Basic Nets Hear VOD's Call

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Spurred by the rollout of video-on-demand servers — and operators interested in improving digital penetration — nearly every major basic cable network may test VOD or subscription VOD in 2002.

Add A&E Network, MTV Networks, ABC Cable Networks and BBC America to the list of basic-cable programmers who've planned VOD or SVOD trials with operators for this year. They join peers like ESPN, Discovery Networks U.S. and Cartoon Network, which already have provided the content for VOD launches.

"We're in discussion with several operators for VOD and SVOD tests with the ABC Cable Networks family," ABC Cable Networks Group president Anne Sweeney said last week. "Increasing digital growth and reducing churn is in everyone's best interest."

Networks are definitely feeling the VOD love from affiliates.

"In all our discussions with partners, they have told us VOD is a top priority," said MTV Networks vice president of broadband development and sales strategy Susan Keith.

On-demand offerings from MTV: Music Television, VH1, Nickelodeon and TV Land are all in the works, she said. Content from Nickelodeon and Noggin is likely to reach the market by year-end.

Networks say they are responding to the call.

"Over the course of 2002, we'll be working with virtually every major distributor that's out there," said A&E Networks senior vice president of affiliate sales David Zagin. The programmer plans to offer VOD and SVOD product from A&E, Biography Channel and The History Channel.

NOTHING'S EVER EASY

But the placement of basic programming on video servers raises a host of questions that programmers and operators have never dealt with before. It also adds a layer of complexity to the often-tenuous relationship between the two camps.

Among programmers' major fears: On-demand products will cannibalize ratings and ad revenue from existing basic-cable networks. Programmers and operators also have to make tough choices on whether to package SVOD content by network brand (for instance, CNN on Demand), by genre (news) or by cable service category (basic or expanded basic on-demand).

Networks and operators hope the trials will provide some answers.

Basic networks rely on revenues from subscriber fees and advertising, so they must balance potential SVOD or VOD payouts with any potential shortfall on the ad-sales front.

If viewers were to forego standard reruns in order to watch shows via SVOD — with no commercials, or with spots that can be skipped — advertisers wouldn't be happy.

"That's why you don't barge into this and completely redo your business model," said one senior cable-network executive. "When you shrink the ad-supported audience, the advertiser will look and say, 'Where can I get the most eyeballs?' "

On-demand TV could include advertising. But commercials might turn off viewers who are paying extra for the on-demand convenience.

MTVN hasn't determined whether its on-demand content will include advertising, said Keith.

BBC America has decided to keep its SVOD offering devoid of advertising. Americans will see EastEnders
the way Brits see it at home: sans commercials.

One perk BBC America's SVOD viewers will have — and their U.K. counterparts won't — is the ability to watch a program one week before it's scheduled to air on the network.

"It makes them feel like they are part of a special club," said BBCA vice president of online business development Parule Basu-Barua.

The Beeb's U.S. arm may also add backstage material, extra interviews and behind-the-scenes footage to its SVOD product, packaging the shows as if they were on DVD.

"SVOD subscribers would be getting a little bit extra," Basu-Barua said.

To store shows on a server, programmers must own the rights. That's not a problem for MTVN, said Keith. For instance, Nickelodeon owns so much programming outright that it doesn't need new contracts to launch VOD or SVOD.

The same is true for ABC Cable. Parent The Walt Disney Co. owns such soap operas as All My Children, which runs on ABC and on SoapNet, Sweeney said. And Disney Channel owns many of its original movies and series.

MTVN will also look at what plays well online and on Internet radio in determining what MTV or VH1 might offer on-demand, Keith said.

PACKAGING ISSUES

Operators have raised the prospect of grouping SVOD fare from several basic-cable networks into a package not unlike present-day basic cable service, several programmers said.

Networks could receive additional revenues based on actual usage, one programmer said. If five networks each had 20 percent of server space, but one generated 30 percent of all usage, that top performer would receive 30 percent of the programmers' overall take, the network executive said.

Operators also could craft genre-based packages. For instance, an animation package might include content from Disney, Cartoon and Nick in a block that still allows networks to preserve their own brands.

Programmers have politely discussed such genre packages, but each sees its brands as strong enough to stand alone.

"We've been told what MTV Networks can bring is our combination of powerful brands, and particularly our packaging expertise and signature shows that have a lot of brand recognition," Keith said.

Nickelodeon might end up leading MTV's charge, because children like to watch the same programs over and over and tend to be early adopters of new technology. Also, kids will watch during off-peak VOD hours — such as after school and on weekend mornings — which will increase operators' bandwidth efficiency, Keith said.

GETTING TECHNICAL

Programmers must also come to grips with the various technical issues, including the costs of home equipment and servers.

The cost of "caching" equipment for VOD servers can run as much $17,000 for a 72-gigabit hard drive, which represents just a portion of space on a typical 800-hour server, according to programmers. Technology costs will likely drop over time, but someone still has to pay.

And in larger cable systems, it might be necessary to duplicate that $17,000 catching gear in multiple headends, adding to costs. There are presently few software tools to organize content from various catchers across the network, one executive said.

Server space could also become a gating factor, creating the digital the equivalent of today's channel-locked analog systems.

"Operators will judge how to use that server capacity," one program executive said. "They won't lock themselves in. They'll look at what's most popular."

A&E's Zagin agreed. "Server availability is definitely an issue," he said. But operators can switch out less popular content on a weekly basis, opening up space for newer or refreshed material, Zagin noted.

And with digital-cable growth slowing, operators are going to need help from programmers.

"This business has an opportunity to ramp up in a much greater fashion," Zagin said. "This VOD content is really going to help digital deployment."

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