Advancing with VOD

While some play Hamlet, cable operators charge ahead with deployment

While Hollywood studios deliberate video-on-demand's (VOD) impact on revenues, cable operators are charging forward with deployment.

"When you roll out VOD in substantial numbers, [the studios] begin to say, 'We're missing an opportunity,'" said John Hildebrand, vice president of multimedia technology for Cox Communications, at the NCTA convention last week. "That will cause them to be more aggressive with their negotiations for titles."

The studios want to see wider distribution—perhaps to 10 million customers—before they buy into VOD. They're concerned that VOD will eat into their home-video profits, which account for 51% of domestic revenues. Another issue is the window for distributing movies on VOD before or after they go to home video.

"Our interest in is creating windows, not collapsing windows," said Mel Karmazin, president and COO of Viacom Inc., which owns both Paramount movie studio and Blockbuster Video. "We want to be able to give the American public our content any way they want to receive it, but there has to be a business connected to it."

The studios are wary about the security of VOD and possible piracy. Cable operators scoff at security questions and assert that their closed-end, encrypted systems offer more far protection than the Internet video.

In Demand, which is owned by Time Warner, Cox, Comcast and AT&T, is negotiating with the studios on behalf of most operators. It inked its first studio deal last week with Artisan Entertainment.

VOD requires an advanced set-top box that receives streamed video, and technology that enables consumers to pause and play at whim. The cost is similar to pay-per-view, about $4 per movie. But, for now, VOD is limited to a few test markets per cable system, although operators have plans for aggressive deployment in the next 12 months. Several studios are contributing to VOD tests, but licensing deals are going slowly.

Until the studio deals are in place, operators can offer only subscription VOD programming. Premium cable nets, including HBO, Showtime and Starz, offer packages and individual purchases (some of the most popular are Sex and the City
and Sopranos
episodes), along with children's shows, older movies, sports and adult programming. Affiliates cut their own SVOD deals. Some cable networks, including ESPN, are aggressively courting operators for VOD deals, but others are concerned that VOD will disrupt their linear programming and ad revenues.

SVOD may be enough to get services off the ground, but it's new movies that will generate serious revenue.

Even though the short-term strategy is to march ahead, cable operators are hoping deals get done soon. "It's a little hard to justify allocation of those kinds of resources when you don't know how you will amortize the costs without the resources," said Rob Jacobson, In Demand's executive vice president.