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Growth, Value and Balance Priorities for 2002 -- Part 6

28 Jan, 2002 By: Thomas K. Arnold

Will 2002 be the year video-on-demand establishes itself as a viable alternative to video rental? If not, when? And what effect will VOD ultimately have on the packaged media business?

Amodei: I believe 2002 will be a breakthrough year for video-on-demand in the category of...boxing! But, honestly, where VOD may become viable is in lesser-known films. It could become an area where independent films that do not get video distribution could end up.

Andersen: Cable and satellite behemoths and self-appointed pundits will anoint 2002 as the Year of VOD, just as 2000 was the Year of VOD and 1999 was the Year of VOD and 1998 was the Year of VOD. Throughout this decade, VOD will continue to be dwarfed by the performance of packaged home entertainment.

Blanken: Historically, consumers have been uncomfortable purchasing an item that they could not touch, feel, or inspect prior to making a financial commitment. Additionally, shopping was an event. However, today's generation is a little more accepting of the convenience of making purchases online. I think packaged media can remain viable for the next five-plus years (probably longer), assuming the manufacturers do not screw things up. There is a lot of ‘A-' and ‘B' product that may not be viable in a VOD environment. Today, bandwith is just too limiting, and in the future, provided the capability exists to offer 500 to 1000 movies simultaneously, would that overwhelm the average consumer?

Chapek: We believe there are many years until video-on-demand even begins to approach video rental as a viable alternative. The jury is out when, if ever, VOD will be large enough to make a serious dent in the video marketplace.

Malugen: No way. VOD will not succeed until a national broadband infrastructure is created that will provide MPEG-4 digital compression and ultra-high speed (700K+) download capacity to the home that can handle the large amount of data contained in a movie. The cost of that infrastructure is prohibitive to a major rollout. It makes no business sense in most places in America. I couldn't guess when such a poor business model will become a good business model—many, many years from now, I suspect.

Pagano: The concept of VOD is ahead of the adoption of the technology to make this possible. I see it as premature to set a schedule for implementation. VOD, when it arrives, will be another way for the consumer to enjoy movies. Today theatrical, rental, sellthrough and subscription deliveries all are doing nicely. This is just another delivery mechanism.

Scavelli: It won't be 2002—nor will it be 2003, or 2004. Beyond that, who knows? But I wouldn't expect video-on-demand to be of any import to anyone in this business for at least five years, and even then, a lot hinges on the economy, the state of affairs the world (a peacetime versus a wartime economy), and technological improvements that will lower the costs of instituting this VOD. In addition, there's going to have to be a change in consumer habits. Right now, consumers love to shop, and it's not always about convenience and price. Inherently, consumers love the human interaction, getting out of the house, taking a walk or a drive and even strolling through the aisles of a store, looking at their options. I feel that more than going to a video store to buy or rent "this" movie, consumers go to a video store to buy or rent "a" movie, and that is one of the big factors that will keep the video rental experience alive and well for years to come.

Sooter: Consumers are accustomed to the rental experience. Changing this will take a while.

Thomas: It's premature to predict the role video-on-demand will have within the home entertainment business. I don't see VOD having an adverse affect on retailers in 2002, or anytime soon.

Thrasher: VOD will not be much of a threat to home video for quite awhile. The costs associated with bringing it to everyone's door are still prohibitive. Given the current financials of most Americans, I do not know if it will ever make sense. It's great if you earn a bunch of dough, but most people do not. The median income for an American household is roughly $40,000 a year. Energy costs, food costs, clothes costs are all on the rise, with an average cable/satellite/phone hook-up for entertainment already at more than $100 per month. What gets cut when you max out? You need food and heat. And nobody is ready for a naked America. It's the extras that get cut. Maybe it's your gardener, maybe it's travel, maybe it's cable or pay-per-view.

Read more:

How big is the video market and are bigger things ahead in 2002?

Are consumers' video habits changing?

Is DVD cannibalizing rental-priced VHS?

What does the future hold for DVD extras?

What is the single biggest challenge facing the video industry this year?

What would be the biggest mistake retailers or studios could make in the coming year?

What advice would you give your colleagues?

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