Pay TV programmers who've had their subscription video-on-demand products out on the market for several months are liking what they've seen.
"We have found that customers really do value HBO On Demand and they are willing to pay for it," said HBO Interactive Ventures senior vice president Sarah Cotsen.
Starz Encore Group LLC vice president of SVOD Greg DePrez described an SVOD experience that's almost evangelical.
"There is the epiphany moment when they say, 'I chose the movie, I stopped and started it,' " said DePrez. "They've got the magic in their hand."
The early numbers continue to indicate that SVOD offers a promising new revenue stream for operators and programmers. In Columbia, S.C. — where Time Warner Cable sells HBO On Demand for $3.95 per month — penetration has surged past 20 percent.
In Austin, Texas, HBO has tested a $6.95-per-month package over the past six weeks. In Cincinnati, the MSO has offered SVOD at a $9.95-per-month price point since November.
"In all markets, we've been really happy with the results," Cotsen said.
The longest-running rollout is in Columbia. "It's performed very well at $3.95," said Cotsen, who noted that consumers in focus groups have said they'd be willing to pay more.
"In Cincinnati, we've been encouraged by those results as well," she added. "Consumers are willing to try and test it out regardless of the price."
Although it's too early to determine a final price point (HBO will leave that up to operators), Cotsen said, "We do think this product can support a higher price tag than $3.95."
"The longer people have the product, the more likely they are to stay as subscribers," she added. "Once you get past that three-month hump, they understand how this plays into how they watch entertainment."
Both Adelphia Communications Corp.'s Cleveland system and Cablevision Systems Corp.'s Long Island, N.Y., operation sell HBO in a premium SVOD package, alongside products from Showtime Networks Inc. and Starz. The package is offered at no incremental fee.
"We've been very happy with the experience that we've have there," even though it employs a different pricing model, Cotsen said.
All told, HBO On Demand is available in seven markets across most of the major MSOs (five of which were announced), Cotsen said.
HBO On Demand content is delivered via N2Broadband's satellite communications system. The programmer refreshes 25 percent of its content each Wednesday.
As a result, there's a spike in activity on Wednesday nights, Cotsen said. There's also strong SVOD action on Sunday nights, linked to HBO's traditionally strong Sunday lineup, she added.
SVOD could cannibalize linear TV viewing, but if it's a straight trade-out from traditional HBO to HBO On Demand, then it makes no difference to the pay TV programmer.
"As long as consumers are happy with our service, it doesn't matter," Cotsen said. "Subscribers are watching more of HBO."
One factor is VOD's convenience, she said. But there's an added benefit in that it gives subscribers a chance to sample programs and series they missed. A primary example is the series Six Feet Under, which has gained steam among critics, she said.
"What's important is the breadth and depth of service," she said. HBO On Demand splits its content into four categories: series, movies, kids and specials.
The specials category has been expanded to include comedy, drama, sports, boxing and late night. A Cinemax On Demand service also is on the drawing board.
HBO has created an SVOD Web site (www.HBOondemand.com) to let subscribers know what content will bow each Wednesday.
"Subscribers really want to know when a title is coming on," Cotsen said, and the Web site will send subscribers electronic-mail reminders.
It's too early to determine how much SVOD will cut down on premium churn, Cotsen said, but in Columbia, HBO on Demand has generated a 65 percent sell-in rate and an 85 percent retention rate three months later.
SVOD "has won over many subs who weren't HBO subs to begin with," he added. "The convenience is so valuable to them."
Starz Encore has collected its SVOD usage data from the Adelphia and Cablevision rollouts. Both markets have about 20,000 digital subscribers.
Starz helped Adelphia launch the service and contributed to an aggressive awareness and marketing strategy to the point of handling telemarketing calls, which were crucial in educating people about the product, said DePrez.
BAITING THE HOOK
Usage has gone up over time, but the key factor has been getting the subscriber to try the service, said DePrez. After an initial direct marketing campaign, Starz Encore followed up with a phone call.
"We asked them to go to Starz On Demand channel," DePrez said. "You could hear them over the phone, how grateful they were. The whole VOD experience is a little bit invisible. Telemarketing calls were extremely influential in getting usage. The product needs hand-holding."
DePrez said Starz doesn't have detailed session activity, but the average subscriber uses it twice a week.
"Even folks that use it less value it as much," he contended.
After a few weeks of high activity, the SVOD honeymoon period typically ends, he said. At that point, "Starz Encore becomes their TV insurance backup. After they cruise the linear channels, they come over to SVOD."
SVOD viewing peaks a little later in the evening than primetime, according to DePrez. On weekends, there is a higher and more constant level of SVOD activity that starts at about noon on Saturday, compared to the typical Friday and Saturday usage spikes associated with pay-per-view.
Weekend primetime activity is 25 percent higher than on weeknights, DePrez said.
"We don't know final effect on sell-in, churn, etc., but we believe it has value if probably marketed," he said.
Starz Encore's SVOD product offers 70 movies and 150 hours of content across 12 categories. One-quarter of the content is refreshed each week.
Adelphia uses TVN Entertainment Corp. technology to download content. New movies are stored on top of the old files in Adelphia's servers, DePrez said.
For Cablevision, Starz has been steadily adding to its initial 50 hours of content to reach the 150-hour level.
"It's still in the promotional stage," DePrez said.
DePrez said Starz is testing SVOD in two other unannounced markets. (Two other launches are scheduled for March).
In one instance, HBO, Showtime and Starz Encore are marketed together in a single SVOD package for a separate monthly price.
FIXING A PRICE
Although SVOD pricing is in its infancy, Starz is already thinking about its long-term effects on premium pricing in general. Over time, SVOD could eventually be offered to all subscribers and Starz could be repriced, DePrez said.
"We like that," DePrez said. "The service is extremely simple. Starz Digital would always include the on-demand component. It's much easier to deploy."
The second pricing option is à la carte, but DePrez warned that the addition of a fee of $5 to $70 per month customer lead into price-sensitivity problems.
There's also the premium bundling strategy.
"The problem with that is that you're trying to encourage to add other pay services," he said. "That's focused on building a multiple-pay environment, and it works against trying to try drive non-Starz subs into Starz."
It's possible that Starz could have 20 to 24 SVOD launches underway by year-end, given VOD's place on the MSO agenda.
But two key questions could hold those launches back, he said. For one, what would a myriad of SVOD launches do to network activity? And how compatible are SVOD and VOD?