VOD Overview

	Video on Demand
Video on Demand - the time is right December 2001 - January 2002 By Tony Morbin

Whether its content, video or services on demand, the personalisation of what was once broadcast continues to gather pace. The financial models are still being tested on ADSL, though appear to work on cable in the US. While video on demand (VOD) has been talked about for more than six years, it is now finally being deployed commercially rather than in trials. The result? Consumers like it and - if the transmission costs are not too high - it makes money. But there are still disagreements over the most effective way to deploy such services, as the discussion by key European players below makes clear.

At a recent London conference* representatives of the Content and Video On Demand (VOD) industry met and discussed the thorny issue of network or set top based delivery systems for VOD. Participants included Thomas Kressner, CEO of Yes TV; Andrew Cresci Vice President Europe TiVo; Simon Wyatt Vice President EMEA of Ncube; Gary Stephens - then MD of Diva, now Group Development Director of On Demand Group; Simon Hochhauser founder of Videonet/ Home Choice, and Simone Sassoli Director Broadband Networks of Seachange. Just for good measure, this report includes a few words from Abe Peled, President and Chief Executive of NDS, one of the event sponsors. The following is a report on each of their addresses to the conference followed by the panel discussion.

Andrew Cresci of TiVo, the sole representative of a box-based approach to personal video recording (PVR), kicked off proceedings with a bit of an advert describing how the Personal Video Recorder is trying to build a new category of viewing "to create better TV." He explained that the company had 250,000 subscribers world-wide paying £200 for the box - but that the revenue model was changing with 20 per cent of revenue non-subscription by next year, including the delivery of customised content (such as a BMW film to be accessed by viewers). It was predicted that revenues would also come from further value added services, including content, advertising and commerce, as well as technology licensing - enabling the functionality to be built into the TV set or set top.

Thomas Kressner of Yes TV noted how content providers are now taking a larger part of the value chain, and will continue to do so based on strong brands. In addition, ISPs were also moving up the value chain as video over the Internet arrived with broadband prices coming down - though governmental pressure was needed to reduce the prices further. Local access charges were described as too high. He emphasised that VOD is the killer application for pay TV, but larger deployments were needed to achieve economies of scale. "We need to get this industry of the ground - which it hasn't for the last six years."

Among reasons cited was the fragmented nature of the market with no single standard - companies such as Yes, Videonet and Diva all competing when "it would have been better if we'd had just one service standard to achieve critical mass."

"There are too many small companies, too little capital and not enough cooperation and consolidation. If we don't work together the VOD business will never take off, and so we hope that there is going to be more consolidation."

Without it there had been a decline in the value of all the main players - but revenues had not come down vastly, and break-even was now 18 months away rather than five years.

Yes TV, which started out seeking to be the main brand now accepted that it could not do it all itself - and no longer believed it would be the main brand in six years in the UK, but would operate more through cooperation, "For example we bought new Diva servers. We are part of the solution, not the end solution - we are now into white labelling, not competing with our customers. In Honk Kong we are under the Oxygen brand."

Kressner also noted how PC companies are now getting into the market - aware that there are 1.5 billion TV sets internationally.

NCube's Simon Wyatt preferred to reclassify the genre as 'Content on Demand,' rather than VOD, stating, "Customers are looking for content, which is often Video, but not always. We want to provide whatever can be delivered from broadcast TV as it matures. Some of these services - perhaps health or educational content may not be revenue generators, but could be churn inhibitors or ways of getting new customers. What is crucial is that the mix includes things to bring in customers, make money, and keep them there.

Wyatt emphasised the benefits of having the PVR functionality in the network, including no limit in storage - though limits could be set if required. The example was given of one rack containing 7,000 hours of MPEG4 which would allow multiple recording of programmes over a longer time period. He added, "We also note that patience is nil. That's what's driving this business - delivering what you want when you want it."

What's the payback? Service opportunities are driven by technology to get consumers to pay. Simplicity of use is crucial. But with the vast potential storage, the content could be changed without a problem, adjusting for customers based on their demographic, the time of day etc.

With regard to content security, the content owners want to maximise their revenue and virtually all conditional access companies have a solution to achieve that. One development which may be seen is encryption on the server. Currently content is in the clear on the server and then encrypted - leaving the server itself as a weak link.

Another advantage cited for network PVRs is the ability to deliver via network brings down the cost of deploying expensive set tops.

Gary Steven (Diva, now On Demand) noted how Hochhauser effectively started the VOD business in 1995. At that time Diva's the first model was to put the system in for a cable operator; this changed to selling he VOD hardware, and licensing the software and services under contract. For while there were some large roll outs in the US, in Europe here were just a few trials with meaningless results.

Steven also noted the differences between the US and UK deployment, characterising the US where VOD is digital TV's its lead product, whereas in the UK it is email, home banking and then near video on demand. He also reiterated the divide between TV - fundamentally an entertainment device, and the PC, which is fundamentally a productivity device. Consequently, the motivators for VOD are entertainment.

Stephen also pointed out that the whole aspect of how you make money has been ignored, but payback on hardware is less than 18 months. Hardware is not the issue as prices (from the different suppliers) will be roughly equal. The drivers will be content that people want to see or use, and keeping the cost down - which will depend upon the right software and the contracts with the studios for content.

Operators need to be aware of the characteristics of the market. In this regard, Stephen notes that new releases account for half of all purchases, but only a third of revenues, with adult products accounting for another 30 per cent - and 80 per cent of the purchase price is kept by the vendor.

Also, VOD is an all-day business, not just prime time. Navigation must be easy and must be able to be seen when sitting 12 ft away. The system also needs to be flexible enough to offer special deals with the ability to dynamically change offers. Consequently the software should collect and data warehouse it to create reports. Without this type of tool you will not be able to make money says Stephen.

Simon Hochhauser, Chief Executive of Videonet, a VOD pioneer whose commercial ADSL delivered service Home Choice is up and running, began his presentation by pointing out that VOD is already taking customers away from alternative sources of entertainment.

"There's huge customer demand - our problem has been holding down demand while sorting out pricing with BT. Apart from (BT related) transmission issues, all other clients can be proud of themselves - the rights are available and the technology works."

On finance, Hochhauser comments that we can now see the route map, see all areas of transmission, servers, new set tops going into the market, and believe the original economics underlying the business. "The problems are related to the bottlenecks from the (server) centres to the home using DSL over BT lines. BT is the single supplier and its high pricing is our biggest challenge. We are applying for regulatory change as we see BT itself does not need to be in broadband server provision, and doesn't have to affect network deployment. We need to plot our future with certainty.

"For now the main revenue streams are film and TV - entertainment on demand. By Q3 next year there will be a multiplicity of games, audio and services including full network based PVR functionality."

"Average revenues are higher (on VOD) than cable TV, and we have to leverage our ability to provide services in a way not available in the (broadcast) multi-channel world. Today there is a paucity of corporate funding in Europe. Institutional and strategic funding is available, but needs to be deployed strategically - by the media industry, telecos and utility companies. Feasible opportunities exist, demonstrated by the customer demand. New deals have been signed, including the Premier League, 80 per cent of Hollywood studios, and two more studios in the next two months making it nearer to 90 per cent, as rich, desirable content is central to the offer.

"We expect the windows (for release of films) to be brought back to at least the video release date as volumes grow. This will happen despite existing relationships once it is the economic thing to do."

Moderator Larry Gerbrandt also noted that another genre that is popular in the US is 'How to' videos which lend themselves to VOD, as there are specific occasions when you might want watch.

Simone Sassoli, Director Broadband Networks EMEA at SeaChange International made the analogy with telecoms where it is now accepted that the future is personal.

However, he also suggested it is indeed services presented in the living room as video - rather than content per se - that is the future. He also noted that the trend is toward repurposing content for delivery in different formats.

Sassoli noted how Europe is behind the US in VOD, and can expect to see deployment over the next 12 months. In the US five cable operators - Comcast, Adelphi, Rogers, Time Warner and Cablevision have already deployed and are making money.

"Networked PVR capability will need a server in the headend from which user-selected content will be delivered with targeted advertising," concluded Sassoli.

There then followed a discussion on the pros and cons of PVR functionality as a networked service or one delivered primarily via functionality in a box in the home.

Cresci of TiVo told attendees, "There is a huge market for both - it's a great opportunity. Networks will invest a lot at the headend, and the PVRs will ensure that users get the services in he home - but both will be used.

Kressner of Yes responded, "It's about being able to buy and see what you want when you want, not whether it comes from a PC, a set top or a server. Whichever is cheaper is where the market will go. It's a cost issue - how many of the services can you give from a server, how many from the set top?"

Sassoli of Seachange added, "You cannot do VOD via satellite, where only a set top allows targeted delivery of content, so they (set top PVRs) do have a market. But there are more choices over a switched network, and for cable there will be more competition between VOD from the network or the PVR."

Wyatt of nCube promoted the cause of the network PVR noting, "Time shift TV is definitely better delivered from a network server. If a programme isn't recorded on a PVR the review opportunity is gone. If you can charge for this service, its new revenue that the broadcaster would never have received, and they will increasingly see this and accept (making their content available beyond the broadcast date). PVR in both its forms is a revenue driver and applies to most content other than news, weather and live sports."

Wyatt also explained how the regulatory environment was different in the US. "Money talks, and if you see that there's money that wasn't available, that's a powerful incentive, and (regulators and operators) will do what it takes to enable this. I believe regulatory hurdles will be overcome."

Hochhauser nailed his flag to the mast very firmly in the network-centric camp. "By investing at the centre, we are able to deploy at a lower cost. PVRs are expensive, and will be made obsolete by future developments, including other services requiring say games consoles. Therefore central investment lowers the obsolescence factor. Also, the personal recording allowed by set top PVRs eats into other revenues - such as the video market and VOD.

"We are negotiating for full PVR capability for all new launches. There is absolutely no contest, no reason why (operators) would invest in set top PVRs."

Cresci of TiVo responded saying, "You're asking operators to take all the risk. With set top functionality, there is infinite scaleablity and the consumer takes the cost."

Stephen of Diva suggested that, "Its down to how you architect your network and configure the costs - including the cost of bandwidth. It's much more economic to offer a network VOD product via a centralised network. (Bandwidth) can be pushed down to hubs and regional networks and its becoming more economic to do that. It's about striking the balance between bandwidth and local storage - a trade off between the two. If the subscriber is offered the box for free plus VOD but no hard drive, or paying £300 they will go for the network. It's not economic yet, but will be further down the line."

Hochhauser concurred, "As you introduce more functionality, the boxes become obsolete. Consumer desires always run ahead of the ability to supply - as we move to the Xbox there will be more graphics, more simulation effects, high definition - and the cost per customer at the centre is cheaper with less obsolescence, and (upgrading) disturbs the customer less."

As the 'anti-box' onslaught continued, Stephen raised a new objection, "If you introduce a disc driven system, then with 95 per cent certainty you can predict the failure rate as it's a moving part. At Charter, there's not a chance in the world we're going to put moving parts into set tops."

Cresci found himself the lone box champion, noting again the benefits of TiVo, stating, "It's a very sticky technology, growing at a rate of 5,000 boxes (world-wide) per week. Satellite operators have deployed the system and cable operators are also in negotiation."

It was also suggested that putting PVR functionality in the network resulted in more truck rolls to the customer premises. In addition, whether delivered by cable or DSL, only 10 per cent of networks currently had sufficient quality of infrastructure to deliver PVR functions and would therefore require upgrading, whereas the box solution is available now.

Hochhauser replied that there is indeed often a need to build out to the hubs to achieve the ability to deliver on demand. DSL was seen as less of a problem because it was dealing with dedicated connections, but the costs of transmission over fibre were lower (though not necessarily lower price charged). It was also pointed out that PVR boxes are essentially one way delivery - you can't record something that has not been broadcast, whereas real VOD provided two way access to a library of content.

Stephen also added that in terms of capacity, if servers were used at say 1:25, more capacity could be added as needed and the content would be available 24/7. At 85 per cent capacity more transmission capability and servers could be added, eg if channels for a node to 500 homes was delivering at 1:20 and it went to 1:10, it would just be necessary to add two channels. As nearly every cable system currently uses analogue, the switch to digital provides six channels more network capacity - or bandwidth can be increased, so cable companies don't see it as a problem."

Unfortunately time ran out, but the platform consensus was clearly with the network option for PVR. Outside in the foyer, advanced-television spoke to Abe Peled, President and Chief Executive of NDS who might have been expected to add a robust defence of the box approach had he been on that panel. He commented, "We heard all the same arguments in the PC world from Larry Ellison (CEO Oracle, proponent of the networked computer - with near dumb terminals and the functionality in the network). Look what happened there. We're supposed to be talking about consumer choice with Video on Demand, and in any comparable industry the consumer wants control." The comparison was made with owning your own car or getting a coach: the most cost efficient might not be the most convenient. And there is the issue (which had been raised earlier) of whether the operators could raise the money to buy and give away boxes themselves.

The one point all agreed upon was that VOD is an industry whose time has come.

*Kagan Broadband Summit, Claridges Hotel, London, September 2001.


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