Comcast's VOD Approach: Keep the Packages Simple

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Comcast Corp. executives opened their on-demand marketing and pricing kimono last week, unveiling a marketing approach meant to drive digital penetration in basic-only households through simple, low-cost, on-demand programming tiers.

The strategy, laid out at the Cable & Telecommunications Association for Marketing Digital Conference here, would offer subscription VOD content from both premium and basic networks for free within Comcast's current digital tiers. It would also make VOD movies available at a slight discount — perhaps marking the first round in a new set of negotiations with programmers.

The Philadephia-based MSO hopes to create two on-demand tiers, according to vice president of marketing and new products Andy Addis and executive vice president Dave Watson. One would be geared to current basic-only subscribers, the other aimed at those who take digital premium networks.

The "on-demand classic" tier would cost $9.95 a month and include content from several basic cable networks; a separate kids package, presumably from the likes of Nickelodeon, Disney Channel and Cartoon Network; 15 basic networks; an electronic program guide; digital music channels and discounts on VOD movies.

"On-demand plus" would sell for $14.95 a month and include the same "classic" content, along with SVOD packages from Home Box Office, Showtime Networks Inc. and Starz Encore Group LLC, as well as 40 basic channels.

Comcast will essentially maintain the current $9.95 and $14.95 price points for its digital tiers, but will add on-demand functionality to drive up digital penetration, especially among basic-only subscribers. Reaction from programmers was muted.

"It may move some," said Starz Encore chairman and CEO John Sie.

But Sie — like other premium and basic programmers — believes the upside for networks is the opportunity for programmers to collect money directly from VOD sales.

"It's going to be an evolution," Discovery Networks U.S. executive vice president of affiliate sales Bill Goodwyn said of Comcast's on-demand pricing plans.

Though Discovery sees the value in offering on-demand content as a part of a tier, he said that over time, "you'll have an opportunity for an SVOD package."

Comcast initially launched digital cable with very few basic networks, but added such channels over time, Goodwyn noted. VOD could evolve in a similar manner, he said.

Officials with the MSO believe that at the start, the key to VOD and SVOD is to drive up digital and premium penetration, which would result in revenue gains for programmers.

Basic networks could also derive some SVOD revenues from tiering, depending on how on-demand rights are integrated into their affiliation contracts.

"We need the flexibility on the part of the program partners when we launch VOD," Addis said. "We have to establish the destination as a value proposition. We have to price content to ensure sustained usage and a strong value."

Added Watson: "We must drive VOD usage so perceived value is realized. We want customers to use it and use it a lot."

It's also critical for cable to get VOD deployment right the first time, Watson said.

"This is a one-shot opportunity," he said. "We can't transact the customer to death."

The MSO hopes to bundle SVOD content within its two main digital tiers. He said Comcast "will look at a plus price point," at which on-demand content might carry an extra charge.

For instance, HBO has tested fees of $3.95, $6.95 and $9.95 per month on various Time Warner Cable systems.

PAY NETS, TAKE NOTE

While Comcast's initial stance favors "free" SVOD packaged for current premium subscribers — a strategy similar to Adelphia Communications Corp. and Cablevision Systems Corp. — the MSO has no long-term deals with any premium network that set a definitive SVOD price.

But Watson believes a packaging strategy that provides SVOD for no additional price is in the best interest of Comcast and its programmers.

"I think they are going to sell more premium product," he said. "SVOD is going to fuel the premium category."

Clearly, Comcast — which would become the No. 1 U.S. MSO if its merger with AT&T Broadband is completed — has its sights set on basic-only subscribers.

Internal Comcast surveys show that although 35 percent of digital subscribers were interested in VOD, 40 percent of analog subscribers expressed an interest in digital once VOD was included, Watson said.

"We know a lot of these people rent movies," Addis added.

KEEP IT SIMPLE

Comcast also believes the on-demand platform would digital churn.

"Digital churn is still too high," Watson said. "The more we add on, the more it's going to help [reduce] churn."

But complicated on-demand packages that offer each network for an individual price won't cut it with consumers, he said.

Watson also believes customers will accept VOD advertising if it helps keep the price down. There's already technology to ensure that consumers can't skip through commercials when viewing basic SVOD programming stored on a server, he said.

"I think customers will accept the ad model on VOD," Watson said. "That's tolerable with a value proposition."

Comcast's prices for hit movies — set at $2.95 in one promo spot screened for CTAM attendees — are also designed to drive continued VOD usage.

VOD users who come back after an initial purchase eventually settle into the habit of buying three films per month, said Comcast national director of digital products Joni Kinsley.

"Usage trends are encouraging, once they try it," she said.

Hit Hollywood films typically sell for $3.95 on VOD; the studios keep 60 cents or more of the take. Producers haven't signed off on Comcast's $1-per-title hit-movie discount, unless the operator eats any shortfall.

SOME LIKE IT HOT

Comcast plans to roll out its SVOD and VOD marketing efforts in the third quarter. The MSO has VOD up and running in 19 markets, covering 3 million homes and 600,000 digital subscribers. The goal is to double those figures by year-end.

On-demand is clearly in demand. Last week's CTAM conference drew 1,259 attendees, 59 more than last year. They heard content providers and cable operators speak glowingly about on-demand opportunities.

"VOD and SVOD represents a big opportunity for cable," said Sony Pictures Entertainment president and chief operating officer Mel Harris.

Discovery Networks previewed a multipart on-demand approach that would include a paid "Discovery On Demand" service; a "Discovery Choice 10" package of 10 free, frequently rotated on-demand programs; and a video encyclopedia with file-server content aimed at schools.

"Content-on-demand holds great potential for the cable industry," Discovery Communications Inc. president Judith McHale said. "And cable enjoys a significant technical advantage."

Discovery has tested on-demand content through Diva Systems Corp. over the past few years, in preparation for wider VOD rollouts.

Operators should remember that brands will help drive VOD usage, McHale said.

"Strong brands must be supported by strong marketing," she said.

Operators must also be sensitive to basic-cable viewing patterns.

"On-demand services have to include recent and compelling programming," said McHale.

Discovery will rotate new titles through Discovery Choice 10, but high-profile content, such as
Blue Planet
and Raising the Mammoth, would be slotted for the Discovery On Demand premium service, geared to the network's enthusiasts.

SEI: DECIDE WELL

In his keynote address, Starz Encore's Sie warned that "cable must make good strategic decisions" in deploying VOD services to protect its subscriber base from further erosion from direct broadcast satellite.

Cable must capture 68 percent of all new digital subscriber growth, Sie said, "or the cable base will erode. If cable only gets 50 percent market share, it will lose 8 million basics."

SVOD "can be a positive engine for growth," said Sie. "Cable has the wherewithal to get ahead of the curve."

It's also cable's hedge against DBS's personal video recorder technology, in his view. "I believe that SVOD is far superior to PVR," said Sie.

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