VOD Still Years Away

An increasing number of U.S. households have moved to broadband Internet connections, but legitimate video-on-demand services won’t be all the rage in 2002.

According to research by GartnerG2, substantial Internet video-on-demand services will not roll out in the United States until 2005, and even then, only 2 percent of movie distribution revenue will come through Internet video-on-demand.

“It will take at least three years to deliver the level of service required for high-quality entertainment programs via broadband. Studios are embracing Internet streaming and download technologies today in order to deliver the business models of tomorrow,” said P.J. McNealy, research director for GartnerG2. “However, many business model issues as well as consumer-side issues must be resolved for Internet video-on-demand to succeed.”

The first issue that needs to be examined is whether there is enough demand to make a reasonable business model out of video-on-demand. GartnerG2 says that 10 percent of the 106 million U.S. households have broadband access, which is essential to transporting the data involved. But a GartnerG2 survey done in June 2001 found that only 2 percent of U.S. Internet-using adults had purchased a digital movie or video download in the three months prior to the survey. Three-quarters of those who had not used a PC to watch a downloaded movie said they were “not very” or “not at all interested” in doing so.

Even if bandwidth and service issues are resolved, video-on-demand will have face the same battle as the music industry. While some consumers are showing interest in getting movies over the Internet, they are looking to get them for free.

“The biggest threat to any Internet video-on-demand service is to compete with free, and the sources of free will be new peer-to-peer services and networks,” said Gale Daikoku, research director for GartnerG2. “The Motion Picture Association is paid to play police dog and chase down the copyrighted movies being exchanged illegally over peer-to-peer networks.”

Traditional sources of revenue for the movie industry, such as retail sales and video rentals, will also have to adapt if video-on-demand ever takes off.

According to research by Jupiter Media Metrix, the market for video-on-demand (VOD) will grow to $641.9 million by 2006, but it must focus on the TV as its delivery platform, not the PC.

A Jupiter survey that asked about movie-related activities online found that only 11 percent of consumers said that they were interested in viewing movies online. Thirty-one percent of respondents said that the Internet was too slow to allow them to watch video. In fact, it was television’s pay-per-view audience that seemed most attractive as potential VOD customers.

Jupiter found that 28 percent of U.S. online consumers are interested in buying VOD-type services from their satellite or cable company. However, while consumers may have expressed demand for additional services, the findings indicate that fulfillment of that desire remained modest. When Jupiter asked consumers whether or not they expected to purchase or upgrade their cable product, only 9 percent said that they were likely to do so over the next year. Eight percent said that they would upgrade or buy a new VCR and 16 percent said the same of a DVD player. This moderate rate of upgrading existing entertainment technologies in the home could also keep VOD adoption down.

According to the Yankee Group, 31 percent of cable and satellite subscribers in the United States said they were at least somewhat likely to order a video-on-demand movie for $3.95. Male teenagers were most likely to say they would pay for VOD, with 59 percent saying they were interested. This figure fell to 39 percent for men aged between 18 and 34, and to 30 percent for men aged between 35 and 49. The equivalent figures for women were only 13 percent for teenagers, rising to 40 percent of women aged between 18 and 34, and 29 percent of women between 35 and 49.

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