Although cable has been knocked around by WallStreet — at times for trends beyond its control, or expectations that are either unattainable or unsustainable — operators do owe financial analysts one thing sometime during 2003: A plausible reason why VOD is worth the investment.
When cable's two biggest operators, Comcast Corp. and Time Warner Cable, launched second-generation VOD systems in mid- to late 2001, Wall Street was all aglow at the prospects. Soon after those rollouts, analysts were begging for any information — anecdotal or otherwise — for use in VOD revenue models.
At that time, the MSOs wisely failed to fall into that trap. They begged for time to work out the technical and operational kinks, gather content and put marketing plans in place. Many a business has fallen short of its long-term promise because of short-term exuberance.
As MSOs dampened expectations, the clatter from Wall Street analysts subsided.
But as 2003 dawns, cable operators can't drag their feet for another year. By Christmas of 2003, both cable and the Street need some idea of what they've got on their hands. Is VOD a product that reduces digital downgrades, adds incremental revenue or induces basic only subs to get a box? All those objectives, while plausible, are nothing more than unproven possibilities.
This quest for knowledge does not mean that MSOs must have all — or even most — of the answers, but cable operators do owe their shareholders some reason to believe in VOD.
Let's look at VOD's evolution over the past 24 months. Operators and vendors have figured out how to deliver and store thousands of hours of content, and how to do it locally. Ordering systems have been tweaked to handle simultaneous usage problems and session setup issues. Billing systems may not be perfect, but they are working well enough to handle current rollouts.
Cable operators can't complain that they don't have enough content to work with. The subscription VOD packages from Home Box Office, Showtime Networks Inc. and Starz Encore Group LLC are now highly evolved offerings.
Nearly all of the major studios are offering not only hit movies, but scores of library titles. Most basic networks have developed VOD packages, either of free on-demand content or programming built into SVOD-type packages. And original programming from TVN Entertainment Corp., Rainbow Media Holdings Inc.'s Mag Rack, record companies or local TV stations (such as WCAU, Philadelphia's NBC-owned station, through its deal with Comcast) offer examples of nontraditional cable fare that's made its way to the platform.
In short, technology and content don't represent roadblocks to VOD's success. The essential question for today may be: Do cable operators have the will to make VOD happen?
To make VOD perform, MSOs have to invest the time and energy, month in and month out. It's not enough to get the system up and running then declare victory. VOD won't mean anything to anyone, financially, unless cable makes an in-the-trenches commitment.
If cable takes the attitude that it will sell one SVOD package, a few hit movies, and generate $10 a month by default, that just won't happen. If cable thinks basic-onlys will flock to buy a box for VOD without a lot of education, then that won't happen, either.
If DVD sell-through continues to make huge inroads, consumers may feel no need to embrace hit-movie VOD. And even if the platform cuts digital churn in half, the cost savings may not be enough to make the return on investment really work.
Can cable consider pay-per-view a success? Few would say yes. PPV never reached its full potential.
Remember the late Tony Cox borrowing a Southern accent and complaining about "ma' margin?" VOD's got lower margins (compared to modems) and higher complications (operational, technical and marketing) than PPV.
VOD can make a big difference for the industry going forward. But cable must want to make VOD happen. In 2003, we'll all find out whether cable has that conviction.