News

MediaOne Commits to Diva Launch

9/19/1999 8:00 PM Eastern

Video-on-demand provider Diva Systems Corp. announced its
first deal with a major MSO last Tuesday, MediaOne Group Inc., to commercially launch its
service in a top 10 market.

The two companies have agreed upon the location, but
executives from both declined to say where.

MediaOne will use General Instrument Corp.'s
"DCT-2000" receivers, integrated with Diva technology, for the test.

In a separate announcement that same day, Encore Media
Group LLC chairman John Sie told attendees at a National Association for Minorities in
Communications conference that MediaOne signed a letter of intent to test the premium
network's subscription-VOD service sometime next year. He mentioned Atlanta as a
possible test site.

"We are very excited about the strategic potential and
opportunity of subscription video-on-demand," MediaOne senior vice president of video
Judi Allen said, adding, "There's still a lot of unanswered questions."

MediaOne will use the test to see if SVOD helps
premium-movie subscriptions to stick and whether they can add incremental revenue per
subscriber.

Sie said the MSO would test different monthly service fees
of $4, $6 and $10 above the cost of Encore's thematic-movie package for an SVOD
feature that would give viewers 24-hour access to 100 movies per month from the
network's current lineup.

Because not all programming from the networks would be
available on an SVOD basis, movies that are would be earmarked with a "Starz Video
Club" bug on the programming guide.

Diva president David Zucker said his company has been
talking with Showtime Networks Inc., Home Box Office and Encore about SVOD.

Although Allen could not say whether MediaOne has SVOD
deals in the works for HBO or Showtime, she did say, "We'd be totally open to
testing with other video suppliers. We're interested in anything that improves the
value equation and consumer acceptance of premium television."

Executives at HBO and Showtime were not available for
comment at press time.

Allen added that the MSO doesn't know yet what impact
a wide variety of VOD programming will have on its subscription business.

While Zucker conceded that potential premium
cannibalization is "always an issue" with cable operators, the company has seen
"no measurable change" in premium subscriptions at systems where they've
already tested and deployed.

Diva currently offers SVOD of its own, with monthly
packages such as its "Kids' Channel," which offers about 40 titles
on-demand for $9.95. Zucker estimated that 7 percent to 10 percent penetration is typical
for that channel.

Although Diva does not control pricing for its clients,
$3.95 is typical for recent movies, and library titles are priced lower. Operators
typically generate incremental revenue of $4 per month just for the movies on-demand,
Zucker said.

In addition to individual movies and SVOD, the company now
offers music videos on-demand, which operators can offer on a subscription or pay-per-view
basis.

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