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Dalvi Pushes Best-of-Cable VOD

1/26/2003 7:00 PM Eastern

Ajit Dalvi — the former senior vice president for strategy and programming at Cox Communications Inc. and a founding board member of Discovery Communications Inc. — helped guide the Atlanta-based MSO's marketing and programming course across two decades. After retiring in 1999, Dalvi serves as an adviser to Cox. Recently, Dalvi authored a 50-page study on VOD, the highlights of which he shares in this conversation with Broadband Week editor Matt Stump. Never one to mince words, Dalvi is no fan of today's current subscription video-on-demand model, and argues the industry needs to coalesce around a "best of cable" option. An edited transcript follows.

MCN:
When you retired in 1999, the second coming of VOD was just around the corner, but dominated by the thought that hit movies would be the centerpiece of content. Since then SVOD and free-on-demand, plus other content, have made their way to the VOD platform. What do you think about all this?

Dalvi:
VOD is an extremely important technology that can do wonderful things for the cable business, in terms of its competitive position and the incremental revenue and cash flow it can generate. But it's a technology that is in search of a business model. And unless that business model is developed and agreed upon by the major players in the industry [MSOs and programmers], I don't think it's going to do much.

MCN:
Meaning?

Dalvi:
What is VOD and what does it do for the consumer, really? VOD is simple: The next step in cable's evolution. Everything cable has done, it's been about more choice and more variety.

Let's assume there are 100 titles available on VOD. It's like having 100 more channels to select from.

Whenever you ask the consumer to make a choice, you have to give the consumer enough information to make a choice. Getting information and using information requires some degree of effort. It's like having a huge library without having a card catalog.

Cable is a very technology-centric business. People have thought about to how make the servers and the software work. But we haven't really thought about how to get that information across for the people to make the choices. That is a much bigger challenge than we realize.

Let's go back to what's going on in the business here. With SVOD, people are trying to go back to a subscription model. They spent millions of dollars developing a technology that was supposed to facilitate transactions, and after doing that, they are going full circle with subscription.

Why? The customer's need for information. If you have not found a solution for this whole information problem, then you're not going to make that many transactions.

When you're going to the subscription model, you're are missing the point. What is cable's biggest problem today? Is it really programming? I really don't think so, because every conceivable niche is there.

It's quality programming. How many times have you heard I've got 200 channels and nothing to watch? That doesn't mean that the programming is not there, it means it's very hard to find. Part of it is information and the other part is technology difficulties.

How do you use that new VOD technology? Do you use that to select between different types of crap? Let me give you a ridiculous example. Suppose you have VOD technology and you used that to give people a choice between different shopping channels. Does that serve any purpose? It all comes down to the quality of programming.

MCN:
And movies?

Dalvi:
People always say movies, movies, movies. The reason people go for movies is not because there isn't enough interest in other programming, but because movies need the least amount of information to make a decision. The title is all you need to make a viewing decision.

That's why movies traditionally have worked in any kind of [pay-per-view], and will work on VOD. But that is only part of the picture.

There are many reasons why movies aren't sufficient. Movies require a much longer time commitment on the part of the consumer than other types of programming. As people do more and more things in a very squeezed schedule, it is increasingly difficult to make a two- or three-hour time commitment to watch television.

People associated with studios [who] say movies are the only thing that works and so — whether operators like it or not — we'll get down on our knees to the studios to get the product by hook or crook, it's wrong.

The other reason is the world has changed. DVDs have created one more source of programming for the customers, and the economics of DVDs are such if you people go to see a movie in the theater, you may as well buy the DVD, because in pure economics, it probably costs a little bit less to own a DVD than to go see a movie in the theater.

DVDs are definitely going to have an impact on the demand for PPV in general and movies in particular.

MCN:
It seems that cable operators view VOD as a three-pronged product: SVOD, FOD and hit movies.

Dalvi:
SVOD [in its present form] is a bad idea. I haven't heard of a pay provider giving specificity of what's going to be on SVOD. They are not willing to commit that all of [Home Box Office's] product will be on SVOD. It could well be the choice of B-movies, and then I'll go back to my question about using this super duper technology to give them a choice of crap.

MCN:
I'm sure HBO would respectfully disagree, and I would say there seems to be a fair amount of top product, like The Sopranos
and Sex and the City. It may not be the most recent episodes, but it does seem their top-line product is cycled through.

Dalvi:
What they do is one thing and what you can say to the consumer is another. What are you going to say to the consumer when you explain the SVOD to them?

MCN:
We're going to give you the best stuff, you'll just have to trust us?

Dalvi:
It's OK for the programmer to say that to the operator, but the operator, unfortunately cannot say that to the consumer. There is a huge problem in positioning SVOD.

SVOD is an idea that needs to be fleshed out in terms of what is the programming. SVOD needs to be applied to all cable channels as opposed to only pay channels.

If HBO has SVOD and The Movie Channel has SVOD — and Showtime and Encore — how many things are [customer-service representatives] going to sell our customers? And what is the unique selling proposition for each one of them?

Ultimately, what is going to happen is whoever has HBO and HBO On Demand will charge a higher license fee or higher retail fee for HBO. That means you are really looking for an excuse to increase the rates. Obviously, you are going to give more benefit to the customer, but at the end of the day, you're going to increase rates to make any sense out of it.

MCN:
But the operator would benefit from that too.

Dalvi:
We tried that with multiplexing and it didn't really do anything. There was all kinds of research presented about how good was multiplexing. I didn't see the churn come down, didn't see any renaissance in the pay category, as the result of multiplexing.

It's not the subscription model I'm against, it's against each brand coming up with its own SVOD. I'd much rather position this thing as some have called it: Best of cable.

I'm going to have HBO, USA Network and MTV [Music Television], and give each network 10 slots and they can select their best programs and we create a best-of-cable package. Now I have really something to sell. If you're not a pay subscriber, you would not get the best of HBO or the best of Showtime.

MCN:
How much programming would be in a best-of-cable category in a given week? One hundred hours?

Dalvi:
In the model I'm describing, the number really doesn't matter, because I'm really not trying to obscure the brand. If you're a Discovery type, you'll gravitate to the best of Discovery slot, best of cable. You're kind of using the brand equity that the different channels have created to solve the whole information problem.

MCN:
Do you see even 40 different channels as having content on the best of cable?

Dalvi:

I would have some minimum criteria. For example, a channel that gets less than a 0.2 rating probably doesn't deserve a slot on best of cable. I would make it very, very programming friendly. I would have no restrictions on whether they have advertising or not. If they want to keep the commercials, so be it. I'm getting rid of that whole issue of what happens to advertising revenue.

The networks decide what programming they want to put on it, as long as they agree to the name Best of MTV or Best of USA, or whatever comfortable name that comes up. Clearly they are not going to put on crappy programming and call it 'best of.'

MCN:
Where is the money for them?

Dalvi:
What I'm inclined to do — and there could be a little bit of debate with the programmers — let's say I'm going to charge $10 for the entire package and let people watch as much as they want. I would share $5 with all the programmers and it would be distributed between them, strictly on the basis of viewing, where it's totally fair and totally objective — no funny business. It's very consumer-friendly, because I'm giving them real value. I'm addressing the objection: 'I have 200 channels and nothing to watch.' This is the model [direct-broadcast satellite] can not replicate.

MCN:
But you're asking a lot of people to get into the same room and agree on a lot of things…

Dalvi:
Again, what I'm asking for is not unreasonable. You may quibble about whether 50 percent or 60 percent should go to cable, or only 30 percent. But once that is settled, why should anyone object to money being distributed strictly on the basis of viewership?

MCN:
And free on-demand? It doesn't look like programmers are giving their best product, and Discovery and ESPN are holding out for a SVOD model. Also, MSOs are linking FOD with digital churn reduction, even analog upgrades.

Dalvi:
When something is free, the programmer has no motivation to offer their best programming to you. You're throwing more crap at the customers, which doesn't make any sense.

If you create this model [best of cable] and merchandise it properly, then churn will go away because the digital box will be a must-have thing.

MCN:
Addressable analog penetration hit the mid-30 percent range, then stopped. Is digital reaching that same plateau?

Dalvi:
The whole digital box and churn controversy is again a nonissue in my mind. At the end of the day, every customer needs to have a digital box. The sooner the cable industry goes to that model, the better off it will be.

Right now, they have a lot of bandwidth they are using very inefficiently. My best channels are on analog, and DBS has all digital channels. That's kind of silly. Sooner or later, we're going to have to come to a 100 percent digital model. It's not an overly expensive model. Digital boxes, without the bells and whistles, cost you no more than analog boxes. So what the heck is the holdup here?

It will involve repackaging of the services, but it is doable. But relating it to your question: What is the upper limit of the penetration of digital boxes? You go back to addressable analog. What was in addressable analog for the consumer? Nothing, really. Expecting the subscriber to pay for it was wrong.

Here, I'm giving the subscriber something already — incremental programs, electronic guide, some free channels like the Discovery multiplex — so I'm giving him a lot and expecting him to pay for it, and we haven't reached the plateau in terms of digital boxes. With the best of cable, the digital box will be a fantastic value.

MCN:
How do you view the whole personal recorder phenomenon, and what cable should do?

Dalvi:
If you go to the best-of-cable model, I have a terrific creation for PVRs here. Let me point out the benefits of PVR and the benefits of the best-of-cable model. On PVR, you have to know what programming you want to watch. In the best-of-cable model, I'm telling you what the best of cable is, so you know what programming you should watch. It's a subtle difference, but a very important difference.

PVRs are mainly used as a means for time-shifting. In terms of discovering new programs, more satisfying programs, PVRs don't help you much. This whole deal about figuring out what programming interests you and sending you that programming automatically is complete crap.

MCN:
In this best-of-cable world, do you envision programmers having their own on-demand channel, like Time Warner Cable does?

Dalvi:

The whole idea of a channel becomes obsolete. I'd simply imagine an electronic guide, where there will be a section — best of cable — and there will be subparts — best of Discovery, best of USA Network, etc. Under every subhead, there are going to be seven or eight different programs.

My hope is anytime people tune in, they go to best of cable first, then roll it down and if they are Discovery viewers, they check Discovery first. People have seven or eight channels they check out first. The same thing will happen on the best of cable.

MCN:
Do you have any free advice on where menus and guides should go?

Dalvi:
I think the electronic guide is an abomination. The reason I say that is I think they are very technology-centric. The descriptions of the programs do not help the customer make an intelligent choice about what he or she wants to watch.

Romeo and Juliet
is described as a boy and a girl in love, and the boy gets killed. That doesn't help the customer realize this is Romeo and Juliet. Technologies are available, à la the Internet, to give progressively larger amounts of information as people want it. With two clicks, you can get more information about Romeo and Juliet, or if you are simply happy with the title, you only need one click. That is where the convergence of Internet and cable, which will ultimately happen — it would be built into digital boxes — would be extremely helpful.

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