Diva Steps Up Philly VOD with 2nd MSO

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Adelphia Communications Corp. last week became the second
Philadelphia-area cable operator to market a video-on-demand service from Diva Systems
Corp.

Lenfest Communications Inc. began marketing Diva's
OnSet service in November to its Suburban Cable subscribers in Delaware County, Pa.
Adelphia announced last Wednesday that it had begun offering the same service to
subscribers in its Lansdale and North Wales, Pa., systems.

OnSet offers subscribers instant access to more than 250
movies and special-interest titles. Once a movie is ordered, a customer has access to the
title until midnight the next day, with VCR-like functions including pause, rewind and
fast-forward.

Alan Bushell, president of Diva, said the VOD service gives
cable operators access to revenues that would have gone to the video-rental business.

True VOD also gives cable a sorely needed competitive edge
over direct-broadcast satellite's near-VOD pay-per-view offerings.

"It's the one thing that cable can offer that our
competition can't," said Joe DiJulio, vice president of network services for
Suburban.

That's because digital cable offers a two-way plant
with a broadband-return path that DBS doesn't have.

Diva's OnSet service is enjoying buy-rates higher than
those for DirecTv's successful Direct Ticket PPV service, which typically sees
buy-rates of between 1.5 and two movies per subscriber, per month, Bushell said. Neither
Diva nor Lenfest would quote specific buy-rates.

"We don't want to be misled by what I call the
novelty factor," Bushell said, adding that the buy-rates have more than met
Diva's business plans for Philadelphia so far.

To help keep subscribers interested, Diva plans to update
its programming over time. The company is developing technology that would allow viewers
to time-shift popular broadcast-television shows, much like Your Choice TV is offering.

Bushell said he expects to have such a service operational
by the end of next year. Diva hasn't approached broadcast content providers yet
because the company prefers to test its new technologies first. Your Choice has been
largely unable to secure such programming from the studios that own the content.

Because the VOD equipment is based at the local cable
operator's headend, programming can be customized to match the preferences of a local
audience. Bushell predicted that over time, 80 percent of OnSet's programming would
be common across all markets. The rest would be special-interest and foreign-language
titles chosen with the input of individual cable operators and subscribers.

Todd Eachus, public-affairs director for Adelphia's
Philadelphia system, said the company selected Lansdale and North Wales because
they're the first of the 17 municipalities in the MSO's Montgomery County, Pa.,
system where the return path has been activated.

Adelphia has added VOD to round out its
full-service-communications offer to consumers, which also includes Internet access,
digital television, paging and long-distance phone service.

The MSO tested the OnSet service with beta-testers earlier
this year, and it is confident about opening it up to a larger market.

Suburban has signed up some 260 paying subscribers for
OnSet since its launch last fall, DiJulio said, and it still has an additional 40
"friendly" subscribers, including employees and friends. Eventually, the company
hopes to transition those to paying customers, he added.

In the next two months, Lenfest will expand its marketing
efforts in an attempt to add 2,000 VOD subscribers. Today, Suburban services about 35,000
subscribers in Delaware County with two-way plant.

The company will also beef up its marketing efforts to help
drive OnSet acquisitions. Suburban has a barker channel that goes only to subscribers with
access to the two-way plant. A toll-free number has been set up specifically for the OnSet
service, with dedicated customer-service representatives to walk new subscribers through
the ordering process.

"People want video-on-demand," DiJulio said.
"They don't know that they want it because they don't know what it
is."

Both Adelphia and Lenfest said they're careful not to
create demand for the product in markets where it's not yet available. But limiting
advertising to targeted marketing such as direct mail can't keep satisfied customers
from telling their friends and family.

"There's been a lot of word-of-mouth,"
DiJulio said. "The best way to market this is to put it in more houses."

Privately held Diva raised $250 million in new financing
last month. Bushell said that while he's not ruling out plans to take the company
public, Diva would wait until it was mature enough for the general investing public to
understand it.

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