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From Here to Inevitability

11/30/2007 7:00 PM Eastern

“My guilty pleasure is staying in my room and I guess having fun.”

So stipulates GreekGod1022 — a video gamer — as he tries to interest members of the opposite sex in dating him, outside (or maybe at some point inside) the room.

Such is the reality show that is Dating on Demand, a visual-era update of the personal ads found in the back of “alternative” weekly newspapers. Dating on Demand is one of the most popular services in Comcast's collection of “video-on-demand” programming.

Comcast and Time Warner Cable, the two largest U.S. cable operators, are counting on such “interactive” television features to distinguish their video services in the areas they serve from their two large multichannel-video competitors, DirecTV and Dish Network, whose satellite-delivered services are ubiquitous.

Comcast now has 14 million customers and Time Warner 8 million homes capable of receiving digital-TV services, such as the on-demand playback of TV shows, movies, entertainment, romance and education programs.

Potential dates, like GreekGod1022, generate short video profiles about themselves in taping events held by Comcast. Other Comcast subscribers can then sort through them by gender, state and region. On average, someone, somewhere launches a Dating on Demand video 1.5 million times a month.

These days, anything that generates more than 1 million views a month is considered a strong VOD service. Topping Comcast's list: Karaoke videos, at 2 million a month. Coming up fast: A Martha Stewart “how-to” show that debuted in October and generated 600,000 viewings in its first month. Time Warner has had similar success with music and kids programming; and such fare as “SI On Demand,” a service replete with bikini models from Time Warner sister entity Sports Illustrated.

The activity now makes video on demand “the No. 1 feature of our television services,” asserted Comcast senior vice president and general manager of video services Derek Harrar.

All told, Comcast is generating 250 million playbacks of on-demand segments a month; Time Warner is past 100 million playbacks a month. Both Harrar and Bob Benya, senior vice president of on-demand and interactive TV for Time Warner Cable, said that constitutes critical mass in viewership — and advertisers and programmers are following the eyeballs.

Yet that mass of views still represents a tiny fraction of total viewing by the companies' subscribers. In the Comcast case, each digital-cable subscriber watches seven hours a month of on-demand programming.

By comparison, an individual watches an average of four hours and 34 minutes of television in a given day, according to Nielsen Media Research's latest research on TV time. That's more than 135 hours a month. So, even among digital customers, it still likely accounts for only about 5% of viewership. And much less of total TV viewing in all households.

Beyond that small slice of time, obstacles remain before VOD gains widespread currency. For starters, there are questions about the long-term business model; how much advertising is needed to support the free on-demand model being pursued by Comcast, in particular; how programmers will be compensated for playback of their content; and whether the cable industry's infrastructure will be capable any time soon of supporting incoming Time Warner CEO Jeff Bewkes's vision of cable programming delivered on-demand, all the time.

On Demand: Comcast's Numbers
Demand for video on demand, from Comcast's 14.2 million digital customers.
Date Choices Views Growth
SOURCE: Comcast
July '04 1,700 52,000,000
July '05 3,800 127,000,000 144.23%
July '06 8,000 180,000,000 41.73%
September '07 10,000 252,000,000 40.00%
Data Points
5 billion Total plays since 2003
100 million Total hours of on demand viewing each month
7.0 hours Hours each month of viewing per digital subscriber
1/2 hour Average length of an on demand view
43% Percentage of viewing that is of free programming

THE BAD BET

“The cable industry made a bad bet. They bet on video on demand. Video on demand is a highly constrained infrastructure,” contended Tom Rogers, CEO of TiVo, a supplier of digital video recorders and viewer-measurement data. “The best implementations at any given time maybe have three or four hundred movies available.”

The two large operators, Comcast and Time Warner, each claim to have more than that. Comcast said it offers its digital-cable subscribers a combination of between 800 and 1,000 free and for-a-fee movies, on demand. Time Warner has opened what it calls “virtual video stores” in two-thirds of its cable operations, with 1,000 titles each.

But TiVo, in an arrangement with online retailer Amazon, now offers a service through its latest set-top boxes that can pipe in any of 15,000 different titles to a TV set, through a broadband connection. And Amazon is adding 1,000 titles a month, said Rogers at the Future of TV Forum in New York. “It will grow to just an enormous collection of premium video content that VOD infrastructure just can't accommodate,” he said.

Maybe not now. But Time Warner Cable's Benya said there are multiple ways to match the number in a titles race. One option: Putting 100,000 movies on a centralized server and using fiber to connect to regional video-on-demand servers.

Comcast is covering the challenge — by working with TiVo. It is providing TiVo service, at an extra price over other digital-recording options, in Boston. (See Platforms, page 24.) But at this point, the Comcast boxes cannot take in content from Amazon's Unbox service.

There are many aspects of cable's on-demand business model that remain up in the air. Cable operators typically embed one ad at the outset of a TV show in the on-demand version. That ad gets locked in, usually for a month.

But it means that the VOD viewer could get used to watching a show on demand, in its entirety, without having to skip through ads. Typically, there is no ad except the preroll.

Counterintuitively, David Levy, president of Turner Sports and Turner Entertainment Sales and Marketing, worried, “Are we training viewers on a better video experience?” Viewers could be conditioned to watch on-demand shows, with fewer ads, rather than scheduled shows with more commercials. With a digital video recorder, at least, a viewer must skip the ads.

Time Warner Cable has gotten around this problem by rolling out “enhanced TV” services, such as Start Over. That lets a viewer, who arrives home in the midst of a favorite show, to play it back from the beginning — but ads can't be skipped. A similar enhancement, lets you play back other shows, with the original ads intact and unavoidable.

The lack of ads also concerns broadcast networks. George Kliavkoff, chief digital officer for NBC Interactive, noted that giving over large amounts of programming to a cable operator's video-on-demand service is stymied by the “lack of a sustainable business model.” Free VOD shows without ads, which is the Comcast model, must be “part of a larger deal,” in which the broadcaster is compensated for the on-demand use of programs such as Heroes or Grey's Anatomy, in his view.

Right now, Comcast and Time Warner Cable are trying to figure out a model that works, testing limited amounts of ABC, CBS, NBC and Fox programming on-demand in a few markets.

In the Time Warner Cable case, programs from a Fox-owned-and-operated station are offered in Tampa, Fla., and programs from an NBC affiliate are available in South Carolina. Typically, five to 10 hours of video are involved.

PROMO VALUE

Comcast's Harrar contends that VOD fare acts as a promotional vehicle for regularly scheduled programming. The lift in Nielsen ratings that results, he argues, will justify placement of more broadcast programming in on-demand repositories.

Which, long-term, is key. The biggest draw that is needed to head up on-demand services is broadcast-network programming, said Starcom USA senior vice president of video innovations Tracey Scheppach. Then, all the “long tail” content that satisfies niche interests and creates an “all VOD all the time” world will follow.

“The head of the long tail is not there,” Scheppach said.

Which is why VOD is being beaten handily, at this point, by a better-known set of initials representing on-demand viewing: the DVR.

In its study of 2006 viewing, Starcom found 93% of all video being consumed in the country was traditional scheduled TV shows. Almost all the rest — 6% — was content stored on digital video recorders and played back later. The most popular recordings: The giants of broadcast TV, such as Heroes and The Office from NBC and Grey's Anatomy from ABC.

VOD? Less than 1% of consumption. Online video? Ditto. Mobile TV? Didn't register.

This year, VOD will stay under 1%; while DVR viewing likely will bump up a couple percentage points.

In effect, VOD viewing is losing ground on DVR viewing, because, Scheppach said, the device affords a viewer more control.

VOD programs also are still promoted in fairly limited ways, such as cross-channel ads, barkers on a landing screen and direct-mail pieces.

Navigating to them is difficult. A viewer must click their remote control often and scan through listings before finding a desired title.

Harrar promised that sometime next year, Comcast will remedy that problem with full-text searching of programs, where, as in a Google search box, you can type in the keywords you are looking for — such as those in a title — and matches are displayed on-screen.

He also said Comcast will keep growing interest in VOD services by adding more high-definition programs, doubling from roughly 200 shows now to 400 by the end of next year and 800 by the end of 2009. And “dynamic” insertion of ads will begin to replace the preroll ads locked into shows at this point.

That “dynamic” insertion will allow ads to be targeted to a viewer's particular interests or behaviors. It will also allow viewership of each individual commercial to be tracked, when it is “demanded.”

COME BACK LATER

Online video rivals also have a leg up on VOD services in being able to quickly collect viewer feedback. NBC can find out what viewers think — as well as their age, income and education level — through pop-up windows after the viewing of a show like Heroes or Friday Night Lights on a computer screen.

Good feedback is much harder to get in the cable equivalent of on-demand programming, Scheppach noted. Operators can't just throw up an on-screen survey. And finding the right person to call right after the on-demand show ends is not easy.

In effect, cable operators have a tough time charging a premium for VOD advertising because solid recall studies have not been completed. “Without solid research, the product doesn't spark,” she said. “It peters out.”

That — coupled with the fact that 250 million views a month, even if they average a half-hour each, are still a drop in the bucket in overall video viewership — has kept VOD at the starting gate.

“There's no audience. I can't tell what the value of the audience and who the audience really is, and if they even are watching my ad,” she said. “So go back and get some work done. Come back later.''

That doesn't mean VOD can't be a hit. In fact, it's producing big numbers in two areas, according to Starcom: Music videos and kids' programming, as in Time Warner's case.

Just as MTV provided much of the opening burst of enthusiasm for scheduled specialty networks with its round-the-clock videos, the Music Choice service — available in almost all of the 30 million homes now using digital-cable services — now lets music lovers program their own set of round-the-clock videos.

“That's fundamentally it,” said Music Choice CEO David Del Beccaro. “Music video content isn't really available on so-called music networks any more.”

The other big hit: Kids programming, from PBS Kids Sprout, Cartoon Network and Nickelodeon. Kids get to be their own baby sitters, satiating their own interests with on-the-spot repeat plays of favorite programs.

Other negatives will be peeled away, one by one, according to Harrar and Benya.

Time Warner Cable, for instance, will turn around actual usage data overnight; it also will be connecting viewership of on-demand programming to viewership of traditional TV. So if you're watching Heroes on NBC, you can press the “Select” button on remote control and see either earlier shows or start over the current one.

“At this point, I don't think it's experimental,” Benya said of on-demand programming becoming the order of the day, even though it's unscheduled. “I think it's inevitable.”

 

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