David Purdy of Canadian MSO Rogers Communications said he was laughed at four years ago when he added free on-demand programming to the cable lineup.
"I had to remind my colleagues that it was a $1.7 billion subscription revenue stream, so it wasn't really free on-demand content," the vice president and general manager at Rogers said.
The benefits of on-demand content in protecting revenue streams, retaining cable customers -- while generating minuscule ad revenue -- were given a thorough going over at a breakfast at CTAM Summit 2009 on Monday. The event was organized by Multichannel News.
Purdy and Michael Rahimi, the SVP of marketing and consumer services at Mediacom, said two-way VOD services help hang onto subscribers.
"It is our true video differentiator" against satellite television, which remains cable's biggest competitor, Rahimi said.
Purdy said VOD helps reduce churn and can help win back satellite customers. That in itself is a payoff, whether or not the content brings in subscription or ad revenue.
"Probably the area where I'm most focused on most from the on demand platform is: how do we block over-the-top disruption," Purdy said. "If you take a medium to long term view of our business, I'm really worried about the commoditization of my content on sites like Bit Torrent and Limewire. If we can have a really robust on-demand offering that blocks over-the-top disruption, I think that's going to create fantastic shareholder value."
Subscription on-demand traffic has been by far the biggest growth category at Mediacom, Rahimi said. Purdy said the most successful on-demand launch at Rogers was for The Movie Network, a premium channel he described as combining elements of various U.S. premium channels. Rogers doesn't charge extra for it but was able to raise rates on TMN two years after the VOD service launched.
The subscription services have a better VOD model now because of extreme limitations to ad revenue from commercials that air during on-demand shows. Ads can't be "dynamically" inserted, making it hard to respond quickly in terms of refreshing the messages.
It can take two weeks or a month to get usage data, from multiple measuring agencies. Purdy joked with a Rentrak executive in the audience: "I really encourage Rentrak to merge with Nielsen and then do a deal with Comscore. That would be really helpful for us."
Doug Sylvester, chief strategy officer at VOD technology provider Avail-TVN, said it's very difficult for a small programmer to build a business around VOD. "Absent affiliate fees, absent a strong advertising model, they're not going to be able to survive."
Purdy said the consensus seemed to be that dynamic ad insertion wouldn't be a reality for another two years. "I think that's a real tragedy," he said. He said cable operators weren't moving fast enough to help programmers make money from VOD advertising.
Sylvester said a lot of energy is being invested at Avail-TVN in developing technology to help programmers monetize VOD. In June, the company said it was partnering with BlackArrow on dynamic ad insertion.
Rogers is introducing its own version of the "TV Everywhere" online distribution of programming next month, called Rogers On-Demand Online, something Purdy announced at the recent OnScreen Media Summit, put on by MCN and Broadcasting & Cable, in New York.
Purdy said that service has benefits over VOD in terms of being able to earn ad revenue. "Digital cable can't support advanced advertising and advanced search" the way Web platforms can, he said.
He also made a wry comment about putdowns of VOD. "For me, VOD is the golden retriever at your feet and over the top peer-to-peer file sharing sites are the wolves at the door. What I can't quite get my head around is why we constantly beat the golden retriever with a newspaper as an industry and don't really go after the real problem, which is the peer to peer file sharing sites trying to break down the door."