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VOD Still Cable's Killer App, But Hit Movies No Longer Drive It

20 Dec, 2002 By: Holly J. Wagner


Although packaged video dealers have tended to see various forms of video-on-demand as direct competition, contenders crowding onto the VOD field are almost universally gravitating toward original content rather than depending on hit theatrical movies.

“Theatrical [content's] value is diminished by release windows,” said HBO chairman and CEO Chris Albrecht. “That's why HBO focuses on original programming. We have a brand that stands for something.” Something like “The Sopranos,” “Sex and the City,” “Six Feet Under,” “Band of Brothers” and other original series and films that, far from cannibalizing the home video market, add more packaged product to the market to offset the shows' production costs.

The original series help HBO coax consumers to see the premium channel differently, elevating its status from an “occasional use media” to a “habitual use media,” Albrecht said.

Other cable programmers are expressing similar ideas as the nascent VOD industry finds its legs.

“Too much of our industry sees them as mutually exclusive, either/or, and we don't think the future is going to be that way,” said Lindsay Gardner, EVP of affiliate sales and marketing at Fox Cable Networks. “It's really just another window.”

Fox's original series “The Shield” arrives on video in a boxed set next month.

“It's a great time for the sports and events business,” said Tony Vinciquerra, president and CEO of the sports-heavy Fox Networks Group. “It's now an issue of developing new, quality programming that appeals to the consumer.”

Experiments in Pricing and Packaging
VOD programmers are experimenting with pricing and packaging models to learn what consumers want, but their biggest perceived threat is coming from an unexpected source: personal video recorders (PVRs).

“PVRs are better than VOD on cable, and that's bad,” said Matt Strauss, EVP and GM of Rainbow Media's MagRack niche content service.

The program-storing, ad-skipping boxes offer consumers all the same functionality of home video, with features like pause, rewind, fast-forward and similar controls. Consumers who can record and shift programming are less likely to subscribe to multiplexed cable networks that offer the same programming on various channels at different times, because they can record a program when it airs and watch it at leisure.

“The functionality of the technology is what dominates, particularly among the early adopters,” Showtime CEO Matt Blank said.

As a result, executives predicted that most cable and satellite set-top receivers will be offered with onboard PVRs by the end of next year.

“This notion of forcing people to watch ads is very hostile to consumers,” Gardner said.

Rather than fight ad-skipping and time-shifting, cable executives want to accommodate consumers to make their products more appealing. One response is “multiplexing”: offering a complex of differently scheduled channels from the same premium supplier.

“Not only is it a service that the consumer likes, but the original programming gives them the opportunity of catching up on something after the premiere,” Albrecht said.

Several cable networks have used the tactic to promote new series such as HBO's original series, Fox's “The Shield” and “24” and, most recently, marathons of “Steven Spielberg's Taken,” which catapulted the Sci-Fi Channel to the top of cable network ratings for some dayparts and audience segments for the first time.

“A quarter of those who watched the first episode of ‘The Shield' continued watching subsequent episodes,” Gardner said, so it makes sense to offer consumers more opportunities to start watching a show.

“We are the only content company making network TV hits available on VOD,” Gardner said. “We see VOD as more than just a nifty tool or a killer app … It reflects a power shift in the industry.”

Those series generate enough viewers and buzz to justify putting out boxed sets of the shows.

“New content and life forms will be created because of this technology,” Vinciquerra said.

Speedy uptake of PVRs in satellite set-top receivers (for example, DirecTV offers a package with a TiVo-enabled set-top) is more worrisome than home video to the cablers.

“We still have to see how that functionality affects those eyeballs that advertisers pay for” on networks, Blank said.

The On-Demand Extras
Meanwhile, premium channels are testing supplemental on-demand services to keep up with a growth spurt in satellite subscribers and PVR users. HBO and Showtime, for example, are testing on-demand offerings that carry the same programming as the scheduled channels but let the viewer choose when to watch. Subscribers pay an added monthly fee of about $6 or $7 to receive the open-schedule channel.

Alone among the cable network operators, Starz Encore CEO John Sie has home video in his crosshairs with plans to offer a supplement to Starz Encore subscribers online starting next year.

The online access would follow the same model HBO and Showtime are using, except subscribers will only be able to access content on demand via the Internet.

“We are firmly planted in theatrical movies,” he said. “Consumers spend an average of $28 a month on renting videos. That's eight-and-a-half titles [Starz could capture].”

Sie is unconcerned that “this all balances out, and the only one that suffers is the [packaged] media like the video stores.”

Perhaps the biggest hurdle for cablers is retraining the public to use new services.

Several programming executives lamented that most consumers still decide what to watch by using the channel up or down buttons on a remote control, foregoing channel guides and other services that require more navigation to access.

Pay-per-view options that for a long time were as close as cable could get to VOD have trained consumers that clicking costs, so even people who add the on-demand access to their premium subscriptions are often afraid to use the features, fearing a hidden charge will attach.

“We still need an intuitive way to use VOD,” said Strauss. “It's still too hard and takes too many steps for most consumers.”

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