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.
That's changing, now that DVD sales are falling. The average film last year made it to VOD about 31 days after being released on DVD, down from 34 days in 2007, research firm SNL Kagan says.
The delay likely will shrink more this year as studios, led by Warner Bros., grow bolder about offering films at the same time to VOD and DVD. There were 73 simultaneous releases last year, up from 15 in 2007, according to In Demand, which distributes VOD programming to operators.
Films teed up for simultaneous release this month include Yes Man, Frost/Nixon and The Wrestler.
Studios may feel encouraged by what they saw after March 21, when Summit Entertainment's blockbuster Twilight became the biggest film, measured by theatrical ticket sales, released at the same time to VOD and DVD.
Its VOD sales are tracking about three times higher than previous hits, according to TVN Entertainment, which distributes VOD entertainment to cable companies. That puts the film on pace to generate as many as 4 million viewings and $16 million during the 90 days it's available from cable. "The movie studios wouldn't be tightening up the (release dates) and providing us with better access to their franchises every year if it weren't a compelling business model for them," Harrar says.
Despite this progress, "the number of titles that operators are getting from the studios isn't there yet" to make movie sales a meaningful business for cable, says Collins Stewart analyst Thomas Eagan.
That's why operators are eager to generate ad sales from the attractions they do have: old movies, new TV shows, music videos and infomercials usually offered for free. Many advertisers aren't interested now because operators don't have the technology to quickly and easily replace stale ads on VOD with fresh ones. It can take weeks, for example, to switch out ads for a sale that's over.
Cox is testing a way to dynamically insert ads into the broadcast network shows that its "My Primetime" VOD service offers — usually the day after they first air.
A test in Wichita in December "worked just fine," Necessary says.
Others will use this week's cable gathering to promote different solutions. For example, on Tuesday TVN said that it will participate in an ad insertion test with technology company SeaChange International.