My Turn

SVOD Dollars and Sense

2/01/2007 9:24 AM

In what direction is video-on-demand headed? Following the money.

Look at Cablevision. Last month, it implemented a video bandwidth-management technique called digital-video switching, the biggest such deployment on a single cable system.

What is the big New York City-area cable provider doing with that additional bandwidth? Adding dozens of new foreign-language channels it will sell as subscription-VOD packages. They’re equivalent to the many premium foreign-language channels sold a la carte or grouped into tiers on cable (or satellite TV) now — except delivered solely to Cablevision’s digital-cable customers and don’t have to be wedged into overstuffed expanded basic.

Multichannel-video operators love premium channels, including foreign-language channels. Just mark up the wholesale price and let the channel market itself. Selling, for example, TV 5 USA or The Filipino Channel as premium networks is easier than trying to include them into a tier, price the tier properly and successfully market it. And unlike all but a few U.S. cable channels – notably HBO, Showtime, Starz and their multiplex versions – many foreign-language channels are happy to be sold a la carte.

As MCN and others have reported, niche or “lightly viewed” networks are considered the best for early implementations of switched digital video, a relatively new technology that directs channels only to customers that want to view them at that time.

My prediction: look for Time Warner Cable and possibly Cox, two other big SDV proponents, to go the foreign-language SVOD route in big markets.

Cablevision’s timing was interesting in another respect. As we reported last year, Verizon is using switched video and emphasizing a hefty foreign-language a la carte menu to lure subscribers to buy FiOS TV. Verizon said last wee more than 200,000 FiOS TV customers are on board, about a 9% penetration rate. Also last week, Citigroup analyst Jason Bazinet, who on Jan. 22 downgraded Cablevision’s stock to “sell,” piled onto that opinion with a report saying Cablevision’s FiOS exposure was “much larger than we previously believed.” Bazinet now believes Cablevision’s basic-video-customer losses in 2007 will be about 50,000, up from an earlier 10,000 estimate.

In addition to being a bandwidth thing, it’s a competition thing, like when cable started aggressively marketing Hispanic programming tiers to offset an advantage held by satellite TV, especially Dish Network.

SVOD changes premium networks the way TiVo changed television viewing. HBO On Demand is a destination that HBO’s broadcast multiplex channels can’t approach. I single out HBO because of its successful gambit last year in airing new episodes of personal fave The Wire six days early on-demand; these days, I’m exploiting that advantage to watch Extras and Rome early and often. The downside: Too many times, my VOD “order” just doesn’t go through, resulting in a Time Warner error message telling me to try later or call customer service. For all the years Time Warner has been testing or deploying HBO On Demand, that shouldn’t happen – even though HBO’s not lightly viewed.

But when it works right, it’s another example of SVOD that’s in the money.