Cable's VoD Coming on Strong

Cable providers are making headway with video-on-demand (VoD) [define] systems, especially with IP [define] gateways and extra bandwidth built into their closed networks, according to research and industry experts.

They also note that many hurdles remain for what is still a nascent service across the television-viewing world. For one, experts gathered at a video on demand summit in New York said IP-based content delivery systems, such as with digital media delivery firm RealNetworks’ IP-based business model, are coming on strong with a younger generation of television viewers that see the computer – and computing devices – as a means for viewing on-demand content, rather than just the television.

But when one factors in convenience and ease of use by gleaning on-demand content from the television, compared to the more technical aspects of IP-based content delivery, cable is in the catbird seat, analysts say.

Take a survey from tech research firm In-Stat/MDR, which said U.S. cable TV operators are nearing completion of infrastructure upgrades, and are now focused on fine tuning their mix of digital services – especially video on demand movies.

Nearly 90 percent of the surveyed respondents already offer digital video programming services, and nearly that amount currently provide high-speed data services with cable modems, according to Gerry Kaufhold, principal analyst with In-Stat/MDR. He said the next thing on their plates is to carefully roll out services specifically requested by their local subscriber base. VoD and high definition TV (HDTV) are high on these lists.

The firm surveyed cable TV operators about where they stood with projects to upgrade their infrastructure. The results show that cable TV operators are finally “over the hump” with their long-term projects to upgrade their extensive infrastructure to support new, two-way digital cable services.

He said cable TV’s “triple play” is on the brink of coming to fruition, with two-way systems ready to provide a bundle of two-way services, including telephony services, interactive digital video products, and high-speed data service.

“Even as digital cable services become more widely available, there is still plenty of room for U.S. digital cable service subscriber growth,” said Kaufhold. The firm’s research said the current median penetration rate for digital cable services is only between 21 percent and 30 percent of total system subscribers. “This leaves plenty of room for continued long-term growth for digital cable TV.”

No question, VoD is one of the key new high value services being deployed by some cable operators. More than one-quarter (28 percent) of those surveyed have deployed VoD services, and another 20 percent plan to offer the service by the end of 2003, the research report said.

Another key aspect of the survey is that 58 percent of the respondents said they have 750 MHz, or more, of bandwidth on their cable TV systems. This is more than adequate to provision the whole range of “triple play” of services that cable operators are rolling out, Kaufhold said.

But cable operators are also waking up to the realization that a younger generation of television viewers are increasingly using their desktop computers, and other networked devices, to view on-demand content via IP networks, industry players at the Kagan Media Video on Demand Summit in New York said.

“We’re starting to see families moving the (Internet-connected) PC out of the den and into the family room, where they’re using it as part of their media entertainment center,” said Karen Howe, CEO of Singingfish, a search engine company that specializes in video and audio searches.

Michael Greeson, senior analyst and director of broadband research for Parks Associates, elaborates: “While it is widely acknowledged that a growing number of Internet subscribers have a PC located in the same room as their primary TV or home entertainment system, it is not so well known that these PCs are themselves equipped with numerous entertainment-specific features.”

Part of the move is because families want to see what their children are viewing on the television, Howe said, but the other aspect is that broadband-networked PCs are acting as ad-hoc servers for managing music and video content coming into homes, she added.

“Is there a threat to cable’s on-demand from IP-based content on-demand?” added Tony Greenburg of RampRate, an advisory firm that helps cable operators line up hardware and infrastructure providers for on-demand investments. “It’s simple to connect a PC to a television with a $12 cord.”

But Scott Erlich, vice president of media acquisition and distribution of Real Networks said the advance of computing devices along with the rise of the broadband-networked home will eventually change people’s perceptions about whether they choose to watch content on a television or a computer.

“At the end of the day, IP is a better form of transport for on-demand content,” he said at the VoD summit. “We’re getting to where you can allow access to content as long as you’re connected to a network,” he said. And as wireless networks increasingly enable networked devices in the home to store and transmit content files, including televisions, “the question then becomes, what is a PC?”

Jupiter Research, meanwhile (whose parent company also owns this publication), also notes that while video-on-demand services are poised to stimulate incremental revenues for U.S. cable operators through “a la carte” movie purchases, subscription services will be more profitable than VoD will be in the near term, because subscription VoD (SVoD) services require little to no capital investment with greater consumer adoption.

“As content acquisition costs continue to soar, a primary inhibitor to the on-demand market’s overall success, Jupiter projects the VoD market will continue to level out, growing an average of 35 million percent across all markets – movies, adult entertainment and events – from $163 million in 2002 to $1.4 billion in 2007,” the research firm said in a report published in January, 2003.

Jupiter expects SVoD revenue for U.S. cable operators to top $800 million by 2007, up from $56 million in 2003. Other reasons SVoD revenues remain the most lucrative for cable operators near term, according to analyst Lydia Loizides, is because consumers tend to lean toward stable pricing, and “cable networks can readily repackage content and bundle on-demand services with basic or premium cable offerings within the digital tier only, providing a tangible incentive for TV consumers.”

SVoD Revenue, 2002-2007
Year	Total (in millions)
2002	$19
2003	$56
2004	$184
2005	$380
2006	$600
2007	$803
Source: Jupiter Research