Cable Operators

Getting What’s Expected From VOD

11/14/2004 7:00 PM Eastern

The following is an excerpt of an industry speech Rainbow Media Holdings CEO Joshua Sapan recently delivered on the topic of video-on-demand.

I think we all understand the opportunity and the promise that video on demand provides to our industry. At a time when consumers’ desire for convenience and control seems to be bordering almost on the obsessive, VOD is uniquely poised for success.

Consumers are very clear about their expectations — they want what they want, when they want it and they want it right now.

As great as the challenge may be, the opportunity for the cable industry is prodigious. VOD provides consumers with the type of two-way interaction and potential for exclusive content they simply can’t get on satellite.

Quite simply, VOD gives consumers exactly what they are seeking — something distinctive and immediate. It is truly the most appropriate technology for this era of heightened consumer choice, and it represents the single clearest path to defining cable’s value to consumers.

Today, there are an estimated 19 million VOD-enabled homes. By next year, that number could be as high as 23 million, since VOD is backwards-compatible with digital. With each day, the on-demand footprint is increasing.

I think we can easily imagine a future with 50 million digital subscribers, as well as 50 million VOD homes.

And with increases in server capacity, the potential growth of VOD content is extraordinary — from 1,000 hours available today, to 4,000 hours next year and an estimated 10,000 hours available by the year 2006.

Repurposed programming, such as movies and TV shows, are an essential element of VOD. But VOD can and must be so much more. For even with all of the apparent appeal that VOD is beginning to experience, there still remains a chasm between access and acceptance.

Half of all consumers either don’t know they have VOD or don’t know how to use it. Consumers are not thinking of VOD as a particularly relevant entertainment option. So while VOD has an emerging footprint, it’s a mile wide and an inch deep. Demand could be much greater, but it will not accelerate if we stay on the path along which we’re headed.

I’d like to offer some ideas on both why that is, and also how the cable industry might change that mindset.

THE ROAD TO SUCCESS

Let me begin with a simple proposition: the success of VOD will not rest solely on the number of movies or TV shows in a video library.

Video-on-demand cannot prosper if it is simply another fungible and interchangeable delivery system.

Instead, success will ultimately be judged by the full range of unique, proprietary and premium content that is being offered. Only if VOD can offer something different from what consumers find via broadcast and cable, with their DVRs, and on the Internet and DVD, will it fulfill its vast potential.

That may sound counter-intuitive to some, but it is really a familiar concept. For the cable industry, that was our path to success.

The key for any effective and widely accepted delivery system is that it must offer something that consumers cannot find anywhere else. With DVDs on computers and TiVo announcing plans to all but bypass cable, video-on-demand will have to find some way to be more than a video shelf — and, in fact, to offer consumers a product that is unique to the VOD platform. Otherwise, it will be just another (albeit technologically advanced) shelf of repackaged content for consumers to choose — ultimately diminishing in importance and potential.

That is similar to how the cable industry started more than 20 years ago. Back then, cable’s offering was pretty simple — it made old content accessible to new viewers. Yet, the cable industry took off when it recognized the need to develop programming that fit the unique logic of cable technology — 24-hour news and sports, music videos and content too cutting-edge for the broadcast networks. Cable provided consumers with the type of narrowly directed programming they couldn’t find anywhere else.

For example, channels like MTV: Music Television gave birth to reality television, and Home Box Office has reinvigorated serialized dramatic and comedic programming.

WEB EXAMPLES

This approach also holds true for the Internet. When the World Wide Web first started, many companies thought they could simply put nonelectronic content online and have an Internet presence. How did that work out?

As we see today, the sites that provide the greatest value — and enjoy the greatest success — are the ones made specifically for the Internet. eBay, Google, MapQuest and Amazon truly define the Internet today. Their success is rooted in the fact that they used the attributes of the virtual world to create content and applications that simply could not be found anywhere else.

That is the future of VOD — content and applications that take full advantage of the special opportunities that this new technology provides: exclusive content, geographic specificity, and consumer convenience. That’s the path we’re taking at Rainbow Media.

Over the past few years, we’ve introduced a number of services that take VOD in a new direction, including Mag Rack and Sportskool.

JUST THE BEGINNING

To be sure, Rainbow is not alone. We are just beginning to witness the first examples of genuine VOD originality and success with services like Anime Network drawing in millions of young male viewers.

This type of original content will make consumers seek out VOD as a viewing option, and it will endure in the face of a myriad of new opportunities for receiving video content. That is the promise of VOD.

Clearly, we are still in the rudimentary stages of VOD. There is a long way to go — not only putting VOD in every home in America, but ensuring that it will enjoy popular recognition. That gap between access and acceptance must be bridged.

I think that challenge is one of the great challenges facing the cable industry. Making VOD a fundamental part of consumer viewing habits will require innovative thinking.

And, when it comes to innovative thinking, the cable industry has consistently shown that it is up to the challenge. I’m quite confident that VOD will be no different.

November