Technological advancements that have fueled video on demand's growth to nearly 30 million households are now driving the cable industry into new and uncharted video-delivery territory.
High-capacity video servers, dynamic ad-insertion capabilities, proficient asset management and the ability to run content over multiple platforms, such as mobile handsets, are classic examples of next-generation technologies extending the breadth and depth of video on demand.
The result is a booming VOD business. A recent Merrill Lynch report forecasts more than $1 billion in earnings before interest, taxes, depreciation and amortization (EBITDA), a measure of cash flow, for the cable industry by 2011 and a growth rate of 42% between 2006 and 2011. In addition, on-demand buy-rates per digital subscriber are projected to increase from 0.5 units in 2006 to 1.5 units in 2011, with cable's VOD revenue spiking to $3.7 billion by 2011.
With those numbers signaling the maturation of VOD as a technology and a business, the technologies now driving that sector are expected to become even more integral to its growth and acceptance.
“The maturing of the VOD infrastructure has been a major advancement,” said Tom Rosenstein, vice president of product marketing and alliances for VOD technology vendor SeaChange International. “We're pushing the infrastructures to support everyone's video services and opening up the infrastructures will allow even more operational efficiencies. We're also being asked to make three-screen technology work more efficiently for video delivery. VOD is now a very competitive world.”
VOD isn't just emerging as a competitive differentiator for cable operators — it's sparking a drive towards advanced technologies that will allow a veritable smorgasbord of services such as HD, local on-demand content, VOD over multiple platforms and more.
“Consumers are more comfortable with on-demand technology, and there are more assets available on VOD, while the two-way offering is very competitive. The introduction of HD on VOD has been a key technological advancement as well. But for VOD, it's now all about managing the network infrastructure to enable content to be delivered over multiple devices,” said Biren Sood, vice president of cable video, Americas, for BigBand Networks.
The technical advancements made in the VOD space are not only enabling those multiple services, but inspiring a business resurgence of sorts for smaller cable operators, and a potentially lucrative new revenue stream for on-demand providers large and small.
“As a smaller operator, it's hard to differentiate ourselves from our competition. But VOD has reduced our churn in our cable markets, and we're actually making money with VOD. We're now looking at furthering our VOD technology and monetizing it through our ad sales group. We're getting great traction with VOD,” said Paul Strickland, product manager for advanced services at Bresnan Communications.
And much of the traction is the result of VOD's technology maturation, which for nearly 10 years has been an ongoing process.
“Operators want resiliency in the networks, so as VOD becomes more center stage, we are getting lots of requests for higher levels of resiliency. The content libraries are also expanding and there's tremendous interest in truly dynamic advertising. That's why we're involved in protocol development of advancing VOD technologies like ad-splicing. We're already seeing trials in that area. The industry is moving forward on a number of technological fronts,” said Kip Compton, senior director and general manager of Cisco Systems' video and content networking business.
Yet it's easier to move forward on some fronts than others, Compton cautioned. “User interfaces have driven VOD usage, but they still need improvement. Once that happens, we'll see VOD usage being stimulated.”
The user-interface issue is prompting companies such as TVN Entertainment to take a hard look at the content navigation technology, or lack thereof.
“We integrate with VOD manufacturers and work closely with technology companies, so business rules and metadata are passed onto the program guides. But today, we deliver 3,000 hours of new VOD programming a month, so the navigational system is extremely important to find that programming,” said TVN Entertainment chief operating officer Doug Sylvester.
Many VOD providers such as Bresnan are more vocal about the need for streamlining and simplifying user interface technology. “Navigational guide people need to step up and provide better ways to find VOD content,” said Strickland. “We're waiting with bated breath for title search, actor search and other guide features. That will be the end play for free and pay VOD.”
It may not be the only end play for VOD, however. Switched digital video (SDV) has a role, as well as HD and dynamic ad-insertion technologies
“I think SDV will look a lot like VOD on steroids, so how do we take what we have and apply it to SDV? Every cable operator wants to know the peaks of VOD. The more cable operators can understand their networks now, the better off they'll be in the future,” said Barry Hardek, vice president of business development and marketing for Everstream, a provider of data, collection, reporting, analytics and business intelligence to the VOD space.
Understanding the complicated nuances of today's complex and sophisticated networks will require a deeper dive into a cable network, Hardek noted. “Most people want to drill down farther, all the way to the node. And HD will put more pressure on the network. So, there's lots of interest in taking technologies down to even more granularity for more precise asset management. As VOD gets bigger, there will be even more interest. VOD's trajectory is upward and out of the niche stage, so we're helping to refine and measure VOD.”
Technically speaking, most experts agree the more serious hurdles facing VOD have been overcome, albeit with some remaining tweaks and refining. Now, it's time to advance the technologies driving VOD to the next level.
“From a pure on-demand perspective, the technical issues have been solved. But with all of the free on-demand services, how do we make money? The Holy Grail seems to be dynamic ad insertion. And, there's interest in expanding VOD to mobile TV and IPTV. Those are the next levels of technology,” said Michael Adams, vice president of system architecture for Tandberg TV.
VOD buy-rates per digital subscriber are projected to increase from 0.5 units in 2006 to 1.5 units in 2011
Cable's VOD revenue is expected to spike to $3.7 billion by 2011.