search engines making it easier to choose from a vast array of offerings. Most important, they anticipate significant new revenue streams from advertising and commerce, as next-generation VOD advertising systems deliver ads targeted to the demographics of a particular household.
“It is a great opportunity for cable to get a larger piece of the ad pie,” said Barry Hardek, vice president of business development and marketing for Everstream, which provides data on video-on-demand usage. “Advertisers have been carpet bombing for years. Targeted VOD advertising will accurately measure who they are reaching and how the ads are performing.”
“Even with the great success we’ve had, we are still only in the second or third inning of the VOD game,” said Comcast senior vice president of new media, Matt Strauss. “We are only beginning to tap the potential of this platform.”
Realizing that vision, however, poses technical and business challenges.
On the technical side, an exponential increase in the amount of VOD streams and high-definition content will force operators to find new bandwidth and use their networks, servers and storage devices much more efficiently.
Huge amounts of content will have to be incorporated almost instantaneously, and operators will need to deploy systems to insert targeted ads in the blink of an eye into all this new on-demand content. Set-top boxes will have to be improved in order to deploy better navigational systems.
“The lack of a good user interface has slowed the usage of VOD,” said Andy Addis, executive vice president of Hillcrest, which has developed a next-generation user interface. “If you have trouble navigating through 10,000 titles, imagine what it will be like when you start aggregating millions of videos” from the Internet and other sources.
Encryption, coding, digital rights management and ad trafficking systems will also need to improve.
“Bandwidth is a big issue” for next-generation VOD, said Jim Turner, Synacor vice president of product management. “You’re going to need more bandwidth from either switched digital or [Internet protocol-TV solutions]. But just solving the bandwidth issue isn’t going to solve the programming issue. You need to get a robust advertising model if programmers are going to make their content available.”
Premium networks, such as HBO, Showtime and Starz have embraced on-demand platforms for years because of the popularity of VOD with viewers. David Charmatz, Starz senior vice president of product development, said VOD adds about 8% to 25% to the total viewing of a particular movie.
“We don’t care where, they see it,” said Jonathan Shair, the premium service’s vice president of network operations. “If they see it on linear, great. If it’s on VOD that’s great too. What we care about is that they enjoy the service and subscribe,” either to the TV premium channels or to Starz’s PC download service, Vongo.
But programmers that survive on advertising rather than subscription revenue are hesitant.
“It is kind of a chicken and egg thing,” OgilvyInteractive senior partner and executive director of digital innovation Maria Mendel said. “The programmers want to see a way of monetizing it and we [the advertisers] need content to attract consumers and create a large number of impressions.”
Still some steps are being made. C-COR senior vice president of advanced global technology Joe Matarese said the amount of content available is increasing.
“The greed factor — the money they now see that they will be able to make from advertising — and the fear factor — their worries that they will lose viewers to the Internet and user-generated content — are both pushing them to make the rights available on demand,” Matarese said.
In a recent interview, Comcast’s Strauss spent 15 minutes ticking off all the content the company has added. The number of on-demand titles has increased to about 10,000 as Comcast has added more high-definition content, local fare and high-profile basic cable series and broadcast programs. They’ve also developed and launched 20 VOD-only channels, such as Exercise TV, that now generate about 11% of all on-demand usage.
“It used to be that we were the hunter in terms of getting new VOD programming,” he said. “Now we’re the hunted, with programmers pushing to be available on demand.”
Most of the big hit shows though are still not available on demand.
The importance of creating an advertising model for on-demand content can be seen in Cox’s decision to disable the fast-forward button in its VOD trials with ABC and NBC that started in late September, Cox vice president of video product development and support Steve Necessary said.
Time Warner Cable has made a similar move to disable ad skipping with its “Start Over” service, which lets viewers restart live programming from over 130 channels.
“For next generation VOD you have to build an ecosystem where you have timely content [that is being rapidly added to the system so that viewers can see it as it airs on linear TV], timely data [that programmers and advertisers can use to track their results] and the ability in a timely way to insert new advertising,” said Time Warner Cable senior vice president of on demand Bob Benya. “We are all focused on creating a new advertising model that can support this.”
While competitive pressures are playing a key role in the push to personalize content and make more of it on demand, telcos, cable and satellite providers all face some unique challenges in expanding their on-demand offerings.
“IPTV has an inherent advantage” in a world where most or all content is personalized and delivered on demand, said Microsoft TV director of product management Hemang Mehta. “IPTV architecture is closely coupled with personalized content and [IP delivery] makes it much easier to move content between the Internet, mobile devices or the TV.”
Still, each of the telcos face challenges. Verizon Communications has a potentially very fat pipe to deliver on-demand content because it is building fiber to the home. But it is using a cable architecture that “is very much like a cable 860 [Megaherz] system,” said Marc Tayer, senior vice president of marketing and business development at Imagine Communications. “They don’t have quite the unlimited bandwidth that people think they have.”
AT&T does have a true IPTV network, but also has bandwidth constraints because it is delivering content into the home over copper.
“I think their technology is actually limited compared to ours in terms of bandwidth,” Time Warner’s Benya said.
Today, cable operators and telcos have a huge advantage over satellite, which lacks a return path and the ability to deliver true video on demand.
But DirecTV and EchoStar aren’t admitting defeat. They have deployed push VOD systems with a limited amount of movies and TV programs available on demand via a digital video recorder. Eventually, both are expected to use broadband connected set-top boxes to deliver true VOD content into the home.
Whatever the platform, operators will have to address the demands of much larger on-demand libraries, which will include large amounts of HDTV programming, and increased VOD streams.
“Today 5,000 hours is a big VOD library,” said Kip Compton, senior director and general manager of Cisco System’s video and content networking business unit. “But next generation VOD will go far beyond that [as you begin to get content from other media, such as the Internet, made available on the TV.] On the Internet, no one talks about how many hundreds of thousands or millions of hours of content are available.”
More HDTV content is also moving to on demand. “Increasing amounts of high-definition content will be a key part of next generation VOD,” said Imagine’s Taylor.
That will be “a big differentiator for cable” but HD content also puts more pressure on bandwidth, he said.
Overall, on-demand usage is already growing very rapidly. Comcast, for example, is on target to hit some 3 billion views this year and VOD measurement specialist Rentrak reports that there were about 1.44 billion orders in the first six months of 2007, up 44% from the same period in 2006, in the 18 cable operators covering about 60% of all VOD homes that supply Rentrak with data.
Some programmers are reporting even bigger numbers. Between August 2006 and August 2007, overall VOD usage on all of Discovery’s networks grew by 87%.
As more on-demand content is made available, VOD streams will grow exponentially, said Ramin Farassat, vice president of product marketing for RGB Networks. “That is going to be really difficult for operators that have bandwidth constraints.”
Network DVRs are also likely to be a feature of next-generation VOD even though Cablevision’s efforts to deploy a network DVR has run into legal roadblocks.
Tom Rosenstein, vice president of the Infrastructure Software Group and Alliances, at SeaChange International, noted that network DVRs have advantages for operators and programmers. Network DVRs could reduce the truck rolls operators need to make to deploy advanced set-top boxes and it would allow the operators to disable the option of fast forwarding through ads, which would make programmers much more likely to make their content available.
“It is a much more efficient platform with benefits for everyone,” he said.
Beyond the legal issues, “one of the things that is holding back a true network DVR is bandwidth,” said Michael Pasquinilli, vice president of advanced engineering at Concurrent, which is working on Time Warner’s Start Over.
One obvious way to address those needs, as well as the huge requirements for new HDTV channels, is switched digital. “Every major operator has a robust switched-digital road map that is being worked through and is starting to hit the cap ex lines,” said Jim Riley, executive vice president of VOD service provider TVN Entertainment. “It will vary operator by operator, but 2008 will be the breakout year.”
Vendors are also offering a variety of solutions that would improve the efficiency and capacity of existing networks or upgraded switched digital plants.
Imagine and RGB Networks, for example, are selling products that increase the number of streams that share a single quadrature amplitude modulation channel.
“You can get 50% more streams in a QAM channel without sacrificing video quality,” by moving from a constant bit rate architecture to a variable bit rate system said Farassat.
While operators are also increasing their VOD capacity, it will also be increasingly necessary to find more efficient methods of storing and distributing on-demand content as tens of thousands of hours of niche content is added.
“You have to move away from the current model where all the content is stored on all the servers,” said Cisco’s Compton.
By storing some content on central servers and moving the more popular content closer to the edge of the network, “there is a lot of optimizing that can be done to reduce capital expenditures by just putting in an intelligent network and designing it in a hierarchical fashion,” said Greg Whelan, senior manager of Cisco’s service provider marketing group.
Declining costs for storage, better compression and more intelligently designed networks are also helping, said Microsoft TV’s Mehta.
But Mehta and others stress that the key issue is the consumer experience. “It’s not just about adding a lot more content,” Mehta said. “It’s about ease of use and making sure that they can easily personalize their experience and access the content they want.”
One key issue is latency, said Zodiak Interactive founder and CEO Alex Libkind. “Next-generation VOD will need to include not just feature movies that are 2 hours long but two-minute YouTube videos,” he said. Users need to be able to easily launch a series of short videos without waiting or plowing through several menus.
“You are not going to want to spend a lot of time waiting to launch a 60-second video,” he said.
Just how long subscribers will have to wait for all that next-generation VOD content to arrive remains an open question.
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