After years of tests and missteps, VOD may be having its day. With splashy launches this month in Philadelphia and New York City, 7 million homes now have access to what is essentially a giant DVD player that sits at the cable company’s hub and streams movies and programs to their TV sets. Unlike pay per view, which shows a handful of films at appointed hours, VOD lets digital-cable subscribers pay a few dollars to pick from a selection of new and classic movies at any time, and to pause, fast-forward or rewind at will. Best of all, “I don’t have to go to the store to get a movie and I don’t have to take it back,” says Elsie Pacilio, a recent convert from Philadelphia. Time Warner Cable unsuccessfully tried an experimental (and expensive) VOD service in Orlando back in 1993. Since then prices for the equipment have fallen drastically, and cable has spent $66 billion upgrading its infrastructure to accommodate digital services like VOD and cable modems. According to the Yankee Group, by 2006, 37 million families will have access to VOD, generating $2.8 billion.
Cable operators are betting VOD will pull them out of a nasty slump. This year, for the first time, the overall number of cable subscribers fell as TV-ophiles continued to defect to satellite providers EchoStar and DirecTV. Meanwhile, Wall Street, fearful of the in-dustry’s debt and accounting improprieties at cable firm Adelphia, sent industry stocks into a tailspin. But cable titans like Comcast CEO Brian Roberts think VOD will help cable defend against incursions by sat-ellite and challenge video-rental chains like Blockbuster, which extract an average $28 a month from American families. “VOD is like the first time you played with a cell phone,” Roberts said at cable-industry confab BroadbandPlus earlier this month. “There are very few times in our business where you can say ‘wow,’ and VOD is a ‘wow’.”
For too many potential customers though, VOD isn’t a “wow” but a “huh?” now that the industry is rolling out an alphabet soup of variations on the technology. In addition to movies on demand, Cablevision and Time Warner Cable offer something called subscription VOD (yup, sVOD). With sVOD, subscribers to Showtime, HBO and Starz have immediate access to hundreds of hours from those channels’ archives. Some operators are charging extra for sVOD, while others include it with a regular subscription to the pay channels. Adding to the confusion, cable operators like Cox are toying with a third category called free VOD (fVOD), in which programming from the Discovery Channel, Fox, NBC and other networks is available any time of the day, in an effort to get folks accustomed to the technology.
The cable operators are preparing an all-out ad blitz to cut through the muddle. In Philadelphia, a $15 million Comcast campaign that kicks off in January will include a clever commercial in which the costumed cast of a children’s TV show are sitting in a cafe when, suddenly, they get paged to perform–and must recklessly speed to the studio. (Tagline: “TV that obeys you.”) Meanwhile, Time Warner Cable is flooding New York City and 31 of its other VOD markets with ads that boast, “Now anything’s possible,” and Cox is pitching its VOD service by claiming to be “your friend in the digital age.”
But winning over TV viewers is just half the battle; cable operators also have to woo the Hollywood studios that own the programming. Currently, two of the studios have yet to make their films available. Disney is fighting a contentious lawsuit with InDemand, the company that licenses content for the operators, over the older pay-per-view service. And Viacom, owner of Paramount, is also dragging its feet–no surprise, since it also owns video-rental chain Blockbuster. Roberts of Comcast says he’s telling the studios that VOD is the best weapon against personal video recorders like TiVo, which he calls “the Napster of the future.” TiVo lets you re-cord programs on a hard drive and fast-forward through the ads. VOD, Roberts countered in his recent speech, allows programmers to keep a leash on their content–disabling the fast-forward button during ads and charging customers for what they watch.
EchoStar and DirecTV, which can’t offer VOD because satellite is strictly a one-way platform, are feverishly integrating PVRs like TiVo into their set-top boxes. Even though some in the cable world view VOD and personal video recorders as complementary, that sets up a clean dichotomy: satellite and PVRs versus cable and VOD, and the satellite guys think they have the upper hand. “Do you want the network operator to program your TV or to control it yourself?” says DirecTV VP Brad Beale. Industry analyst Phillip Swan of TV- Predictions.com thinks the two sets of technologies are equal, but says cable will win out because people in urban areas and tree-lined neighborhoods can’t get satellite signals.
The cable guys, of course, agree, and wax optimistic about the possibilities of VOD. A few soothsayers like Steve Necessary, CEO of Atlanta-based Concurrent, which makes VOD servers, predict a day when “appointment television is truly a thing of the past.” In other words, they envision a distant future where we pay a dollar for each episode of “CSI: Akron” and “Law and Order: Special Traffic Unit.” It could get expensive, in which case consumers might be forced to rely on old technology to deal with all this new technology: the off button.
