Video on Demand
Last pieces of VOD puzzle being assembled December 2001 - January 2002 By Noel Meyer

On August 16 this year, five major Hollywood studios - Sony, Warner Bros, MGM, Universal and Paramount - announced they would form a broadband VOD distribution service. Content will consist of new releases and library material. It will be supplied on a non-exclusive basis and each studio will decide its own release window and price. The technology platform will be based on Sony's Moviefly project. The as-of-yet unnamed consortium is open to participation by other studios and producers. The studios will announce a launch date at a later time.

Three weeks after the big announcement Fox and Disney said they would launch a broadband movie distribution service over Disney's Movie.com early next year. The major difference so far is that Fox and Disney at this point intend to offer their libraries in a pre-pay-per-view window while the group of five will more likely distribute during the traditional pay-per-view window.

Movies.com will also be available over cable. In all likelihood the group of five will alter their strategy to match Movies.com to stay on the same playing field.

The studios say they are rolling out their own VOD services to help kick-start cable VOD and in order to avoid the creation of a Napster-like content loss in the movie industry. Some say the efforts are ploys masking the studios' desire to ratchet up revenue splits in their favour and create a vertical ownership, distribution model. And that this will give the studios the clout to demand more than the traditional 50/50 pay-per-view split.

Cable based VOD is growing in North America. It is clearly superior to Internet VOD. Comcast has recently said that 25 per cent of its eight million plus subscribers will have access to VOD before the end of the year. Cable vision announced that it is rolling out VOD and interactive services to 550,000 subscribers and that all three million of its subscribers will have access within three years. Ovum research forecasts that by 2006 there will be 112 million VOD subs in North America.

What effects will Hollywood broadband VOD have on the nascent cable-based VOD industry. Will broadband VOD survive when cable takes off?

Forrester Research analyst Eric Sheirer comments, "We don't think Internet VOD is going to have much of an impact one way or the other. It certainly won't diminish the demand for cable VOD. In fact, VOD on the Internet won't really get started - it is going to be a cable phenomenon."

Sheirer doesn't believe movies have much of a future on the Internet and that includes operations that are already up and running. "It's going to be very difficult for operations like CinemaNow and Movieflicks.com. People don't want to watch movies on their PC screens. The hope or wish that there is going to be some good way to get movies from the Internet onto the television is not going to emerge nearly as quickly as people are hoping."

His explanation is simple. The quick forecast cable VOD rollout will stifle Internet-based VOD. The logic is impeccable. "Once people start getting all these great movies on cable they won't feel a need to gateway their PC onto their television. Cable-based VOD is coming so quickly that it's going to hamstring a lot of the demand for people to install home entertainment networks."

SeaChange International, which provides VOD and ITV systems believes Hollywood's Internet VOD announcements will have a positive effect on the rollout of cable-based VOD. Yvette Gordon, vice-president of interactive technologies, SeaChange International believes the lack of VOD licensing and content deals with the major studios has held back VOD. "What the industry has done to circumvent that is to move forward with subscription VOD. They have allowed the industry to move forward without having to be dependent on the studios licensing content."

"If you talk to studio executives what they will say is that they are expanding their view of this business. For them to start establishing the business units to do that is just a great thing for our business. I think it will make a big difference. There are no standards yet so getting studios together so they can licence or standardise or package content for new markets is great. It means there will be some consensus on how this will work as a business."

The bottom line is of course that the studios are eager to up their end of the revenue split from the traditional in pay-per-view. After all, 51 per cent of studio revenues come from home video rentals and VOD is forecast to shred that market. If the MSOs have been holding back from signing content deals with the studios because of demands for higher revenue splits, Eric Sheirer believes they should bite the bullet and cut some deals at higher splits.

"Particularly in the short term the cable ops have a lot of incentive to provide the studios with a higher stake in hopes of stimulating business development and then re-examine the revenue share questions once the business gets established."

In Sheirer's forecast revenue splits aren't as important as deployment and penetration. "If cable can double the penetration and take rate over the whole industry by giving back 10 per cent on the revenue split then it is clearly in cable's economic interest to do that as well as reducing churn and having more satisfied customers. Taking a hard stance on revenue sharing would be very short sighted because it is really in cable's interest to make these deployments happen and the content available."

So, what does it all mean? Scheirer takes the combined Hollywood announcements to mean that Hollywood is finally taking VOD seriously. "To me the primary significance is that we have never before had any statement by the studios in such a clear way that they view VOD as an important part of their business going forward and this is the first sign."

Yvette Gordon takes it to mean that the content deals which have held deployment back will soon be sorted out. Taken together what it all comes down to is that all the pieces for a massive VOD deployment, the creation of a new market and a new delivery system is about to happen. The technology is there, it is proven and being deployed. The content to make it happen is on the way. The studios have finally decided it is a market they have to be in.