I want my VOD

Three billion. That's the number of video on demand downloads Comcast has serviced in the us since 2004. And, staggering as that number may be, the pace is accelerating. In fact, last September alone Comcast set what must have been an international record by filling 180 million on-demand requests. It's official: viewers have glommed on to the vod platform, and they want more.
October 1, 2006

Three billion. That’s the number of video on demand downloads Comcast has serviced in the US since 2004. And, staggering as that number may be, the pace is accelerating. In fact, last September alone Comcast set what must have been an international record by filling 180 million on-demand requests. It’s official: viewers have glommed on to the VOD platform, and they want more.

That’s got to be welcome news for cable operators, especially those in the US, where rumors place the investment in system upgrades at nearly $100 billion in the last decade, mostly in preparation for new services such as VOD. On-demand in the living room is the holy grail for cable operators, who are fighting a rearguard action against broadband, satellite providers, IPTV, PPV, DVRs, and a myriad of other platforms that provide users with content.

At least this is one fight where cablecos and viewers are on the same side. Nearly every survey demonstrates a clear preference on the part of consumers to have content served up in their living rooms, on the box they have grown to love, at a time of their choosing. An Olswang Convergence Consumer Study conducted in November 2005 that sampled 1,500 13- to 55-year-old consumers in the UK found ‘a weighty 57% want to watch varying digital programs, of their choice, including TV and film, whenever they like.’

That desire is predicted to trigger an explosion of on-demand-enabled homes. An Informa Telecoms and Media study conducted in late 2005 estimates that by 2010, there will be 350 million VOD- or NVOD- (near-VOD) enabled homes around the world – 103 million of those in the us. It’s estimated that 86% of that growth will happen in North America and Europe.

Comcast’s numbers alone suggest the latent potential of the platform. The company’s digital footprint is 10 million customers (all of whom have VOD access), out of a total base of about 23.3 million homes currently serviced. Consider the possibilities if those potential digital customers made the switch. Right now, an average of about 70% of Comcast’s digital customers use the on-demand service in any 90-day rotating basis. Impressive as 180 million on-demand views a month is, the potential is more than double.

What is motivating viewers to switch? Though a 2005 Datamonitor VOD study simplifies the equation as ‘more content = more usage,’ it goes further to add: ‘While the quantity of content is important, the quality and range of content is crucial. In addition, free content needs to be provided to encourage initial use, with pay services only likely to succeed once consumers are more comfortable with the concept of accessing on-demand services.’

That’s a lesson Comcast learned early. The company currently offers 4,000 programs, 95% of which are available at no additional charge to customers after initial monthly fees. As Datamonitor observed, Comcast found purchases grew by 60% after it deployed free VOD.

However, that’s not to say the economics are simple. For viewers, the Olswang survey found that while ‘pricing is going to be a key factor to the success of different services, there seems to be no single pricing model that is likely to satisfy all customers.’ Some viewers prefer a pay-per-view option, some pay-to-keep, others simply a base subscription.

On the cableco’s side, advertising will continue to be an important factor. Customers don’t appreciate advertising in programming for which they had to pay a premium, but they’re willing to accept it to varying degrees in free content. For its Exercise TV, for example, Comcast has partnered with sponsors such as New Balance and Gatorade to offer in-program, paid informational pitches. (During the programs, the clothing manufacturer offered tips to selecting the best workout gear, while Gatorade gave hydration tips.)

As far as episodic programming offered by the US networks goes, however, look for them to combine product placement and full-blown advertising. (Content such as Survivor could be supplied to the cable operators with ads locked into place for free on-demand viewing.) Comcast recently also experimented with a CSI episode during which it ran a General Motors billboard off the top of the program and then a longer GM pitch at the end. As Chris Ellis, senior manager of corporate communications at Comcast put it, ‘You adapt the advertising model based on the content and how it works, and who your audience is. It’s all about relevance.’

One unanswered question, however, is how well on-demand technology plays with others. What impact is it going to have on linear television, home video and other new technologies? When it comes to linear TV, most operators are treating on-demand as additive, and customers appear to agree. Discovery, which is an on-demand partner with Comcast, has put extra content – behind-the-scenes material and other extras some viewers might more traditionally associate with dvds – on the platform to support Shark Week with good results. Spikes in the viewing of episodic programs on linear nets have also been seen when previous episodes are available on-demand.

As viewers become more familiar with the platform, some have also strayed further away from feature content, instead exploring niches that capture their interest. That’s huge news for non-fiction suppliers.

Interestingly, studies also indicate that viewers are not platform snobs. VOD customers use their PVRs significantly more than non-VOD customers. The 2005 Datamonitor study offers three supporting factoids: ‘Comcast claims that its PVR users are 40% more likely to use VOD services than those subscribers with only a standard set-top box; Time Warner Cable reports that 81% of its PVR-based subscribers use VOD services, compared to only 51% for non-PVR users; [and] independent research firm Lyra Research’s 2004 study found that PVR users watch… 53% more free VOD content and 69% more pay-VOD.’ In fact, combining both platforms has almost become a guarantee to attract consumers.

When it comes to home video, the news is perhaps not so good. Recently, Disney SVP and CFO Tom Staggs publicly noted that VOD has had a ‘cannibalistic’ effect on video rentals, although the marketplace overall has not been hurt – meaning money is migrating away from home video to in-the-home digital offerings. As VOD further encroaches into the DVD release window, expect more money to migrate.

And, although studios would have you believe that was still to come, it has already begun to happen. Note the Independent Film Channel’s day-and-date release deal with Comcast in February as just one example. Not only did it offer indie IFC access to an enormous market without having to cut into other distributors or theater chains, it was also a partnership that Comcast viewers would love. It has been reported that one in 11 of the free movies viewed by the cableco’s vod viewers are indie films. After all, giving viewers what they want when they want it is exactly what on-demand is all about.

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