SVOD: Following Dollars, Sense

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In what direction is video on demand headed? It's following the money.

Look at Cablevision Systems. Last month it implemented a video bandwidth-management technique called switched digital video, the biggest such deployment on a single cable system.

What is the big New York City-area cable provider doing with that additional bandwidth? Adding dozens of new foreign-language channels it will sell as subscription video-on-demand packages. They're equivalent to the many premium foreign-language channels now sold a la carte or grouped into tiers on cable (or satellite TV) — except delivered solely to Cablevision's digital-cable customers and don't have to be wedged into overstuffed expanded basic.

Multichannel video providers love premium channels, including foreign-language channels. Just mark up the wholesale price and let the channel market itself. Selling, for example, TV 5 USA or The Filipino Channel as premium networks is easier than trying to include them in a tier, price that tier properly and successfully market it. And unlike all but a few U.S. cable channels — notably HBO, Showtime, Starz and their multiplex versions — many foreign language channels are happy to be sold a la carte.

As Multichannel News and others have reported, niche or “lightly viewed” networks are considered the best for early implementations of switched digital video, a relatively new technology that directs channels only to customers that want to view them at that time.

My prediction: look for Time Warner Cable and possibly Cox Communications, two other big SDV proponents, to go the foreign-language subscription VOD route in big markets.

(Update: Cablevision pointed out to me after this was published that their foreign-language premium channels aren't really sold as SVOD, rather as premium channels using the bandwidth-conservation method. But the digital-video switching technically means it can't be viewed except when the digital set-top demands it from the server, and that's my escape hatch.) 

Cablevision's timing was interesting in another respect. As we reported last year, Verizon is using switched video and emphasizing a hefty foreign-language a la carte menu to lure subscribers to buy FiOS TV. Verizon said last week more than 200,000 FiOS TV customers are on board, about a 9% penetration rate. Also last week, Citigroup analyst Jason Bazinet, who on Jan. 22 downgraded Cablevision's stock to “sell,” piled onto that opinion with a report saying Cablevision's FiOS exposure was “much larger than we previously believed.” Bazinet now believes Cablevision's basic video customer losses in 2007 will be about 50,000, up from an earlier 10,000 estimate.

In addition to being a bandwidth thing, it's a competition thing, like when cable started aggressively marketing Hispanic programming tiers to offset an advantage held by satellite TV, especially Dish Network.

Subscription video on demand changes premium networks the way TiVo changed television viewing. When it works right technically, which is no certainty, HBO On Demand is a destination that HBO's broadcast multiplex channels can't approach. I single out HBO because of its successful gambit last year in airing new episodes of personal fave The Wire six days early on demand; these days, I'm exploiting that advantage to watch Extras and Rome early and often. The downside: too many times my VOD “order” just doesn't go through, resulting in a Time Warner error message telling me to try later or call customer service. For all the years Time Warner has been testing or deploying HBO On Demand, that shouldn't happen — even though HBO's not lightly viewed.

Another point: Lime TV said last week it was abandoning its “linear” channel, which basically was stuck at the 7 million homes the former Wisdom TV had secured, but would continue seeking distribution for its programming on demand on cable.

Adding to Lime's existing free VOD base has also been a challenge, though. Despite being carried by Comcast on digital cable, for example, Lime has been unable to get its healthy living based programming back onto Comcast's free VOD lineup after it had been there with Wisdom TV content before the reformatting. And Comcast sets the market for free VOD, programmers say. (Lime does have some free-VOD carriage, on Insight, Mediacom and smaller distributors.)

Lime CEO C.J. Kettler was able to offer up some good news for her service on that front: Comcast, she said, has agreed to test Lime fare on demand. And not because Lime is essentially giving Comcast back that analog channel, she said.

She also said she's pitching a subscription VOD service to cable companies, and hinted that Lime was having some traction in cable talks using the SVOD angle. If those operators follow Cablevision's lead, maybe she's onto something.

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