As the cable industry looks beyond the cinema for video-on-demand content, the jury is still out on how to best price and package television programming content in an on-demand world.
Both operators and programmers have embraced the concept of subscription VOD as a means to attract and retain digital cable customers, but their business concerns are not always in sync.
Programmers that view SVOD as a brand extension and a potential new revenue stream often want their services branded and sold as stand-alone products, set apart from competitors' offerings.
But cable operators want to bundle SVOD content to ease consumers' ability to make the first buy and access the service every day.
Some operators, such as Adelphia Communications Corp. and Cablevision Systems Corp., even include SVOD in the monthly price of digital cable, so subscribers have one less reason to churn to competitive services such as direct-broadcast satellite.
In Cleveland, Adelphia launched SVOD service from premium programmers Home Box Office, Showtime Networks Inc. and Starz Encore Group LLC last September.
The MSO calls its SVOD service Adelphia Anytime, and does not charge an incremental fee to digital-cable customers who already subscribe to the premium channels.
Adelphia's latest SVOD market is Buffalo, N.Y., with Los Angeles to follow, sources said.
Cablevision Systems Corp. is the only other MSO to have publicly announced plans to launch SVOD products from all three major premium-TV programmers. SVOD access is included in the $19.95 per-month fee Cablevision analog subscribers pay to add digital service.
Cablevision's digital package also includes SVOD content from the Independent Film Channel, as well as Rainbow Media Holdings Inc.'s new Mag-Rack niche programming.
The Bethpage, N.Y.-based MSO's digital servers hold about 1,000 hours of VOD content.
"About two-thirds of the content on the VOD system is free, and we anticipate keeping a lot of it free," said Cablevision vice president of digital product management Kristin Dolan.
At the end of last year — after three months up and running — Cablevision had 17,200 digital cable customers in Long Island, N.Y., for a market penetration of 3 percent in its initial deployment areas.
"SVOD is not a test for Cablevision," Dolan said. "It's a full consumer launch."
OTHERS TREAD LIGHTLY
Other MSOs are taking a different tack, treading more gingerly into the SVOD space to gauge the "sweet spot" of what consumers are willing to pay for the new service.
For instance, Time Warner Cable has tested HBO on Demand at a different price points in three markets: Columbia, S.C. ($3.95 per month); Austin, Texas ($6.95), and Cincinnati ($9.95).
"I'm really happy to say that in all markets, consumers are willing to pay for this," said HBO Interactive Ventures senior vice president Sarah Cotsen.
Time Warner has also talked with a number of content providers about how the MSO can offer free SVOD content to its digital-cable customers, said spokesman Mike Luftman.
"We believe that one way to add value for our customers is to add some free content," Luftman said.
Time Warner offers content from Scripps Networks cable channels Food Network, Home & Garden Television and Do-It-Yourself Network to subscribers in Cincinnati on a transactional basis. Current prices run from 99 cents to $1.49 per title for a six-hour viewing window, said Scripps senior vice president of new ventures Channing Dawson.
Scripps is also eager to get into SVOD, he said.
"We have some great ideas," Dawson said. "If you could access any of 1,000 videos on DIY, then if you need to install a ceiling fan, you could tune into a do-it-yourself 'encyclomedia.' "
But no one knows which SVOD pricing model will work yet, Dawson conceded. "It's all over the map," he said.
ESPN: BE CAREFUL
Operators should be careful before they start giving away SVOD content for free, even as part of a market trial, warned ESPN executive vice president of affiliate marketing Sean Bratches.
"If you condition a customer to expect something for free, it becomes problematic to get them to make the leap to pay," Bratches said.
Operators now charge $1.99 to $5.99 for à la carte programming from ESPN, including national content, regionally-tailored fare and time-shifted weekly sporting events.
Moving to an SVOD model has some advantages, such as bringing in a more steady monthly revenue stream and offering a perceived value to the consumer, said ESPN vice president of alternative technologies Matt Murphy.
But ESPN hasn't encouraged any of its affiliates to contemplate free SVOD, Bratches said. "It devalues the perceived value of our content in that platform."
Discovery Networks U.S. wants to be flexible in its SVOD pricing, said vice president of new media Clint Stinchcomb. Over the years, he said, operators have encouraged Discovery to create an SVOD offering to entice on-demand users to move beyond movies.
Stinchcomb expects Discovery to begin SVOD tests with operators later this year.
Eventually, Discovery could bring its extensive library of high-definition programming to SVOD, as natural history programming lends itself particularly well to that high-quality picture format, Stinchcomb said.
"The challenge with bringing high-definition to SVOD now is there's an extremely small pool of [HD] customers," he added.
The industry needs companies to aggregate basic-cable content to be sold in SVOD packages, said Cox Communications Inc. vice president of video product management Lynne Elander.
Cox uses In Demand to pull together its VOD theatrical titles, and will likely use it for basic SVOD programming as well. Cox has not yet launched SVOD, but it's in discussions with premium programmers regarding market tests.
Cox will test to see whether the best price point for premium SVOD is an incremental charge for each network or a price that's part of a package, Elander said.
Showtime encourages operators to charge a category price for premium SVOD, rather than an incremental fee for each network, said vice president of corporate strategy and communications Mark Greenberg.
"If you charge on a per-unit basis, it's harder for the CSRs to explain and sell," Greenberg said.
In early tests, Showtime has been pleased by consumers' willingness to pay $10 to $15 for access to SVOD, Greenberg said.
Starz on Demand does not charge an additional fee for its service in markets where it's currently being tested, said vice president of subscription VOD Greg DePrez.
"It's going to be the operator's call as to how they price it," DePrez said.
DePrez said that marketing SVOD well — and sustaining viewership after the initial honeymoon period is over — is critical for operators who impose an SVOD surcharge.
"We probably can't charge a price for the service to consumers who aren't using this regularly," he said.
But if the premium networks can get cable subscribers into the habit of going to the on-demand menu for content, they can help bring new customers into the pay VOD category as well, DePrez said.
Cox may look for ways to add local SVOD content, such as high school football games that could be supported by a weekly advertising sponsor, Elander said.
CHARTER EYES TEST
Charter Communications Inc. hopes to test premium SVOD "very shortly," vice president of marketing Rick Lang said. It's currently examining which economic models make sense for the category.
"We don't test things just for test's sake," Lang said. "We test to see which models to deploy."
Charter currently offers VOD in 12 markets, including Birmingham, Ala.; Fort Worth, Texas; St. Louis; Newtown, Conn., and Pasadena, Calif.
In its VOD markets, Charter has already delved into SVOD with a $9.95 a month package of more than 20 children's titles.
"Kids will watch things over and over," Lang noted.
Comcast Corp. has started testing at least some SVOD content in several Philadelphia-area neighborhoods.
Intertainer Inc. recently held discussions with Comcast to create exclusive SVOD packages for the MSO from its library of broadcast and cable fare, said Steve Ste. Marie, president of the VOD-content aggregator.
Comcast marketing executives were not available to comment on their SVOD plans, but are expected to discuss them in detail at the upcoming Cable & Telecommunications Association for Marketing digital conference in Los Angeles next month.
AT&T Broadband has not disclosed its SVOD plans.