FOD Is Paying Dividends, Says SeaChange - Multichannel

FOD Is Paying Dividends, Says SeaChange

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Server provider SeaChange International Inc. has drilled into Comcast Corp.'s early numbers on free video-on-demand — and its effect on digital-churn reduction — and believes that it has come up with a compelling economic rationale for such programming.

According to SeaChange's analysis, FOD could pay for itself in less than nine months. When combined with movies on-demand and subscription VOD, payback could occur in less than six months.

"That's pretty phenomenal," said Yvette Kanouff, corporate vice president of strategic planning with SeaChange International, Comcast's server vendor for its FOD trial in Philadelphia.

Comcast followed 6,000 digital customers for four months and found that 96% of those who used FOD stayed with the service. Only 82% of those who didn't use FOD retained digital.

Kanouff used those numbers in her analysis to come up with a revenue model for the payback period.

Though its VOD-churn statistics were promising, Comcast emphasized that it's still too early in the product's life cycle to draw firm conclusions.

"While we fully expect them to hold up over time, there is much work to be done," said Andy Addis, Comcast's senior vice president of video marketing and new products. "We are deploying on-demand to enhance the value proposition we offer to our customers, and we expect to derive significant economic value via churn reduction.

"We are not, however, prepared to publicly project the specific financial impact based on early results in a limited percent of our footprint."

Comcast might not be ready, but SeaChange is. Kanouff estimates that Comcast generates $89.55 in savings per year, per subscriber through free on-demand services.

"People understand return on investment for movies on-demand pretty well," she said. "SVOD was added into that, and that's fairly well understood."

But FOD is less well-understood, she said, with Comcast hoping that the service would reduce churn and perhaps increase digital penetration.

Kanouff starts with Comcast's numbers: 6,000 subscribers tracked across four months. Some 14% of digital subscribers churned away from the system that didn't employ FOD.

Comcast values a digital subscriber at $60 per month or $720 a year, Kanouff said. Costs must be applied against that revenue figure.

The first cost Kanouff applied was the cost of end-to-end streaming, at $500 per stream. At an estimated simultaneous FOD usage rate of 15%, she estimated a streaming cost of $75 per subscriber.

Next, she multiplied the 14% churn rate by $720, the value of each digital subscriber, to reach $129.60. That is the estimated cost per subscriber per year for standard digital churn.

But because 96% of the digital subscribers kept the service, the FOD difference amounts to $28.80 cost per subscriber, per year for digital churn with FOD, or 4% of the $720 figure.

Kanouff estimated 15% of total capital costs for other equipment and operational costs for FOD, basically FOD's fair share of the capital needed to implement on-demand service. She placed that figure at 15% of total capital costs, or $11.25 per subscriber, per year.

The two cost figures ($28.80 and $11.25) add up to $40.05 per customer per year for digital churn with FOD. Subtracting that figure from the $129.60 provides Comcast with $89.55 per subscriber per year.

The capital payback would occur in just over eight months, Kanouff estimated.

"This FOD isn't really true personal TV," Kanouff added. "It still doesn't even represent the entire TV lineup. This analysis is only based on reductions of churn. It doesn't account for increases in basic or digital penetration or depreciation."

Even if churn doubles and the payback point moves to one year, Kanouff said, "that is still a great business model."

Especially if the numbers hold up across an entire MSO.

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