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THE MORNING BUZZ: Is VOD Just A Fat Pipe Dream?

2 Apr, 2002 By: Holly J. Wagner

Even as the studios ready their video-on-demand (VOD) ventures for online launch, I'm starting to move into the camp that says VOD is probably a fat pipe dream, at least for the cable and satellite providers. Digital subscriber line (DSL) progress isn't faring much better.

Like telecommunications companies, the cable and satellite systems (some even have sister telcos, or are trying to acquire one) all seem to suffer the same, decidedly low-tech problem: lousy customer service. Also like the telcos, they overpromise, underdeliver and labor under the arrogant delusion that America could no more live without cable or satellite TV than without baseball or apple pie.

A few months back I gave Time Warner cable the heave-ho in favor of satellite, mainly because of the high cost and incompetent service Time Warner is delivering in my market – the same things that made the rest of my neighborhood switch. After four months I can honestly say satellite is a better deal for me, but it has more to do with the way programming packages are structured than with DirecTV – which is no better at service than Time Warner was.

The telco tales offer a little 20/20 hindsight. A few years ago they rushed onto a fiberoptic field of dreams chanting "If you build it, they will come" mentality.

The frenzy fed itself as they kept promising wirelines, wireless and all from the same company, which in theory would give consumers streamlined service at lower rates. Now that the country, even the world, is picking through the rubble of Global Crossing, it's easy to see the flaws in this approach.

Telcos promised those new fiberoptic networks (like Global Crossing's) would bring DSL to your doorstep and, darnit, they promised investors, you and I would not be able to survive in a speedy world without it.

What they forgot to mention to most customers is that it could be months between a consumer's order for DSL and the time the company could deliver it. Much of that owed to an issue broadly called "the last mile" – the fiberoptics were laid from the network backbones to switching stations, but getting the technology the last mile from those stations to homes is a bit trickier. It's also very expensive, so telcos had to be guaranteed an economy of scale before sinking the money into closing the last mile gap.

It works similar to preselling a video release, with one key difference: When a retailer presells a video, (s)he has a reasonable expectation (s)he will have the video to deliver on the promised date. When telcos promise service, they really, really hope they will be able to deliver it, but often there's a big "whoops" factor in play ("Whoops! Not enough people in your area signed up yet, you'll have to wait").

The pattern has been similar for market-by-market digital cable and satellite rollouts and it's going the same way, even slower, for digital television, with the added hurdle of protecting digital signals from copyright enfringement.

Those who don't learn from history are destined to repeat it as the telcos, cable and satellite providers and even the studios are doing now.

Taking a page from the telco manual, DirecTV got me to switch by offering me a free dish, set-top box and free installation to get me started (this tactic accounts for a substantial percentage of the 8 million new subscribers DirecTV recently told its shareholders it signed up last year).

Well, they couldn't very well get me to subscribe to their services without the dish and set-top box, so those showed up on time. But five months later, I'm still waiting for my $140 installation rebate and I'm learning I'm far from the only one.

When I called DirecTV last week to find out about it, the rep said she would have to turn my request over to a supervisor, who would handle it as an "overdue rebate." She couldn't tell me what to expect after that or when I might see my check (are you hearing the telco theme in the background yet?). She escalated my call to a customer service supervisor who wasn't there. I left a message on his voice mail and have yet to hear a peep from him.

Meanwhile, dealers are already taking DirecTV to Los Angeles Superior Court. Plaintiffs in Garcia et al v. DirecTV, filed last October, allege DirecTV, for whom the dealers acquired subscribers, failed to pay dealers promised commissions on the new subscriber installations and residual monthly income based on the subscribers' monthly payments. The plaintiffs want more than $300 million in damages. DirecTV is defending against the charges, but it's starting to sound like the satellite provider shifted its gamble from installers to consumers.

I'm not holding my breath for VOD on satellite or cable. The providers can't seem to get their existing services together so there is no reason to believe they will do better with the increased personalization that VOD demands.

Now, what about Internet VOD? The studios are working on it, all the while contending weak copy protection and inadequate broadband penetration hinder its progress. The broadband providers say their adoption has plateaued because there is no compelling (read: studio) content available to incent people to subscribe to broadband.

The truth is, it's all smoke and mirrors. It's going to be a lot more difficult and expensive to deliver VOD than anyone predicted. Will it ever be a reality? Not at this rate. The companies that could make it happen are all too busy giving away the store for market share and pointing fingers at each other for messing it up.

I gotta go now. I have to go choose between the $40 check AT&T just sent me to get me to switch phone companies or the three months of free DSL that Sprint and Verizon are offering.

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