Video on demand gets an extra push at cable trade show

— -- Cable operators may experience déjà vu as they gather Wednesday in Washington, D.C., for the industry's annual trade show. One of the hottest topics will be video on demand (VOD), a service that's been around for a decade.

Companies are racing to create a meaningful revenue model for VOD, either from customer payments or ad sales. But if they don't work fast, the business could be overtaken by a growing array of online VOD sites, including NBC Universal and News Corp.'s Hulu.com and services from retailers including Blockbuster, Netflix, Amazon and Apple.

"We're at the very early days" of online video, says Tom Adams of Adams Media Research, which specializes in home video. "But we're at a point where that could ramp up dramatically."

Cable VOD has a head start in the competition for living room viewing. It's available on TV sets in about 43 million homes that have digital set-top boxes. "It's now clearly a mainstream part of our product offering," says Steve Necessary, Cox Communications' vice president for video product development and support. "We see usage going up every month."

Consumer spending on cable VOD could hit $3.6 billion in 2012, up from $1.9 billion in 2008, merchant bank Veronis Suhler Stevenson estimates.

Some cable operators say that VOD is already serving its purpose by keeping their customers happy. The availability of VOD can coax customers to pay an additional $10 or so a month for digital services, and has stopped some from switching to satellite, which can't offer robust interactivity.

"We've seen churn declines on the order of 50% from people who use on-demand on a regular basis," says Derek Harrar, Comcast's general manager for video services. That does not include people who drop cable because they move.

Need more payoff

But cable is still losing video customers to phone and satellite companies, and could use a bigger payoff from VOD.

Optimists are counting on Hollywood to help by providing hit films to cable VOD about the same time they're available on DVD. Studios hold most back to protect highly profitable DVD sales, which account for more than half their revenue.