Technology

On Demand's Premium Evolution

7/22/2005 8:00 PM Eastern

Cable's three large premium-network suppliers — Home Box Office, Showtime Networks Inc. and Starz Entertainment Group — entered the subscription video-on-demand business hoping to generate a little cash through additional affiliate fees and lowered churn.

It didn't take long for consumers to find HBO, Showtime and Starz offerings, as they've become the most popular subset of VOD usage.

The viewership popularity has paid off on the business front, with executives saying churn — a key metric for pay-TV channels — has dropped between 10% and 20% in systems that offer the programming in on-demand format.

Now, solid viewership and churn-reduction evidence almost take a back seat to a new phenomenon. It starts with the exploration of on-demand programming as a promotional vehicle for linear shows and scales to VOD as a medium unto itself, requiring its own unique programming.

VOD MILESTONES

Consider this:

  • As HBO prepares to debut its 12-part series Rome on Aug. 28, viewers will be able to see The Making of Rome on VOD on Aug. 1. HBO plans to add three other Rome-related programming pieces —“About Rome,” “Shadow Rulers of Rome” and “The Slave Society of Rome” — to its on-demand service on Aug. 15, nearly two weeks before the series premiere.

  • In addition to the previews, episodes one and two will appear on HBO On Demand one day after their linear air dates (Aug. 29 and Sept. 5). The third episode will premiere on demand on Sept. 5, six days before its linear airdate.

  • Starz launched a separate feed in the first-quarter, which includes interstitials specific to the on-demand platform. The network has begun placing “Bunny” shorts — short humorous animated features before on-demand movies — to provide additional entertainment to customers and further brand the Starz service. It's also begun experimenting with guest hosts for certain movies. The Mystery Science Theater 3000 crew, for example, has taped humorous introductions for Starz “campy” movies, like Golfballs.

  • And Showtime has launched a premium sampler on Comcast Corp. systems, allowing nonsubscribers to sample Showtime series like The L Word. “It's a great way to sell our services,” said Showtime Networks executive vice president Mark Greenberg.

USAGE HABITS CHANGE

HBO says 10 million of its subscribers have on demand available to them. “This year, there has been a dramatic change,” said Bernadette Aulestia, vice president of affiliate marketing for HBO. “People are starting to create their own viewing habits. We're seeing they have a threshold of learning and they understand what the product is.

“People use HBO On Demand as a sidecar to linear viewing,” she added. In addition to pausing TV or catching up on material they missed, “more people are starting to gravitate to the [VOD] area to also find added context.”

HBO is adding more in-depth material, including interviews with cast members, short explanations and recaps of seasons prior for series, plus directors' commentaries and interviews, built under the “HBO Pass” category.

“There is something about being in an HBO environment,” Aulestia said. “It's not just a list of stuff, it's a curator experience. Viewership in HBO On Demand homes is 30% higher than in on VOD homes.”

That viewership has helped lower HBO churn in on-demand homes between 11% and 19%, she said.

SHOWTIME'S BULLISH

Showtime pegs its churn benefit at 14%, Greenberg said. “I don't think it's added to the acquisition rate, but it's added more glue to retention. We're very bullish on SVOD. As we track viewer attitudes, SVOD increases their value and perception of the brand. It really is sticking better.”

Premiering content on VOD is nothing new for Showtime. In the past, episodes of The Chris Isaak Show premiered on VOD before their first linear play. And Showtime has added a premium sampler plus original material specific to VOD.

“It's been a great way to get added value behind the scenes,” Greenberg said. “Behind-the-scenes material has been part of our offering.”

Greenberg said 60% of VOD users “love” the premium sampler. “We believe it's creating some trial usage. The early numbers show we're getting a lot of usage from non-Showtime subs.

“It's a way to get people to understand the original content. The world is getting complicated. You have to find ways to let people know you're there.”

As the new regime took over at Starz, led by president Robert Clasen and cable-marketing veteran Jerry Maglio, they've worked over the past year to move SVOD from a service that is “populating servers” with movies to “re-evaluating what premium channels mean in a digital world,” said Maglio.

Just as consumers tend to watch six to eight channels in a linear world, Maglio believes consumers will hit six to eight “buttons” in the on-demand menu.

The way to do that “is to bring unexpected things to surprise and delight them,” he said. The 15 animated “Bunny” shorts are an example.

The tongue-in-cheek, minute or so synopsis of major films, like Titanic, Scream and War of the Worlds, started running in April.

In May, Starz placed four Bunny shorts in a standalone VOD category on a number of systems. Those shorts combined to generate higher viewing numbers than Van Helsing, the most popular movie that month, he said.

The Bunny shorts are one part of Starz's new on-demand strategy. The network had occasionally premiered movies on VOD days before their linear airing.

In April, Starz took another step, starting early premieres up to 15 days before their linear air dates. “This makes people look to [subscription on-demand services] first.”

Maglio also is finding consumers are creating their own on-demand experience, inside the context of the overall on-demand offering.

CAMPY FARE 'GOLFBALLS'

A choice example is Golfballs, a campy 1999 comedy that ran in April that was subject to the new art of “snacking.”

Basically, Golfballs aficionados fast forwarded and rewound to watch their favorite parts of the movie. In April, the average Starz movie was fast forwarded 1.2 times, rewound 0.5 times and paused 0.4 times, he said.

Not Golfballs. It was fast forwarded 9.5 times, rewound 2.3 times and paused 1.8 times, generating four times the activity of the normal Starz movie.

It also landed in the top 25% of films viewed that month on Starz, landing 15th on a list of 70 titles. It's an example, Maglio said, of people clearly getting value from their SVOD service.

It's led Starz to look at creating quick, humorous shorts of films, rapid-fire, almost fast-forward versions of movies as a teaser promotion to entice usage. It's the type of material that only on-demand can provide, he said.

March