Building a VOD Model Everyone Can Embrace

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Richard Bressler is an old hand at all the facets of the cable business, having spent years at Time Warner Inc. — which made his speech outlining future business opportunities at last month's Cable & Telecommunications Association for Marketing Digital conference all the more interesting.

Bressler is now chief financial officer of Viacom Inc., a content king without the conflict of owning a cable MSO.

That said, Bressler's wide-ranging discourse on copyright protection, new technology and how to build business models for new-service tiers bears a second look, because it helps explain Viacom's current and future modus operandi in this space.

As with other content providers, Viacom executives have watched the music industry erode in the face of Napster Inc. and other file-sharing technologies, to the point where the extent of the sector's recovery is uncertain. And as owner of Paramount Pictures, Viacom is all too well aware of how much sharing of movie files goes on every day.

For Viacom, cable modems and digital video recorders — depending on how they're used — are two tools consumers can deploy to circumvent copyright law and strike daggers into traditional media models.

"Copyright protection remains a major issue," Bressler said. "It's not just studios and programmers that will have a problem here. It affects us all.

"Your business models look at justifying the incremental capital against the potential incremental revenue, but what if your base business revenue streams are jeopardized? While our content is at risk, your tiered business model is also at risk," he told cable operators.

"If consumers are using your high-speed cable modems to download every episode of The Sopranos
or Queer as Folk
from a peer-to-peer site, they will be thinking twice before shelling out that extra money every month to you for [Home Box Office] and Showtime."

The same can be said for movies, and that will affect cable's pay-per-view and video-on-demand business, Bressler added.

Digital video recorders — especially those that allow for consumers to send content to others via a high-speed Internet connection — pose another potential problem. Neighborhoods and entire communities could share The Sopranos, obviating the need for HBO On Demand, Bressler intimated.

DVRs that allow consumers to skip through ads strike at the heart of one of basic networks' core revenue streams. If advertising revenues are affected by the proliferation of cable set-top DVRs, programmers have to make up the revenue shortfall in other areas, Bressler said — including affiliate fees.

Bressler also leveled the free on-demand concept: "The logic of FOD is flawed." FOD may be part of a cable operator's $15 digital tier, he noted, but "MTV: Music Television gets nothing. That creates a real disconnect and undermines MTV's incentive to participate," because the service does incur clearance and packaging costs.

Given that view, it's no wonder Viacom's more popular basic networks, including MTV and Nickelodeon, have not tested the FOD waters. In fact, given Comedy Central's 100 percent ownership under Viacom, you've got to wonder how long it will continue to supply FOD content.

If there was an olive branch, it came with Bressler saying "we have to hammer out an FOD business model where we both make money."

That may lead back to the "best-of-cable" discussions that surfaced a year ago. The more that FOD evolves without much content from cable's leading basic networks, the more it will be ingrained into consumers minds that there's not a lot there.

Cable already faces the discomforting notion there is less value in digital tiers, given the churn rate. How long will it be until they feel the same way about FOD?

Time Warner Cable reports that it has deployed more than 100,000 DVRs, but the boxes it has shipped do not permit consumers to skip through commercials or send stored content to others via the Internet. That's a smart model, and no doubt a tip of the hat to AOL Time Warner Inc.'s content division, which surely weighed in on the matter.

"We can't and shouldn't take back technology," Bressler warned, before adding that "partnership is the only path to success."

The MSO's DVR stance is a good start. A "best of" basic-cable subscription video-on-demand package that's grows out of today's VOD service would be a second place to start. And insuring that copyright protection is built into future set-top technology — which the National Cable & Telecommunications Association and Cable Television Laboratories Inc. are working on — would help complete the loop.

All three require cable MSO and content providers to meet halfway on each issue. And that halfway point might be the only place anyone will find pots of gold associated with these new technologies.

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