Three Middlemen Vie for VOD Share
By Matt Stump -- Multichannel News, 11/4/2001 7:00:00 PM
Cable's three middlemen content players in the video-on-demand arena — In Demand L.L.C., Diva Systems Corp. and Intertainer Inc. — have each posted important content-acquisition or MSO-affiliation victories over the past few months as they vie for a share of the VOD market.
Those moves have helped each of the companies carve out specific roles on the VOD playing field.
In Demand broke the logjam with Hollywood for studio content this summer when it signed deals with Sony and Universal. The company, owned by AT&T Broadband, Comcast Corp., Cox Communications Inc. and AOL Time Warner Inc., hopes to bring its content acquisitions, marketing, promotion and content-delivery skills to its pay-per-view MSO affiliates.
Diva considers itself an end-to-end supplier, encompassing content acquisition, servers and VOD management software. Combined, its Charter Communications Inc., Insight Communications Co. and AT&T Broadband deployments encompass 22 systems and 3.2 million VOD-enabled homes.
Intertainer landed its first major cable deal, other than its several-years-old agreement with Comcast, when it signed an accord with Adelphia Communications Corp. last month.
Intertainer also supplies Qwest Communications International Inc. and Microsoft Network with content for VOD and its digital-subscriber-line service. As part of its Adelphia deal, the company will supply much of that same content for MSO's high-speed access service.
How their roles change as VOD evolves remains to be seen.
AN ELUSIVE GOAL
Traditionally, PPV middlemen do not make money. In Demand officials admit as much and acknowledge that breaking even may remain an elusive goal for some time to come.
In Demand sees its role as helping its major MSO partners with encoding and delivering VOD content, along with helping systems market and promote the service, said president Steve Brenner.
"It doesn't make sense to encode this content more than once, or have a separate highway for each of the MSOs. Everyone can ride that highway for the same costs," Brenner said.
His company is working with N2Broadband to deliver VOD movies via satellite directly to cable headends and into server storage units. Founded by former engineers who worked on the Full Service Network in Orlando, Fla., N2Broadband uses a "pitcher's-catcher's mitt" technology to efficiently deliver content to In Demand's affiliates.
The same cost-sharing works in the marketing space, Brenner said.
"Promotions and trailers for PPV can be done once here and tagged for minimal cost for our owner companies," he said. "We have people who know how to market to that audience."
Having hired a new chief information officer for the first time in the company's history, In Demand is building "a huge direct billing project," Brenner said, to more efficiently transmit PPV and VOD purchase information to content suppliers. Cable's ability to accurately and quickly bill and collect for PPV often has been a sore spot among Hollywood studios.
Diva has a much different spin on the economics. Its broader focus brings in revenue from several areas, including server and software ventures.
Intertainer, on the other hand, is banking on its recent deals to boost the bottom line. The company laid off staffers in October, and while its Adelphia deal gives it a cable foothold, its contract with MSN — to be marketed by regional Bell operating companies' DSL units — will give it a huge leg up in the IP arena that could generate significant revenue for the company.
AGGREGATING CONTENT
Then there is the issue of content aggregation.
Brenner hopes the deals In Demand landed with Sony and Universal this summer will help motivate other studios to ink deals.
Those companies have already determined how revenues will be split. Vivendi Universal chairman Jean Marie Messier has told financial analysts that his studio will receive 60 percent of the VOD revenue split. Traditional PPV revenue splits were in the 45-percent range for Hollywood. Anything beyond 60 percent, Brenner said, "stops making sense for the cable operator."
"VOD is an entirely different and better business than NVOD [near-video-on-demand]," Brenner said.
If In Demand is successful in that pitch, it also could shorten the time span between premiere and VOD launch. "We want to convince them it's in their interest to shorten the windows. They do so much publicity and advertising around home video, they might as well have VOD closer to that," he said.
But the splits will pinch In Demand even further. "We operate at a loss and we probably will operate at a loss for the foreseeable future," Brenner said. "Our margin will be less in the VOD business, and we hope to make it up in volume."
Brenner, not surprisingly, is bearish on the competitive prospect of Internet movie delivery by the studios.
"Internet movie distribution is not a good business," he said, because of transactional and operational costs. "We have an existing infrastructure that works and is efficient. I don't know how attractive a prospect it is to spend more than an hour to download a when VOD is so much quicker and the quality is better."
In Demand is branching out beyond movies, into out-of-market sports packages, as well as collecting content from basic networks like Comedy Central, Turner Network Television, TNN: The National Network and Cartoon Network. "We'll see if there is an appetite for buying it," he said.
But Brenner is cautious about whether consumers will pay for old television shows, something they're not used to paying for today.
"The notion I will pay to watch a movie in my home is a valid notion," he said, but with older shows, "it's a harder kind of thing to tell the subscribers it has the same value."
DIVA RIDING ROLLOUTS
Diva is riding the wave of rollouts from Charter and Insight, giving it the most VOD deployments of any content/equipment provider at the moment.
A little more than half of its 850,000 digital VOD-enabled subscribers could order a movie tonight, said Diva general manager Bev Doughty.
Through Charter, Diva operates in Los Angeles, Dallas, St. Louis and Long Beach, Calif. Insight has rolled out the service in Louisville, Ky., and Columbus, Ohio, among other markets. And AT&T carries it in Atlanta and Los Angeles, but has put other VOD rollouts on hold, pending the outcome of the spinoff or sale of the company.
Doughty said Diva continues talks with other MSOs and expects to roll out in still more Insight systems in November.
Diva provides affiliates content acquisition and management, servers and software to manage traffic flows and billing interfaces. "We have a hardware focus, a software focus and a new application focus," Doughty said.
The company currently has rights to Universal Pictures, Warner Bros. and DreamWorks SKG content. Sony, The Walt Disney Co., Fox Entertainment and Paramount remain holdouts.
According to Doughty, "Sony would be the next logical step" since it's signed deals with In Demand. (Intertainer also has deals only with Universal, Warner Bros and DreamWorks.)
Diva also has accords with many basic networks. It garners amalgamated children's programming from several sources and sells it within a subscription-VOD package. The company also contracts adult programming from several sources, including Playboy. And Diva hopes to land deals with HBO, Showtime and Starz Encore in first quarter of 2002.
Doughty said Diva offers between 250 and 300 titles a month. About one quarter of its library is changed out each month.
NEW RELEASES RULE
She said buy rates are "significantly higher" than PPV, and should climb higher once all hit movies head to VOD. "We are still extremely bullish where this will go."
Half of all current buys are driven by new-release movies, Doughty said. The remainder comes from other categories like special interest, adult and children's.
Some of the basic network programming, such as DIY content, could work, she said. "There's going to be value behind content that ESPN network can provide," she added.
Doughty believes the buy-rate metric used in PPV that's carried over to VOD will shift to revenue per household once SVOD becomes more widespread. "There is a lot of value to have subscription models."
Intertainer's deal with Adelphia covers not only the MSO's 1.8 million digital subscribers, but also 300,000 cable-modem subscribers. Adelphia VOD markets will include Cleveland, suburban Pittsburgh, Buffalo, N.Y., Colorado Springs and Los Angeles.
Intertainer carries about 500 hours of programming for its VOD service, CEO Jonathan Taplin said.
Several weeks ago, Intertainer struck a deal with MSN to be featured on its broadband section. MSN's distribution deals with Qwest, Verizon Communications, SBC Communications and Bell South Inc. might mean that nearly every U.S. DSL subscriber soon could have quick access to Intertainer movies via IP delivery.
No related content found.
Featured Company
-
Digital Rapids
Digital Rapids is the leading provider of professional hardware and software tools, technology and expertise for bringing video to wider audiences and new viewing platforms. Continuing to set new standards in quality, productivity and versatility, our solutions span the critical ..more
VIEW ALL GALLERIES
