Over the past nine months, cable operators and premium subscription video-on-demand providers have followed the conventional wisdom of testing various pricing and packaging models for SVOD.
Some MSOs have tested and already launched SVOD with a la carte pricing — led by Time Warner Cable's $6.95 per month strategy. Other operators tested strategies where the on-demand functionality and content were included in digital premium tier rates, with an eye to lowering churn and perhaps raising package prices over time.
But no matter the strategy, MSOs and programmers have learned one telling thing in 2002: SVOD takes a lot of explaining to do. And the biggest hurdle is getting consumers over the fear that every time they hit the remote control to call up an SVOD program, they'll be charged to watch.
"We have a major focus on the interface," said Greg DePrez, vice president of SVOD at Starz Encore Group LLC.
"In today's generic VOD environment, people don't know exactly where they are," he said, referring to transactional VOD with movies or in the SVOD framework. "It's tricky to get through. The menu often doesn't work and MSOs don't realize it doesn't work. Viewers get error messages or the screen is blank and that discourages them from coming back."
Further, he said, "On-demand implies to folks, you pay for it. We need to broaden the definition to mean easy delivery where you start and you control. There is still a lingering notion: I wonder if I have to pay for these if I watch them?"
"It's a real issue how we market this product," said Sara Cotsen, senior vice president of HBO Interactive Ventures at Home Box Office. She acknowledged that there are instances where consumers are confused about the product.
Showtime Networks Inc. executive vice president of corporate strategy, development and communications Mark Greenberg echoed those thoughts. "There have been 15 years of PPV behavior that when they hit enter, they will be charged $3.95. We have an enormous marketplace challenge."
"How much time do we allow for customer service personnel to explain SVOD when subscriber call up," he asked rhetorically. "I'm not sure a direct mail can do SVOD justice."
Showtime On Demand and HBO On Demand have been launched on Time Warner Cable systems at $6.95 a month. Cotsen said HBO On Demand is in 40 markets, the majority being Time Warner Cable's, and counts more than 250,000 subscribers.
Greenberg said Showtime will be launched in 50 markets by year's end, with half of those being Time Warner Cable.
Starz has been shutout of the Time Warner Cable's launches to date. "We are in vigorous discussions with all operators," DePrez said. He said that Starz has passed all the technical tests, "Now it's an affiliate relations discussion."
While working on launches, Starz also is working with set-top supplier and guide companies to make SVOD interfaces understandable to consumers. The Scientific-Atlanta Inc. guide, which allows VOD and SVOD providers to use their own virtual channel for their on-demand content, simplifies navigation, DePrez said.
And Starz is working to allow consumers direct access to service categories. "Within those categories, we need to brand and reinforce the chief benefits of those services," with phrases like "no charge per view" and "new movies every week," DePrez said.
"We should change VOD to on-demand and rally on-demand as the entire category," he said, and push the idea that "it's a convenient delivery system, not a pay as you go system."
Starz counts launches with Adelphia Communications Corp. in Cleveland and Bethel Park, Ohio; Comcast Corp. in the old AT&T Broadband properties in Culver City and Westchester, Calif.; and Altrio Communications Inc., a Los Angeles overbuilder. AT&T Broadband launched Starz On Demand at $7.95 a month, but will likely convert to what DePrez described as a "brand transformation," where MSOs automatically combine Starz SuperPack and Starz On Demand in one price, albeit a bit higher than today's Superpack pricing. Altrio is following that pricing strategy. In that case, the programmer would still receive incremental on-demand revenue.
FGetting value out of the retail price is key to programmers. "There is value to this content. People are willing to pay $10 per month as a category," Greenberg maintained. Showtime has launched or is testing various pricing options with every MSO, He said.
One of the questions Greenberg raised was "how do we maximize cash flow versus optimizing cash flow? SVOD is an enormous acquisition tool."
Package pricing has some allure. "There is no incremental charge for the on-demand component because you sell it as a category," he said. "On the retention side, they will be less likely to peel off the service."
Much of HBO's focus this year has been on scaling the launch across 40 plus systems.
In addition to the Time Warner Cable launches, HBO has launched with Charter Communications Inc. in St. Louis and Greenville, S.C., at $4.95. It also has tested various packages with Comcast in Mobile, Ala. and Chesterfield and Arlington, Va.
"MSOs make their choice with retail pricing," Cotsen said.
With the Time Warner Cable launches, HBO On Demand occupies its own virtual channel, usually next to the main HBO linear channel. "You have very interested HBO subscribers watching HBO and they happen to channel upon HBO On Demand," Cotsen said.
That allows for impulse upgrades "and the numbers have surprised us. Subscribers have come on with no promotion offer. They self-select," she said.