VOD Systems: Still the Wave of the Future

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Chicago -- Video-on-demand's longtime promise to deliver
movies and events anytime, anywhere remains to a large degree unfulfilled, and for many
cable operators, it is proving to be a painstakingly slow road to profitability.

Despite the drastic cost reductions for set-top boxes (now
less than $350), file servers, costs per stream (about $350) and other VOD-related
hardware, the motion-picture studios' portion of movie fees to on-demand-service providers
is holding at about 50 percent.

And with only pockets of VOD service available, cable
operators and VOD providers are trying to remain patient.

Nagging obstacles such as gaining economies of scale,
dealing with hefty studio fees and managing a new and relatively untested VOD business are
slowing its progress.

Yet panelists at one of last week's National Show sessions
here, along with other VOD proponents, expect true VOD to flourish in the next four to
five years.

"It will change people's concepts of television. It
will be like the Internet, and it will encourage people to think of it as a brand-new
service, available all of the time," said Dan Sheeran, senior vice president of
product management for VOD-equipment provider nCUBE, during last week's panel.

Most experts agreed that VOD still has great potential. But
some wondered about its viability as a legitimate revenue generator and when it will fully
bloom.

"We tend to think 'out there,' and not about the
backing systems that have to be managed," said Rick Colletto, vice president of
programming for pay-per-view programmer TVN Entertainment Corp.

"Those kinds of issues -- multiple servers, multiple
locations, satellite delivery -- will prohibit VOD growth for awhile," Colletto
added. "The front end is working: The back end needs work."

Some of that work entails upgrading systems to
750-megahertz capacity and replacing all cable from the nodes back to the headend with
fiber, which can be costly. The payback though, Sheeran said, is likely to be impressive.

"There are costs and complexities of deployment now,
but set-top costs don't have to be borne by operators just to deliver VOD," he added,
noting that nCUBE has invested $100 million in VOD technology currently deployed by six
MSOs.

To push VOD economies of scale to the point of viability,
simplifying the VOD-deployment process requires some vision and savvy, according to Diva
Systems Corp. president David Zucker. "[VOD is] a very complicated process, but the
real hard part is system management," he added.

Those issues, Zucker insisted, go beyond traditional
management decisions and strategies. "There's network management, software management
and the whole front end of network operations like marketing, coding and video-asset
management," he said.

Once VOD crosses those borders, however, on-demand services
will expand, Sheeran predicted.

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