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November 20, 2000
TIM CLARK
Cable operators are finally starting to roll out what in some quarters has been called the "killer app" of the broadband world - video-on-demand. But they're putting their toes in the water as they face challenges of scalability and how best to market and price the services to customers.
"The good news is that we have already put the infrastructure in place to" scale VOD deployment to roughly 500,000 subscribers in San Diego, says John Hildebrand, Cox Communications' VP-multimedia technology. "The first 2,000 is not a test. These are paying, full-subscriber customers."
Cox, Time Warner Cable and AT&T Broadband have either launched VOD or announced plans to do so. In addition, Cablevision Systems confirmed two weeks ago it would begin a rollout to several thousand homes on Long Island, N.Y., in preparation for a full-scale introduction of its advanced digital platform in the second quarter of 2001.
Clearly, some issues remain before operators can charge headfirst into VOD.
"Before we intervene in our network against our customers, I want to make sure it works," says AT&T Broadband president Dan Somers.
Working for sale What issues are MSOs looking at? Operational and marketing issues lead the list.
"Scalability," Somers says. "Can the customer walk up and turn the set, click order, pay the bills. How does it all work? What's the customer satisfaction level? Pricing. Buy-rates. We need all that information to understand the cost dynamics of the roll of it across 16 million homes."
While scalability is always a challenge, Hildebrand says Cox has deployed additional video services to support additional streams. He says "the easy part" was housing the much-needed rack space to ramp up from 2,000 to 500,000 subscribers. One step ahead of the game, Cox already holds state-of-the-art MTCs - master telecommunications centers - where they were able to house the additional stream capacity.
A diminutive piece of equipment, called a multiquam, will keep the San Diego VOD technology running smoothly.
"Multiquam units give us a great deal of availability because if any one of them fails, any one of them picks up the existing load," says Hildebrand.
The most difficult task in maintaining VOD for Time Warner for its iCONTROL-branded trials is integrating it into their billing systems. Time Warner is using In Demand as its movie provider for the tests.
"We're a subscription-oriented business, and VOD is a transaction-oriented business," says Mike Lajoie, VP-corporate development. "It's been a challenge, but it's been something that has been working quite well."
Time Warner has been running VOD in Tampa, Fla., and Austin, Texas, with nary a problem. In fact, the number of customer complaints generated from these systems, are almost nonexistent, according to Lajoie.
"Something like 1.5 calls per 1,000 buys," says Lajoie. "The underlying systems are running well, and the VOD capabilities are rock solid."
Painless in San Diego Cox is near 100,000 digital set-top box deployments in San Diego and running VOD under the marketing banner Movies-on-Demand. The Cox box of choice is the Scientific-Atlanta Explorer 2000, capable of running VOD without a truck roll. The consumer calls up a customer service representative, orders the VOD plan, and it will be added to the customer's channel lineup. Hildebrand says Cox will offer a broader depth of content accompanied by creative pricing as the medium grows.
"We're working with HBO, for example, providing a set of HBO movies and original content to the subscriber for a fixed, monthly fee," he says. "We're in the process of moving that content out onto the servers."
For San Diego and Cox, VOD deployment has been painless.
"The servers are already installed, the equipment in the hubs are already installed, and the set-top boxes are roughly 100,000 and growing as people take our digital tier," he adds.
A miniscule software upgrade from S-A is the only piece missing from the San Diego deployment puzzle.
Hildebrand says San Diego was used because it is a technically advanced area, and there are a significant number of digital set-top boxes deployed.
"Obviously, you don't want to put a lot of VOD infrastructure at some sights where you only have 2,000 to 3,000 set-tops that can actually make use of it," he says.
VOD everywhere Like Cox, the Time-Warner perspective is simple: "Anywhere we have digital set-top boxes, we can deploy VOD," says Lajoie.
Deciding where to deploy VOD rests on a few business issues, sometimes dealing with how busy a division is. Examining individual launch phases in different territories resides at the heart of this issue.
"We're looking at a much broader deployment of this next year," says Lajoie. "Although we haven't made any announcements, in the near future we'll be deploying this approach more."
Lajoie says specific issues are usually pored over before deciding where VOD will be deployed next. Sometimes, pay-per-view receipts are examined from hub to hub. Lajoie says the avid Time Warner consumer revels in the PPV realm, and, therefore, these hubs would juice up with additional streaming power.
"These kinds of issues come into play when you look at what your experience has been with a subscriber base in a particular division," he says.
Lajoie says Time Warner's VOD game is not to track individual subscriber usage. Honing in on usage by hub, neighborhood, title or studio is the way to go. Closely monitoring network load in the event of an unexpected burst in service popularity is also a concern for Time Warner VOD.
"You need to be aware of that so you can add more streams so the consumer doesn't get a `video busy' signal," says Lajoie.
Time Warner also makes it a point to track for usage and royalty payments.
"In short, we're tracking it very closely," says Lajoie. "We're pretty high on this stuff, and we think it's going to be a big success."
AT&T'S Plans AT&T has chosen Atlanta to undergo a VOD trial first, followed by Los Angeles, the San Francisco Bay Area and Pittsburgh. The MSO says it did not pick those markets based on their demographics. The company says a large percentage of their higher-pay customers aren't necessarily in the affluent range, simply because cable is a tremendous value to them.
"We go through a pretty comprehensive sight selection criteria that is based on the overall competitiveness of the market, technical criteria and status of the plant," says Jay Kreiling, director, AT&T Broadband.
AT&T carefully examines its current infrastructure to determine if the MSO can support a rollout. Plant rebuilds, physical room in the headend and hub sites, and the status of RF activation in transforming a plant into two-way technology as opposed to telco return boxes must be in check. Due to this comprehensive set of checks and balances, the company doesn't foresee any obstacles that might impede upon their deployable VOD plans for this year and next.
"There's also a variety of factors from marketing operations and engineering that go into the selection of criteria not only for VOD, but for all the new products we're looking at," says Kreiling.
Interactive applications on the set-top box fall under this category.
How fast can AT&T roll out VOD? Somers estimates about two or three years since customers need a digital box to receive VOD. However, he adds that AT&T might be able to launch VOD on some of the earlier DCT-1200 digital boxes, not just the second-generation DCT-2000 boxes that Motorola is putting into the market today.
While Kreiling admits a lot of work needs to be done, he says AT&T has a clear picture of what that work entails and what needs to be done to accomplish it. PPV service provider In Demand is teamed up with AT&T to help out with digital PPV via near-VOD.
"There's a lot of different questions that need to be answered to enable VOD, and In Demand provides some of those," says Kreiling.
In Demand, as the content brand, has striven to bring attention to the pay-per-view arena and reposition it in consumers' minds as the destination to receive hit movies in the best possible way. The company says this broad strategy has been their plan from the get-go, ultimately designing the In Demand brand for ultimate application in the VOD space.
TIM CLARK Demand Video, a VOD enabler based in Mountain View, Calif., has a much different perspective on pursuing VOD clients. Their plan is not to focus on the top six MSOs or the new breed of broadband communications providers. They work exclusively with "aggressive" network operators who have existing networks and new two-way digital networks.
"We're also working with about 20 new broadband communications providers who are going into these direct, incumbent regions to compete with the Time Warners and Charters," says Richard Hercules, CEO, Demand Video.
Hercules says the smaller providers have the ability to get something in front of the customer faster with less hassle while not having to wait for the upgrade of the plant the incumbent already has.
In most cases, lower-end incumbents, in trying to establish a new transmission system, has a set of legacy issues, which were chosen over the years by the operator. Demand works with them in order to bring in the new service without major disruption to their existing plant or business profits.
"They like us because we can walk into their plant, evaluate what they have and address a number of their existing issues," says Hercules. "We also appeal to them because they don't have the time to learn about the technology, and, therefore, they would normally be faced with a pretty bad return on investment of anywhere from two to three years."
The Demand pitch is simple: If you work with us, and the first movie is sold, you get a piece, upfront.
"They know that with partnering with us, they've eliminated a lot of risks in the buildup to support the VOD service, it plays with them right away and gives them revenue from day one," says Hercules.
Demand likes proactive marketing beyond the electronic guide to utilize a way of injecting new product availability into the existing customer base. This approach brings the operator in on the investment on the physical plant while getting people to understand they have a new product available to them that's priced well.
"At the end of the day, we try to make technology disappear," says Hercules. "We're real big on bringing content to the operator and helping them market it effectively while helping us both generate revenues."
Hercules says Demand has enough money to keep some of the VOD activity paid for because the growth rate on each operator comes back to them "rather quickly" as more subscribers are added. Hercules says Demand has a lot of money available as well as revenue they are able to post.
"We're different than a regular dot-com ... we're actually making money," he says.
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