Pushing cable on demand
Strategies to attract customers evolve as networks look to SVOD services
By Ken Kerschbaumer -- Broadcasting & Cable, 5/5/2002 8:00:00 PM
Since the days of the failed Full Service Network trials in Orlando, Fla., the move to video-on-demand and subscription video-on-demand services has been mired in the muck of rights issues and business model. That may finally be changing as cable networks like HBO, Discovery, Showtime and Starz Encore! create VOD and SVOD packages that could boost these services off trade-show floors into living rooms.
"We believe SVOD's potential is enormous for cable operators," says Jay Schiller, senior vice president, Broadband Strategy and Product Management, for nCube. "It allows operators to offer a PVR-like service of hit programs using existing set-tops without installing disk drives in the home. As more cable networks make their content available on demand from the headend video server, consumers will benefit from watching what they want, when they want."
That kind of stickiness could keep cable subs glued to digital tiers. With churn rates an issue and digital-related revenues sluggish, MSOs need a way to keep viewers happy. Because DBS can't offer SVOD, it's a way to keep dishes off the rooftops.
"SVOD is slightly more risky to the operator because you don't know how much of your streaming you'll be using simultaneously, but, from a marketing perspective, our experience at the Full Service Network says that it won't cause a big problem," says Tom Feige, president, Time Warner Cable's Los Angeles division.
He says VOD and SVOD will be hugely valuable to cable operators because it differentiates cable from the satellite providers. "As time moves on, that advantage increases because VOD ultimately becomes 'Everything-on-demand at some time.'"
Feige's division launched its VOD service at its Bakersfield, Calif., system. Remaining customers there will get VOD once the new Passport software release is updated and final integration and testing are completed.
The system will use nCube's VOD server system because, Feige says, it requires fewer servers at the headend. The one thing he doesn't want to do is roll out a system that is not ready to meet demand.
SVOD trials, particularly with HBO, have shown great interest from consumers. Early trials were so successful that the system crashed when orders overwhelmed capacity.
Sarah Cotsen, HBO interactive ventures senior VP, believes SVOD is magic for consumers: "It definitely enhances their HBO viewing experience because they can watch the programming at their schedule." The service is available on 11 cable systems at Time Warner, Cablevision, Adelphia and Comcast; the net expects it on 40 by year-end.
Cotsen says the early trials taught HBO something about consumer behavior: Viewers tended to place orders on the hour or half-hour, flooding the system with requests.
HBO has experimented with MSOs on a number of models. With Time Warner, HBO SVOD was tested at $3.95, $6.95 and $9.95; as with Cablevision, it was initially bundled with the digital cable package. Recently, though, it has been sold à la carte at $4.95. Comcast and Adelphia are also bundling the service.
George Breen, president of SeaChange subsidiary Digital Video Arts, believes SVOD will very quickly become a cluttered environment. With multiple networks offering services, simply finding something to watch could be a remote-control challenge for viewers. And, for the networks themselves, having viewers go to a general carousel of SVOD content could have a viewer headed to Queer as Folk tuning into Sex and the City instead.
At the NCTA show, Digital Video Arts and SeaChange will unveil ChanneLink, a software system they believe will solve this problem. The system works with the IPG to pull up a branded SVOD interface for a given network. So an HBO viewer clicks a button on the remote, and the interface pops up without the viewer's having to leave the channel.
"They retain the eyeballs," says Breen. "Then the user will drill down to the various categories associated with that channel."
BBC America, Discovery and Scripps Networks will be part of a ChanneLink demonstration at NCTA.
Breen says it will be available in the third quarter for Motorola set-top boxes, with a version for Scientific-Atlanta boxes to follow soon after. It will be sold as a software infrastructure piece, but pricing is still to be determined. The company will also provide a developer's software kit so that networks can design the interface.
The headend-side technical challenge of SVOD appears to be handling the intake of content from the networks, especially if they look to ingest content on the same day. James Kelso, SeaChange VP/GM, broadband systems and marketing, says, "With more and more networks offering SVOD, it becomes a bottleneck. Already, with three companies out there, it's a bottleneck for every VOD system because there's a lot of content to digest."
There's another technical challenge related to viewing habits. SVOD, unlike traditional VOD, in which the customer engages in a purchase and then is absorbed with that one program, allows the customer to jump from program to program. That also requires some improved capabilities at the backend.
Cost-wise, according to Joe Parola, Concurrent Computer VP, product management, North American Cable, there are many variables in determining cost per stream: number of servers, market, number of subscribers, network architecture, etc., and competition has taken prices down.
"In September 2000, we shipped our MediaHawk 2000," he says. "Now we've shipped our MediaHawk 3000, which has double the stream density with same hardware costs."
When it comes to deploying a VOD system, the current rule of thumb is to have enough streams to handle 10% of subscribers. Schiller says, however, that operators' actual implementations vary higher and lower. "Operators consider their particular usage patterns confidential. A 1,000-stream system can typically be deployed for under $600,000, including network transport and modulation."
Parola says future applications include virtual channels (which exist only in the VOD or SVOD environment), free VOD, and long-form, interactive and targeted advertising. He also mentions the network PVR experience that has manufacturers offering specific products for that demand.
"We haven't seen any downsides" to SVOD/VOD, he says. "According to MSOs, customers ... view SVOD content over a wider variety of days as well as different times of the day vs. movie-on-demand. Movies tend to be a night application, especially Friday through Sunday."
Personal Video Channel (pVC) technology allows MSOs to encode consumer-chosen programs in real time for later viewing and on-demand functions such as pause or rewind. "It can be tomorrow, in an hour or just a few minutes," says Parola. "In the 'just a few minutes' example, consumers could pause a program they are watching to, say, answer the phone and then pick up the program right where they left off after the call."
The nCube nPVR system can ingest TV network feeds, cache them for some period of time and allow consumers to record programs. Schiller says it can record all programs, allowing consumers to navigate back in time without piecemeal recording in advance. "The n4x server can store more than 200 TV networks for over a month each, and all content is available to over 50,000 consumers using the system simultaneously," he says. "If the cable operators and the content owners can both benefit, they both win."
The trick is figuring how cable operators and content owners share in the winnings.
Schiller says, "nPVR can be based on a subscription model as well as an advertising model where targeted ads can be delivered one on one just like their TV programs."
Another VOD option is one-on-one advertising or target marketing. nCube is addressing this with nAble Advertising. "Advertising can be paid for by advertisers, can be promotional for content providers, can be promotional for the operator, and can be requested by consumers," says Schiller. "It can be before on-demand content and can be inserted into commercial breaks of certain network content. Targeted advertising increases the amount of local avail inventory each operator has available to sell or use for promotion."
Schiller says it works by combining demographic data available to advertisers today (based on ZIP code, for example), with the type or category of the on-demand content to determine a profile. "Ads or promotional content sold against that profile would be played to the viewer," he says. "We don't anticipate viewers will enter data."
Also, nAble will be integrated with third-party profile-matching systems (initially, it will be Everstream) that calculate profile based on available data.
Breen sees potential in one-to-one advertising on VOD. HGTV, for example, could offer a VOD program on fixing a toilet—a natural environment for an Ace Hardware plumbing commercial, he says.
SeaChange's Product Showcase enables cable operators to launch tiers of on-demand "advertorials" (not infomercials). Kelso thinks, in 10 years, most cable-TV offerings will be on-demand. He says viewing-habit changes can make sponsorships and advertorials more attractive options for advertisers.
The business model for SVOD is still to be determined, but the general consensus seems to be a tier of bundled SVOD channels rather than individual channels.
"My personal feeling is that the gateway model makes some sense," says Feige. "You charge a specific amount and, for that, you can have access to services that are SVOD on the system ... as opposed to an incremental amount for each service."
The gateway approach, he adds, allows the operator to get some return on the substantial investment and also works as a marketing tool because the customer can spread the cost across each premium purchased.
The sense is also that using free SVOD as a way to stop churn is short-sighted. Breen maintains that churn can be stopped only so much. "If people start giving it away upfront, hoping they're gonna make money down the backend, that reminds me of another business that just didn't work," he said, referring to the Internet.
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