2008 CABLE SHOW: Canoe Will Steer VOD Growth

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New Orleans -- Video on demand has been a remarkably successful product for cable over the past few years, but its true potential is yet to come, according to a panel of cable operators and programmers at Tuesday’s general session here at the 2008 Cable Show. 

Operators and programmers are taking steps to make that potential – interactive and targeted advertising – a reality, primarily through the Project Canoe interactive advertising standards-setting organization announced earlier this year.

Comcast chief operating officer Steve Burke said on the panel that the venture has already hired a CEO and will announce that hire on June 1. Although Burke did not elaborate, it is widely expected that former Aegis Media Americas CEO David Verklin will be selected to head up the project.

While VOD has been wildly successful for cable operators – Time Warner chief operating officer Landel Hobbs said that VOD sessions are increasing at a rate of 25% per quarter – so far the technology has been a way to provide increased value to the consumer. Operators, however, haven’t been able to monetize the technology. That will end with interactive and targeted advertising.

Discovery Communications CEO David Zaslav said that interactive advertising could be the answer for cable operators and programmers to fight back competition from the Internet.

Zaslav said that while Web video is important, most networks haven’t found a way to meaningfully monetize their content online.

“The DVR [digital video recorder] and the Web, both are being embraced by consumers, but neither model is particularly attractive,” Zaslav said. “VOD has great potential and with dynamic ad insertion could be a great business for us.”

Zaslav added that VOD’s success has been somewhat surprising, mainly because it doesn’t always include a programmer’s best content.

“If we could get everything on VOD, the growth rates would go up and there would be some real value for all of us.”

Zaslav said that targeted advertising is particularly suited for VOD because the platform's users have already made a conscious choice to watch that program.

One of the values of the Web is that when people choose to go somewhere, they are more valuable to an advertiser,” Zaslav said. “If you could use that and drive down with an advertisement to educate the consumer and bring then to the point of purchase, that is really valuable.”

NBC Universal Television Group chief operating officer Jeff Gaspin said that one of the most important aspects of VOD and interactive advertising is that it keeps people glued to the best device for viewing video -- the television set. 

“God intended for people to watch television on a TV set,” Gaspin said.

And then there is the question of quality, he added. “There is no question the Internet can target like no other, but the content itself is not necessarily high-quality content,” Gaspin said. “Television is still the best way to reach a broad audience.”

Burke added that interactive advertising is only the tip of the iceberg, but that the industry has to become a little more creative in unlocking the technology’s full potential.

Burke said currently there are two main models for VOD – pay per view movies or TV shows that are made available for free for a short period of time.

“We have this wonderful engine that we’ve created in tens of millions of homes, but the creativity to drive it into different places doesn’t really seem to be there,” Burke said. “We’re using VOD in a very limited way.”

Burke added that using VOD for sell-through for different products, services like a network DVR or existing products like Time Warner’s Start Over and Look Back, as well as additional subscription video on demand should be utilized more.

Cablevision COOTom Rutledge agreed that the VOD platform is being underutilized, adding that the concept hasn’t been fully embraced by programmers. But Cablevision is putting its toe in the water on the sell-through front with the introduction of its Popcorn DVDs On Demand

product, which lets a consumer buy for a DVD movie which they can view immediately on their TVs while the actual DVD is shipped to their house in a matter of days.

“It’s not priced properly and it doesn’t have enough inventory to be a huge success at the moment,” Rutledge said. He added that the limitations for the service are all business-related not technological.

Hobbs said that Time Warner’s Start Over and Look Back products have been met with hugely favorable customer reaction – it has a 93% satisfaction rate and 76% percent of users say they would recommend the service to a friend. Consumers who use the product also believe that networks that are Start Over or Look Back enabled are more attractive.

“We are seeing nothing short of the evolution of VOD, Hobbs said. “We all wish it would go faster.”

 For more news from NCTA's The Cable Show '08, click here.