How high are the stakes for the cable industry's video-on-demand rollout? Pretty high.
Faced with subscriber-growth rates that are dwindling — if not retreating —in the face of direct-broadcast satellite, VOD is one cable's strongest plays to blunt DBS churn.
Now the nation's largest MSO, Comcast Corp., is upping the ante with a granddaddy-of-them-all VOD rollout in Philadelphia.
"This is a historical product rollout," said executive vice president of sales, marketing and customer service Dave Watson. "This is a substantial competitive breakthrough for the cable industry."
Last spring, Comcast — which had launched movies-on demand in more than a dozen markets — announced it would push the envelope on VOD.
The MSO planned to make its home base of Philadelphia the test bed for VOD's next frontier: 1,500 hours of content, ranging from hit movies and library product, to subscription VOD from premium networks, to hundreds of hours of free on-demand content from traditional and nontraditional programmers to recently encoded local and national NBC fare.
After a soft launch in November, Comcast this month went public with a $2 million cross-platform advertising blitz designed to raise awareness and use of the service.
"The product moves us to parity with satellite," Watson said. "It gives us a leg up on the competition."
The Philadelphia launch is now a staple of CEO Brian Roberts's presentations to financial analysts.
"If you haven't played with it, you're in for a treat," he told a Salomon Smith Barney conference earlier this month. "We have 200 movies in the VOD library in Philadelphia and it all works.
"The industry has north of 20 million digital boxes and they can all be VOD ready tomorrow by hooking up a server. I'm bullish on VOD, because the content is going to flow and it's going to be a revenue opportunity for both sides."
Both Roberts and Watson find cheer from Philadelphia's early results. "Usage rates have been very encouraging," Watson said, with roughly 25 percent of the 500,000 VOD-enabled area homes using the service.
In Demand furnishes Comcast with hit-movie and library product from Sony Pictures Entertainment, Universal Pictures, Twentieth Century-Fox, Warner Bros., New Line Cinema and Metro-Goldwyn-Mayer Inc., among others. Recent theatrical films are priced at $3.95.
Some 800 hours of free on-demand content include shows from A&E Network, The Biography Channel, Atom Television, Comcast SportsNet, Comedy Central, Court TV, C-SPAN, The Golf Channel, Outdoor Life Network, Turner Broadcasting, Scripps Networks Inc., Wisdom Television and magazine publisher Primedia Inc. Also available are newscasts from WCAU, the local owned-and-operated NBC station, as well as NBC Nightly News, Meet the Press
and Dateline NBC.
Showtime Networks Inc.'s 100-hour subscription VOD package is scheduled to go live this month.
"The customers have a lot of options," Watson said. "All that usage, and we haven't launched marketing.
"We see movie buys going up. We see transactional usage going up. We're thrilled with the 25 percent."
Both Watson and Roberts noted that children's cartoons, music videos and Comedy Central's segments from Primetime Glick
as among the most popular offerings. Such content tends to broken into small segments.
"That is how you how you build a brand," Watson said. "The customer will access linear and on-demand content" from programmers.
"They want control in a lot of ways," he said.
A marketing campaign — to include cross-channel, broadcast TV and radio spots; a nine-page print piece; and outdoor billboards — kicks off this month. The effort, which began with teaser messages, blends in more-specific marketing and education messages over its three-month span.
The user interface is one key to making VOD work. Gemstar-TV Guide International Inc. has rolled out a new VOD interface for Comcast, with another in the works. The guide features a barker window for video promotion, category-tiering capabilities and enhanced playback controls.
Gemstar also created eight, 60-second "TV Close Up" advertorials highlighting available VOD. They'll air on TV Guide Channel through March.
The Comcast Digital Cable opening screen contains three drop-down categories: Television, On Demand and a main menu.
"On Demand is front and center," Watson said. "You can't miss it."
On the Philly-area systems, Channel 1 doubles as an on-demand portal. Eventually, Watson hopes to be able to send viewers to the on-demand section of Comedy Central, for example, directly from the linear network.
"The ongoing challenge is to simplify the process," he said.
In 2003, Comcast plans to use what it learns in Philadelphia elsewhere. Some or all of the content now available in Philadelphia will be replicated in the MSO's 19 other movies-on-demand markets by the third quarter, Watson said.
"They will have complete or partial access to a full version of [the] Philadelphia [lineup]," he said. "We will relaunch VOD in those markets."
Former AT&T Broadband systems won't be left out.
"We will look at the AT&T properties, some of whom are in good enough shape to launch VOD, like Portland [Ore.]," he said. "Some will go sooner rather than later, perhaps summer."
That's music to the ears of VOD-equipment vendors, who have seen a slowdown in launches overall — and a standstill at giant AT&T, as it merged with Comcast.
For all that Comcast will offer in Philadelphia, everything available on VOD can't be found in the City of Brotherly Love. Comcast does not have deals with Home Box Office or Starz Encore Group LLC, and chunks of basic VOD offerings also aren't available.
Price is the key issue: Comcast believes it must offer free-of-charge basic content to help drive usage and digital set-top sales.
And unlike Time Warner Cable — which offers HBO On Demand for $6.95 per month on its systems — Comcast doesn't believe in separate charges for on-demand content and functionality.
"The right answer is to not incrementalize the customer to death," Watson said of $3.95 and $6.95 a month SVOD packages. "We don't want to set up a series of tiers. We want on-demand embedded in the existing relationship, just as we do with [multiplex services]."
Showtime On Demand will be available at no extra charge.
"That will help them retain customers and generate less churn," Watson said.
As for Starz, Comcast has filed suit against the programmer in a bid to shed itself of a pricey carriage deal for the premium service inked by Broadband predecessor Tele-Communications Inc. Thus, the lack of Starz content in Philadelphia should come as no surprise.
The rise of the DVD has given cable VOD providers something else to think about in terms of differentiating product.
"We encourage programmers to do that, enhance their product and brand," said Watson. "Maybe it's the best of what's coming up to build awareness for future programming, or behind-the-scenes looks."
And how will Comcast judge success? "We'll have something after several months of data. Usage has a dramatic impact on value."
Comcast also will look at digital penetration lift, retention and analog pay upgrades, he said.
"Price/value is a complex issue," Watson acknowledged.
Who'll be able tell if new digital customers were attracted because of VOD, the extra channels or the guide?
"We'll ask customers," Watson responded.
That may beg the next question: Has digital cable been redefined as VOD, rather than as a set of extra channels? Watson is diplomatically cautious.
"VOD is right at the top of the list, [but] digital is a handful of things," he said. "Extra channels are important, but VOD provides unparalleled customer options."