VOD to Make Big Strides in 2000

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The video-on-demand bell is finally ringing loudly in North America. Cable customers in several large and small cities are starting to tap into a steady cascade of on-demand TV services.

Movies-on-demand are leading the way, but services are extending into multiplex premium offerings and even transactional services.

And Hawaii's island of Oahu-home of the largest VOD deployment to date-offers a glimpse of things to come. There, Time Warner Cable's Oceanic Cable system soft-launched VOD service in February using Concurrent Computer Corp.'s Media-Hawk VOD System.

"Besides movies-on-demand, Oceanic has activated karaoke and pizza-on-demand applications," said Concurrent president and CEO Steve Nussrallah. "When you look at the explosive growth of digital services in only the last six to eight months, you immediately detect that VOD is right on its heels.

"Only within the last two months have we actually reached the point where at last we can stop talking about VOD trials, and start talking about real launches," he added.

It's not just the biggest MSOs who are pushing the VOD throttle. Insight Communications Co. Inc. tapped Diva Systems Corp. to put midsized Midwestern cities such as Columbus, Ohio; Rockford, Ill.; and Evansville, Ind., on the VOD map. Diva will also deploy a VOD platform for NTL Inc. in the United Kingdom later this year.

"Why is everyone focusing more on VOD today? That's simple," said Diva CEO David Zucker. "DBS companies with 12 million-plus customers today are taking away the cable TV industry's highest-revenue customers, and the one thing the DBS companies cannot do is provide VOD with full VCR-type functionality."

Overbuilders like RCN Corp. and WideOpenWest LLC are also eating into incumbent MSOs'bottom lines, he added.

"The most dramatic difference between this year and last year as far as VOD is concerned is that if you look at all the top-eight MSOs, each one will either be wrapping up trials or actually deploying VOD this year," Zucker said. "All of them have indicated that aggressive VOD rollouts will get underway in 2001."

VOD services are expected to make significant strides later this year, as the technology rolls out in more cities. In San Diego, Cox Communications Inc. recently announced plans to launch VOD services with Concurrent's platform.

Time Warner expects to green-light VOD later this year in Tampa, Fla.-another Concurrent-equipped system.

"In addition to Oceanic, we intend to roll out VOD services for our customers in Tampa and Austin [Texas] later this year," said Mike LaJoie, vice president of corporate development at Time Warner Cable in Stamford, Conn. "A few adjustments are needed before we turn on those customers."

In Austin, SeaChange International Inc. installed its SeaChange ITV System, driving MediaCluster VOD servers.

"We have seen a significant uptick in VOD-related activity since the Western Show," said Ed Delaney, vice president of marketing for SeaChange, which also deployed VOD platforms in Toronto with Rogers Cablesystems; in the United Kingdom with Telewest plc and in China with Guandong Cable Television.

"There has been a big change since last year with respect to the deployment of standards-based solutions. Everything is becoming so much easier to integrate," Delaney added. "Encryption still poses the biggest challenge going forward, whereas a lot of headway was been made in the past year in terms of encoding."

BIG YEAR COMING

"Every major operator will be doing VOD in the next 12 months," said Dan Sheeran, vice president of product development at nCube. "Everyone knows they will be doing VOD and that the model works."

Sheeran's firm has deployed MediaCube 4 VOD systems with Kingston Communications and Telewest Communications plc in the U.K. and the Bertelsmann Broadband Group in Germany.

Millions of cable-TV customers are not yet plugged into MOD. In 12 months, however, there may be quite a buzz around a vastly expanded universe of VOD streams.

"MediaOne believes that VOD is hot," said Cynthia Hansen, director of corporate strategy at MediaOne Group Inc., which started an Atlanta VOD trial with Diva last December.

A full VOD deployment in Atlanta is the objective, Hansen noted. The incremental workload involved is both "minimal and manageable."

Choosing the hardware vendor is fairly simple and straightforward process, according to Hansen. The user interface was a critical component.

"The user interface has to be compelling, and in Diva's case it is compelling," she said. "We see a whole lot of activity in this space. The need to integrate VOD within the existing [interactive-program guide] is the technical challenge, and we are still working through this. We like Diva, and yet we are open to other vendors."

Hansen cited the obvious consumer benefits of VOD: more viewing options and more VCR-like functionality.

"We are still exploring the best ways to drive buy rates," she said. "Early indications suggest frequent refreshing may be more critical than the number of titles. We have been offering 300 titles during our alpha test in Atlanta, and we have been pleasantly surprised by the results."

Cablevision Systems Corp. also used Diva's technology for its just-ended yearlong VOD trial in New Jersey. Buy-rates were three to five times higher than PPV.

That test taught two important lessons: the process did not cannibalize such premium-movie services as Home Box Office, and major-release titles made up 70 percent of the buys. This could bode well for other types of content like exercise videos, library movies and kids' programming, a Cablevision spokesman indicated.

There are items higher on the cable-TV industry's priority list than rapid deployment of a viable VOD solution. Accelerating the deployment of basic digital services and ramping up the installation of digital set-top boxes and cable modems outrank VOD.

As the industry realizes that VOD is one of the few areas on the cable-vs.-DBS checklist where there's no mark on the satellite side, however, that status could change significantly.

"When DirecTV and Echo-Star got local channels, that left only one thing that cable owns and satellite does not, and that is VOD," said Jonathan Taplin, president and co-CEO of Intertainer Inc., another VOD vendor. "Yes, there is a noticeable sense of urgency. The question is, How many customers do you want to lose to the satellite companies?'"

Current VOD rollouts now target mainly on-demand movie services, which are generally perceived as the most likely to quickly generate substantial revenues-and can justify VOD's up-front capital costs. But they are just the beginning.

Offshoots referred to as content-on-demand or subscription-on-demand services are already starting to take shape. Time Warner's LaJoie said his company "is exploring the possibility of a subscription offering of premium programming for VOD. We hope to provide a selection of premium programming as part of subscription-on-demand service in a future addition to movies-on-demand."

Diva's Zucker sees cable-TV programming-on-demand, kids'packages, time-shifting and the entire spectrum of personal-video recording functionality as a way to quickly draw customers to the technology.

For example, Diva has a $9.99-per-month VOD programming package designed for children. Roughly 15 titles from The Walt Disney Co. and others are swapped out each month.

This offering is available on each of the nine VOD systems Diva has deployed to date, including the three deployed for Insight. Customers will see many variations of the VOD theme.

"They will be able to perform what I call backward time shifting-that is, they will turn on their sets at 9 p.m. and go back to 6:30 p.m. with no local hard drive. [The system] will real-time everything at the headend," Zucker said.

Sheeran of nCube added: "While MOD is the known revenue stream that you can build a model around and cover the costs, operators are looking forward to all the revenue that will flow via e-commerce from the walled garden side. Now, everyone wants to rapidly deploy midband video as quickly as possible, because they see it as the best way to reduce bandwidth consumption."

Sheeran sees substantial opportunities in midband technology, using data rates between 200 kilobits per second and 1 megabit per second.

Combined with rapid inroads on MPEG-4 development-such as implementing MPEG-4 hardware decoding in the set-top-midband could provide added momentum to the broadband portal play and generate revenues that could dwarf those earned from movies.

"The importance of midband technology was clear by last year's [National Show], but this year the infrastructure is starting to support through advances like MPEG-4 hardware decoding," Sheeran said. "A lot more attention is being paid to this because there are so many digital set-tops and DOCSIS 1.0 modems out there. And 1.1 cable modems will soon be available."

INTEGRATION, SCALABILITY

When it comes to providing a VOD stream, scaling VOD platforms, and the ease of integrating all parts of the VOD puzzle together, all arrows are starting to point in the right direction.

MSOs and VOD vendors still disagree on some aspects of scalability and cost projections. But these differences don't detract from the overall positive trend. VOD implementation is no longer an abstract theory.

"VOD costs today are roughly $350 on the VOD server side and $350 on the RF network side, for $700 per stream," said John Hildebrand, director of multimedia technology at Cox. "We assume a single stream can serve 10 customers. So it adds up to approximately $70 per VOD customer."

The server side includes the VOD control server, a video server or pump, a hard-disk storage array and server-management elements. The RF network side includes all of the quadrature-amplitude modulation, hybrid-fiber coaxial interfacing and fiber transport.

"Cox is absolutely committed to VOD. This is all about incremental revenues and retaining customers, and VOD is certainly one of the tools that will do it for us," Hildebrand said.

The lower cost structure-and the fact that 75 percent of the nation's cable plant will be two-way by the end of this year-cuts into the two biggest hurdles to widespread VOD deployment, said Zucker.

Still, some see an imbalance in the VOD cost profile. Tom Jokerst, senior vice president of advanced technology at Charter Communications Inc., said any cost reductions over time involving the DVB-ASI streams coming off the server are not being adequately matched on the RF side.

"It's the cost of modulated QAMs or the RF side of VOD which concerns me," said Jokerst. "The RF side today is limiting our ability to deploy VOD to smaller size systems."

But he was somewhat optimistic that RF cost profiles would improve as manufacturers recognize and address this issue.

Zucker said he believes modulation costs have come down, although they still represent a larger portion of overall VOD-deployment costs.

Do operators have to wait for a large degree of digital penetration? Not necessarily, according to LaJoie.

"While you want to start with the largest universe possible, you do not need high digital penetration to enable VOD," he said. "You can do it incrementally. An 80-stream server can satisfy 800 to 1,000 customers."

Providing scalability and flexibility is a top concern for VOD vendors.

"In actual deployments, we see operators migrating very quickly to a distributed architecture," Nussrallah said. "Our MediaHawk VOD System architecture is a modular design which enables distributed and centralized configurations."

Added Jokerst: "The ability to scale solutions is an important factor."

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