Insight Communications is shifting its VOD strategy for 2004, placing a greater emphasis on increasing the number of unique users.
The goal is to move the company from 25% usage to 50% usage among digital-cable subscribers. Buy-rates for pay services, and revenue generation, will be somewhat moved to the back seat, with the idea that enhanced usage will, eventually, increase transactional VOD revenue and, more importantly, cut down on digital churn.
"Our core philosophy now is to increase the number of unique users," said Terry Denson, Insight's vice president of programming. "We want to move VOD from a bronze medalist to a gold medalist."
"We've been in this space for three years. We have marketed aggressively. We have content partners who have helped," Denson said.
Needed: Big Base
But that structure has produced usage rates that top out at 25%. Buy-rates can get goosed with marketing campaigns, but if activity is spread among a small base, VOD's growth will be limited.
"We said: 'Let's stop thinking buy-rates only, and cost per stream, and return on investment and all content decisions based on ROI or cost per stream. Let's not talk buy-rates for a year. Let's see if we can get more people in the store, and you can sell more stuff,' "Denson said.
With that approach as a framework, Denson created what he calls a six-cylinder VOD strategy to drive usage from 25% to 50% in 12 months.
The first cylinder is transactional VOD, led by new releases, adult and library titles. "The adult product finds itself," he said.
Although Insight is somewhat downplaying buy-rates as the only measure of VOD success, Denson said enhancements and special offers will drive movie buys. Insight plans to launch SeaChange's VODLink DVD feature service next year.
Insight also is talking with studios about double-feature movies, much like what Universal offers today, and at late-window discounts, to further drive usage. "That may give us a point or two," he said. "Maybe we get back people we lost [to] DVD functionality."
The second cylinder: premium SVOD. Insight launched HBO On Demand and Showtime On Demand in October and began marketing the services Nov. 1. Starz will launch shortly, Denson said.
On-demand services are included in premium pricing, with HBO and Showtime ticking up to $13 per month from $10.
"That will drive a significant number of unique users," Denson said. Insight hopes to pick up 10 to 15 percentage points in usage from SVOD alone, plus add premium subscribers. "The early reports are that we're gaining subscribers," he said. "It's a terrific product."
To ease the price increase, Insight is instituting various retention and grandfathering marketing strategies, he said.
The third cylinder: genre-based basic-subscription packages containing strong brands.
Insight has launched a $6.95 a month children's package, consisting of 10 hours each from Disney Channel, Cartoon Network and Discovery Communications, plus 30 hours or so from TVN Entertainment Corp., culled from the likes of PBS Kids and Scholastic.
"The programmers can use it as part of their marketing efforts," Denson said. "They'll help us promote VOD, increase awareness and drive usage."
Denson is realistic about how many subscribers will sign up for such packages. To date, Insight's penetration is in the low single digits.
But the usage number is close to 900% among subscribers, meaning they access nine titles a month. "They like the product," Denson said.
Disney Channel is working on a promotion for the VOD tier.
Denson also wants a sports-and-information offering to accompany the children's package.
A chief content area would be local college football and basketball, encoded on the fly and placed on servers within a day or two of original airing, after rights have been cleared. The Midwest, where Insight mostly operates, is a hotbed for college sports.
Denson also is looking at ESPN's VOD library for such content as evergreen X Games material, plus content from Fox Sports World and from SpeedChannel.
For news and information, Insight is talking with ABC News, CNN and Bloomberg about timely content with a shelf life on VOD. That package, which could launch next year, would go for $4.95 a month.
Mag Rack Plus
Insight's fourth cylinder is free content, led by Mag Rack. Denson is looking to add more Mag Rack content, and sprinkle in material from Scripps Networks, A&E Networks and National Geographic Channel.
The fifth cylinder: local content, both news and sports, which Insight has dabbled in the past. The MSO is looking to purchase its own encoding equipment, to be used locally, to shoot local high school sporting events and encode local news from broadcast affiliates for playback on VOD.
Cylinder six is long-form ads, built on Cox Communication's FreeZone model. "The local ad sales guy loves it," Denson said.
Advertisers could buy 12- to 14-minute long-form ads — "entertainment for a lot of people and it becomes a revenue generating component," Denson said.
Also envisioned is a marketplace for an advertiser — think of a jewelry store that runs information on its product from early November until St. Valentine's Day. Fitness chains are another possibility.
Already, Insight has seen that churn rates for VOD users are 60% lower than non-VOD users. That would equate to digital churn dropping from 5% a month to 2% among the 25% of subscribers who use VOD.
If Insight can double usage, and the churn reduction numbers hold, the MSO would be able to cut churn by 60% in half its digital subscriber base, Denson said.
That carries a huge bottom-line benefit.