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In Demand: Hot Movies

VOD looks for big ideas and more hits 7/14/2006 08:00:00 PM Eastern

The video-on-demand (VOD) business could use a good ring of pirates these days. Not a high-tech band of cable thieves, but a bona fide blockbuster like box-office-record–breaking Pirates of the Caribbean—with viewing available to homes the same day, or even before, it hits movie theaters.

As VOD sales start to show signs of life, movies, by far the most popular VOD programming, will fuel the genre's eventual dominance, say optimists. At some point, they say, more movie studios will shrink the window of time between theatrical and VOD releases. “The studios are embracing VOD,” says Bob Benya, senior VP of on demand and product management for Time Warner Cable. “But they still don't want to offend their theatrical-distribution partners.”

Earlier this year, networks grabbed major headlines by making high-profile digital Internet and VOD programming deals for TV shows such as CSI, Law & Order, Desperate Housewives and The Office.

“High-profile programming is a really great way to promote our platform,” says Benya. “But a handful of shows is not going to make a big difference.”

Rob Jacobson, president/CEO of In Demand, the largest provider of VOD content in the U.S., says that, beyond movies, exclusive specialty VOD programming, such as the Howard Stern TV package “Howard TV,” will be a big draw for viewers going forward. In Demand is owned by Comcast, Cox and Time Warner Cable.

Cable operators have already seen big VOD growth. VOD “views,” defined as a user viewing one specific episode or show, for Comcast Corp. last May were at 141 million—up almost 33% from the 106 million views in May 2005.

VOD passed $1 billion in gross retail sales in 2004, half of that coming from movie sales. Jacobson predicts, “In the next few years, the movies [alone] will be a billion-a-year business.”

Comcast, the biggest U.S. cable operator, doesn't break out revenues for VOD. Neither does the second-biggest, Time Warner.

Time Warner believes the future lies with subscription-video-on-demand (SVOD)—that is, having consumers pay an extra monthly fee for unlimited programming. In the first quarter, it had 2.25 million SVOD customers, or 40% of its digital video subscribers. The company added more than 106,000 SVOD customers in the quarter. In March, it had 77 million VOD “views.” Free On Demand (FOD) accounts for 20%—the biggest part of that, about 25%, being music. Time Warner's Movies On Demand (MOD) accounts for 15% of its activity.

Comcast believes a free on-demand business will bring more converts. Currently, consumers need to buy into its digital monthly service to get its On Demand service. Neither company believes the single-transaction business—$1.99 an episode or 99¢ an episode (with limited advertising)—will alone fuel big programming growth. But each offers it. For its part, Comcast struck a deal with CBS and another with NBC. The operator is also pushing free on-demand viewing of CBS programming this summer, including NCIS and CSI, supported through a sponsorship with General Motors.

After movies, Comcast says, the next biggest category is kids programming. Premium services like HBO and Showtime come in as the third-highest VOD activity, including such shows as The Sopranos and Entourage. After premium services, says Comcast, music programming is the most popular.

The methods of evaluating the program performance level of VOD will change in the future. Nielsen Media Research will soon measure VOD and will also incorporate the data into traditional linear-TV–viewing measurement.

For instance, the initial ratings of the Sopranos finale showed that its linear HBO ratings were below that of other Sopranos finales. But if subsequent VOD views are added in, says Time Warner's Benya said, “The Sopranos did a lot better” than previous finales.

For programmers, perhaps the biggest hurdle for VOD is making the system easy to navigate. “How you organize your content is critical to how many views you get,” says Comcast's Thompson. “It can generate 50% more viewers. We need to improve guides, the ability to search and key words.”


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