Advertisers feeling threatened by the power of the digital video recorder (DVR) have a new friend: video-on-demand. Next-generation VOD services will be tightly integrated with advertising in an effort to bring free VOD to subscribers and new revenues to MSOs.
"Whether it's DVR, networked DVR, or a proliferation of on-demand content, we're moving to an on-demand world," says Steve Necessary, Concurrent VOD division president. "It's economical," he adds. MSOs expected it to pay for itself in 18 to 24 months. "Instead," he says, "the ROI came in well before that."
That payback isn't from the services MSOs had expected. VOD suppliers are focused on the next big thing: free content. "Free on-demand has two primary benefits, but they're difficult to quantify," says Necessary.
"First, it's an educational mechanism to teach consumers. They can try HGTV for free, so they'll understand how to use VOD for movies and SVOD. Second, it's a differentiator against satellite. Is there value? Yes. Can you quantify it? That depends."
More important, free VOD can open up new revenue opportunities. SeaChange Director of Broadband Systems Joe Ambeault points to his company's stream splicer as a way to allow MSOs to place new ads into a video stream delivered on demand. For example, a viewer who selects a cooking program would see ads for kitchen appliances.
Ambeault considers spot opportunities like those an incentive for companies to advertise more on the regular channels. In addition, the ads are free of the typical 30-second time constraints. He adds, "It also builds brand recall and is easy to do."
Ad agencies aren't the only ones challenged by free VOD services. Ambeault says networks and stations that don't build a VOD strategy risk letting other content providers steal their viewers. "We are absolutely at critical-mass audience," he says, "Across our systems, we're doing more than 40 million streams a month, at 30 minutes per stream. That's a lot of viewers."
Beaverton, Ore.-based nCube has found similar success, says Chief Technology Officer Joe Matarese. Time Warner Cable's New York City division has added capacity to keep up with VOD demand. It won't offer free content, though, because it wouldn't reap financial rewards.
SeaChange disagrees with that approach. Ambeault points to the work his company is doing with Comcast, which offers local newscasts and Boston Bruins hockey games on demand. It's an example, he says, of how free VOD can work for the MSO, the programmer, and the viewer.
While SeaChange uses splicing to insert advertisements, nCube offers AdVOD, an addressable advertising system that MSOs use to create advertising playlists that accurately tie commercials to content. The system also links into traffic and billing systems.
Matarese believes the missing link in VOD offerings is live content on demand. "Viewers could watch sports programming with a strong sense of immediacy and rewind it to see their own version of a replay." There is a problem with that plan, though: rights. One executive at a major sports network says VOD rights being demanded by some sports leagues are out of control. The result? Arguments over content rights could prevent VOD from reaching its full potential.
It's that attitude that has Ambeault concerned. "I have two words of warning: Anime Network," he says, referring to the new cable network that will be offered on demand. With the size of VOD servers growing, there's more space for content and more opportunity for second-tier networks to find a prominent venue for viewers.
Another big factor will be HDTV. Because high-def content requires more storage space than standard-definition, the largest HD DVR drives can store only 30 hours of content. That means bigger demand on a cable operator's VOD system. And, as HDTV grows in popularity, there's another problem: making sure viewer demand doesn't overwhelm VOD-system capacity.
"The sad part is, you run into denial of service," says Matarese. "The beauty part is, it's because demand is through the roof."