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Video Insulated From VOD Impact

20 Dec, 2001 By: Hive News

Jupiter survey says 28 percent of online consumers in the U.S. are interested in ordering video-on-demand services.

The bulk of revenues for the U.S. video-on-demand (VOD) market will shift from pay-per-view (PPV), not video rental or box office numbers, a new report from media analyst Jupiter Media Metrix says.

According to Jupiter's first-ever VOD forecast, the VOD market for movies will grow to $ 641.9 million by 2006. To capitalize on the potential of this market, Jupiter analysts advise studios to work directly with cable and satellite operators as well as potential content distributors such as iNDemand, Starz Encore and Intertainer.

"The industry heralded VOD as the entertainment technology that would unseat the VCR from the home and obliterate the video rental market. That's unrealistic," said Loizides, Jupiter analyst. "The greatest value lies in shifting the pay-per-view audience to VOD and generating incremental revenues. Studios, operators, cable networks and the rental market must prepare to counter the effects, both positive and negative, of VOD on their businesses. Failure to do this will result in another blow to the advancement of interactive television."

Additional highlights and analysis from the new Jupiter Research report, iTV and Video on Demand: Appraising the Value of Movies on an Interactive Platform, include:

* 28 percent of U.S. online consumers surveyed recently are interested in buying VOD-type services from their satellite or cable company. However the findings indicate that fulfillment of that desire remained "modest."

* While 45 percent of total online users rent a video at least once a month, only six percent order a pay-per-view movie or event in the same time period. Jupiter analysts believe that although pay-per-view will be most closely aligned with VOD in consumers' minds for the near term, VOD's ease of use coupled with deployment of services, pricing and marketing will lead to greater use over the long term.

* Compared with premium cable, VCRs enjoy a three-to-one penetration advantage over advanced cable products. Jupiter's conservative view of VOD growth is founded partly on consumers' stated intentions. Just 9 percent of said they were likely to purchase or upgrade their cable product over the next year. Eight percent said that they would upgrade or buy a new VCR and 16 percent said the same of a DVD player.

* In contrast to television, Jupiter analysts say the PC will not be a hub for VOD services and content. Only 11 percent of consumers said they were interested in viewing movies online. Thirty-one percent said the Internet is too slow to allow them to watch video (although that may be more a function of the consumer's connection than the product). Direct-to-consumer VOD strategies that focus on delivering movies to a PC are destined to fizzle out before they begin, the analysts say.

* Jupiter analysts have identified seven key factors that have a direct impact on the growth of the VOD market: infrastructure, asset ownership, licensing, pricing, marketing, industry influencers and consumers' demand.

"There is opportunity for content owners to create a new, incremental VOD channel around the pay-per-view and rental window while off-loading the customer-acquisition and capital-investment costs onto the operator, says Jupiter analyst Lydia Loizides. "Studios should directly cut deals with operators and other distribution partners, such as HBO and Blockbuster, and become their own distributors. Operators must prepare to handle the impact that VOD will have on customer service, from call center traffic increases due to service outages to billing, purchases and maintenance."

For the purpose of this research, Jupiter focused exclusively on the distribution of first-run titles distributed on-demand over a cable operator or telco's network.

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