Multichannel News hosted a VOD breakfast panel session at the CTAM Summit last week, delving into the perennial question: What is VOD’s business model?
But unlike on-demand business-model discussions from, say, 2002, this was set against a changing business backdrop for programmers that could beg an ultimate question — what does a programmer need VOD for anyway?
While that may be a drastic, perhaps silly, question, considering VOD is generating more than 100 million views a month at Comcast Corp. and 45 million views at Time Warner Cable, it’s worth pondering for a moment.
Those two “view” numbers — totaling 145 million — are producing maybe $4 a month per VOD subscriber in movie revenue, 15% lower churn for premium, and a smidgen of ad revenue. That’s not a lot for 145 million views. Accountants would normally kill that business in a minute.
Now consider all the outlets a programmer has these days to get content to consumers compared to three years ago.
Start with the broadband Internet. Some 35 million homes have high-speed connections, 40% of which aren’t cable (primarily DSL) but still are providing platforms where video can be viewed.
The broadband Internet is generating millions of dollars in ad revenue, and the general Internet is approaching $10 billion in revenue overall. There is no middleman for programmers in broadband. Ratings and measurement schemes exist that can be shown to advertisers. It is a viable platform that programmers can and are developing through the Pandora’s box modem in U.S. homes. And the economics, for them, are only getting better.
Second, programmers are smitten with the prospects for mobile video. Content providers are making deals with cell-phone companies to have their content placed on MobiTV, Smart Video, Vcast and other mobile providers of content.
More important, as content providers point out, they are getting paid for that content from wireless providers. And the technology for watching video on cell phones is getting better and better. When Sprint Corp. follows Verizon Communications Inc. in launching its EVDO platform, millions of customers will be able to see video at 25 to 30 frames a second, and that’s more than a passable viewing experience.
Programmers also have been visited by the telephone companies, looking for any advantage they can get in the video marketplace.
Internet, mobile video and telcos — that’s three new leverage points for programmers that didn’t exist three years ago.
What does all this have to do with VOD? They are all alternative platforms, some without any discernible cable MSO play, that programmers can use to reach their audience, an audience that increasingly has various screens, not just the TV, on which to view content.
If that isn’t scary enough, consider agencies and media planners on Madison Avenue, under pressure from advertisers to get sufficient reach for their ad spending. TV ratings are dwindling, VOD advertising metrics aren’t quite there yet; the Internet is spitting out loads of statistics. Nobody wants to look stupid by foregoing a Google or Yahoo ad buy and placing dollars on VOD.
And consider cell-phone metrics. Cell-phone companies know exactly who called who and for how long. It won’t take that long to figure out usage minutes for video providers on cell phones, information those providers will use to pitch Madison Avenue on ad budgets.
That said, cable remains with a large competitive advantage because it has successfully started the transformation of television viewing from linear appointment to personalized on-demand viewing. And the advertising community is always slow to commit dollars to new technologies, whether it’s VOD or the Internet.
But the big spenders won’t wait forever. The four measurement metrics cable has come up with are a good start, but Madison Avenue needs more information. Vendors have to come up with affordable software to measure who skipped through or watched commercials. Commercial ad-insertion equipment has to be developed quickly and deployed so real time ads can be placed in VOD content.
And most of all, cable operators need to work on “the deal” with programmers. Look, no cable MSO wanted to pay for retransmission consent, but every three years, the big deals get done. Accountants parcel out the revenue inside NBC and Viacom Inc. and ABC and everyone seems to go home happy, while cable can say “we didn’t pay” and broadcasters can say “we’ve been compensated.” If it works for retrans, it can work for VOD. And that deal needs to include an equitable breakdown for the control of ad pods inside VOD content.
MSOs may feel confident they hold most of the cards. But the world is changing. They may want to take a second look, because a few of their cards are in danger of slipping out of their hands.