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Homes Getting Ready for Self-Serve Movies

  |  May 28, 2004   |  Comments

Video on demand is picking up momentum as household deployments increase, but unbeknownst to many viewers, they are already using variations of of the service.

Self-serve television programming is poised for strong growth over the coming years, as The Yankee Group expects video on demand (VoD) [ define] deployments to reach 36.5 million households – or one-in-three U.S. homes – by the end of 2008. Roughly 11.4 million households were VoD-capable by the end of 2003, a 70 percent increase over 2002.

Earlier projections on the number of VoD-capable households from JupiterResearch (a unit of this site's corporate parent) were slightly lower for 2008 – 31.1 million – but the revenue forecasts were optimistic. JupiterResearch expects the VoD revenue stream to swell from $318 million in 2003 to $1.16 billion in 2008.

Though millions of homes may be capable of accessing VoD, far fewer are using the service, but Bruce Leichtman, president and principal analyst, Leichtman Research Group, Inc. (LRG), sees usage steadily increasing.

"Last year we found that about 30 percent of digital subscribers with VoD available had used it, but that figure ranged from between 20 percent to 40 percent by market based on the actual offerings and how long it had been available. In just a year, there are now some markets that are reporting usage of over 50 percent every month," said Leichtman.

When analyzing the VoD-capable households, Leichtman says to "keep in mind that the actual footprint of availability extends beyond those who subscribe to digital cable – which is 37.5 percent today for the top cable operators – so in other words about half of all cable subscribers today are passed by a system that delivers VoD."

Mid-2003 data from LRG indicated the VoD acceptance was imminent when 90 percent of cable subscribers in the four markets surveyed said they were aware VoD services. Increasing awareness is critical for VoD operators, since some users are not even aware that the movies they are watching at their leisure are a form of the on-demand service.

Point Topic outlined the variations, even classifying flexible DVD services, such as Netflix, as "postal video on demand." The research firm defines VoD as a system that enables subscribers to choose from a library of recorded films and TV programming, and watch them immediately on their TV set, usually via a set-top box [define].

Fairly common and often confused for the real thing, "near VoD" (NVoD) offers the subscriber a limited choice of programming, where the program start times are fixed or timed incrementally throughout the day. In the comprehensive report on video on demand, Point Topic explains that many cable TV companies that advertise VoD are actually offering NVoD, which is essentially pay-per-view with more frequent showings.

Subscription VoD (SVoD) is already in many households, whereby the subscriber pays to access a video library, rather than an individual program. Leichtman explains that this service is also called "premium on demand." "Premium on Demand...HBO, Showtime and Starz is a key component in growing the business (note that about two-thirds of digital subscribers get a premium service). In addition, more content, new services and applications, and an increased marketing emphasis will all build not only users but usage of VoD over time," Leichtman elaborated.

"With these elements in place the digital users base could easily grow to over three-quarters of those with access actually using the product. Ultimately it is the cable operators' goal to use VoD to help provide 'glue' to these higher paying customers. The more that they are using these services, the more that they will lose if they decide to disconnect from cable," concluded Leichtman.

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