November 20, 2000

Gorfine Marches UP VOD Hill

TIM CLARK

The creator of Federal Hill Communications discusses the future of VOD, pay-per-view and personalized enertainment

In response to the voracious demand within broadband, interactive and on-demand arenas, Bethany Gorfine - a broadcasting and entertainment industry veteran with more than 20 years of experience - launched Federal Hill Communications in 1993. The company specializes in negotiating, licensing and marketing video-on-demand content around the globe. Federal Hill has forged alliances with Alcatel, Pixstream, Shaw Cable, Sprint, Four Seasons, Compaq, Motorola, nCube, Oracle, Stellar One, Storage Concepts and Sun Microsystems. In this Cable World exclusive, Gorfine clearly envisions VOD reaching beyond the pure movie offerings to accommodate documentaries, biographies, children's programs, music, sports, games, travel, financial and lifestyle programs.

CW: Who does Federal Hill cater to?

When you talk about the types of clients who are always calling us, it could be a telephone company whose former primary function was not delivering entertainment but delivering dial tones. Now it's become voice, video and data, which means we deal with the utility companies and the system integrators that are going into hotels to completely retool their security systems and their front desk applications. They're wiring their high-speed Internet, and they're saying they also need to deliver movies. When it comes to VOD, we still have to educate the consumer. Cable operators finding product specific to their area will be the deciding factor for VOD.

CW: The technology side of VOD garners a lot of attention. Why has there been relatively little attention given to content?

We came up with the slogan: "We truly are the last mile." Everybody focuses on the delivery system. The technology has to work. The phone companies, for instance, have a mantra that 99.99% of the time, there has to be a dial tone. They know their customers depend on them to pick up a phone whether it's in a hurricane or a disaster, and there will always be a dial tone. They're not about to release a technology that's going to fail them. Only after rigorous testing do people ask how to obtain movies.

CW: What are some of the emerging niche markets for VOD?

I certainly love the hotel business. And it's not just movies that are going to drive it. If you're on vacation with your kids, for example, you need children's programming in there. If you are a traveler, you may want to see other destinations to go to. Sometimes you don't have 120 minutes to be in your hotel room, or you just want financial news.

Hospitals are another environment. If we're providing movies to a hospital, we're obviously going to stay away from titles like Terms of Endearment. So what do you provide? If there's a children's ward, I'll provide the most fabulous children's product I can find. With Medicare and HMOs, whose going to pay for it? Maybe you'll have to put it on your credit card. Or you go to Bill Gates and have him underwrite it.

CW: How does Federal Hill differ from a DIVA, Intertainer or In Demand?

They can all be my colleagues, or they can all be my competitors. They all focus on a certain aspect of the business. DIVA and In Demand cater to cable operators. Our focus is on any type of delivery system. Whether it's by the phone company, utility, residential, hotel, cruise ship, university - we solely devote ourselves to content, and we don't have any hardware associated with that. We just want to make sure that whoever our client is, we learn as much as we can about them, so that when we approach the content suppliers, we certainly know that their negatives are going to be protected and secure, and that they're going to get paid. We're constantly looking at the data to go out and negotiate.

For instance, if you put something on a system, we look at the marketplace to see who the ultimate customer is going to be. If it's a community that has a tremendous amount of children, then you want to load it up with a lot of children's product. If it's a community that is seniors, well, you might want to give them a lot more travel and financial information.

CW: So where the others focus on national distribution, you focus on customized product?

Yes. In Demand is buying for the United States. Suppose you're in a Hispanic area, and you want a lot of Hispanic programming. I don't believe they do that. We do. We also don't focus solely on the United States; we have worldwide clients who need content in different languages. We have a client in Sweden who needs Swedish movies.

CW: So you have to educate yourself on overseas content as well?

Yes, we certainly have to be aware and talk to our clients about what their needs are and what their viewers' needs are going to be.

CW: How does VOD penetration overseas compare to here?

Percentage-wise I am not sure about, but it is certainly much further ahead than we are here.

CW: Why are our overseas counterparts more digitally advanced than we are?

They are just used to a different delivery system. Even in the remote areas, there's always a satellite dish on top of every house. They are very used to receiving entertainment. That's what they do. But I would also say the phone companies and cable companies are the same.

CW: What's the deal behind Federal Hill teaming with Civic Video to roll out VOD in Australia?

Civic Video is essentially the Hollywood Video of Australia because they are the No. 2 provider. They have an agreement with the utility companies for 150,000 homes in Canberra, the capital, to roll out video-on-demand. So we are now in the throes of acquiring content.

CW: How does the content acquisition process differ overseas than within the United States?

It's not a simple process. It's not like you can call just one guy and say: `I need content for Australia.' Each studio overseas has a different division and ideology, whether it's residential or hotel, there are different windows.

So for Civic to deal with any Disney product, for instance, the representative might be in Hong Kong. It doesn't come out of the corporate office. Once you're fortunate enough to license the content, then you have to deal with very different types of masters. Where are the PAL masters located? Where are the NTSC masters located?

CW: Would you say the Federal Hill-Civic partnership compares to the Blockbuster-Enron partnership?

Let's put it this way: It surprises me that the first thing Blockbuster and Enron didn't do was announce who their content players were. Blockbuster is the brand. Enron is just the delivery system. There's no reason why the local phone company can't come to us and say, `We want to do this ourselves.' On the other hand, why is Blockbuster still selling DirecTV? Consumer choice. It's the same thing when you visit Circuit City. There's DirectTV, EchoStar, TiVo, Replay - they're a jack-of-all-trades.

CW: Do you think Blockbuster is slowly turning itself into a dinosaur by becoming a jack-of-all-trades? They're offering satellite and eventually, VOD. Don't these two delivery systems eliminate their sacred late fees?

They are talking about charging a dollar or two above what you are currently charged in the video store, and I think there is value there. To offer convenience and choice, VOD can be offered at a buck or two more. But people still like the experience of smelling and touching. They still like the experience of going into a video store and looking at and touching all the titles and asking people what they thought of a particular title. I think VOD is a different type of model. You pay that extra buck or two to have the convenience delivered to your home. I don't think it really dilutes anything.

CW: Will VOD have any problems overcoming security issues?

To date, there is not one security system that has been approved by the MPAA. When we negotiate, our clients certainly want the likes of Macrovision, which scrambles a signal so you can't copy it. The main problem is that now you've got a digital signal.

Before the studios sign with anybody, they have an engineer check things out. We have a questionnaire they have to answer, which deals with the type of system they are using. And yes, there are companies that are doing the encrypting while they are doing the compressing. PIN numbers are also being implemented that can only be unlocked from the provider's end. Sometimes logos are used, so if a particular title sneaks out onto market, you'll know where it came from. It's more of a deterrent.

I mean, if movies are already on the Internet, where are they coming from? The day a movie opens, someone is sitting in the theater with a digital camera, recording it. We, as an industry, can do absolutely everything we can to secure it, but what does that truly mean? There's always going to be one guy out there looking to beat the system.

CW: How does the current, eclectic mix of content delivery affect Federal Hill?

It affects us, and the industry, because everybody is waiting for the digital boxes. Right now, you've got just a few players who are really delivering. Ultimately, the technology will be in a TV set. Every day there's a new enhancement available - all this technology, once you finish selling the first version of your box, is obsolete. You've got to wait for the next version, and then it, too, is obsolete.

As wonderful as all of these opportunities are, you have to ask yourself if they are actually going to serve a purpose. With that said, we need them. That's how the industry grows; that's how people begin to launch.

CW: Define what you feel to be the pros and cons between pay-per-view and video-on-demand.

Pay-per-view is still on a schedule. It's still going to start at 10:00 or 12:00 or 2:00. Video-on-demand starts anytime, and you can pause, fast forward and rewind. It's all about convenience and choice. From my own experience, I've gone through the program guide of 200 channels and suddenly it's not 8:00 anymore - it's five minutes after. So what do I do between those five to 10 minutes or whenever the start time is?

CW: There's been talk within the industry that the PPV windows will be changing. How will this effect Federal Hill?

Well, it really impacts what everybody does. Whether or not they change the windows to being day and date with the home video stores, or if they truly move it up to create its own window just helps the industry further itself.

CW: Are you aware of any tests being conducted that deal with collapsed windows?

I know Civic Video is doing it with Village Roadshow. They have allowed them to test it. It might be a little too early to get any feedback about it. I know the Time Warner VOD trial is certainly hoping for it. I think the good news overall is that studios right now are saying that now there is a lot of opportunity in front of us with video-on-demand, and it is time to figure out how we want to play in that arena.

CW: What are some of the marketing challenges facing collapsed windows?

There was discussion at one point about just a day and date release of movies throughout the world. If you just did it all at the same time, we wouldn't be worried about security issues.

CW: You mean theatrical, home video and VOD all being released at once?

Right. Let's use Mission Impossible as an example. How do you get Tom Cruise to go on these shows, these press junkets? From a marketing standpoint, how is he in L.A., San Francisco, New York, London, Paris, Germany ... that is a nightmare. It also means your less-established features that don't have the cache of a Tom Cruise will have a much tougher time fitting into all this. So there's a lot of marketing challenges. Certainly for the industry, it costs them a lot less to initially allocate `X' amount of dollars to a select number of theaters.

CW: How important will classic and do-it-yourself titles become in the VOD realm?

The beauty of cooking shows or do-it-yourself content is truly when the interactivity comes on. Say you come home at night, and you don't know what to cook. You'll be able to just sort by pastas. Or chicken dishes.

So you click on your selection and start the video. If you miss an ingredient, you can just rewind or pause as you try it yourself. That's the type of stuff I think is invaluable to any system. The same applies with children because they like to watch things over and over again.

CW: Are you trying to keep your VOD approach of fueling niche markets a secret?

No, not at all. Our competitors are definitely looking at us. We've been approached over the past year by at least five different providers.

With video-on-demand, you've got to keep it fresh.

At the end of every week, we take a look at who is watching and what they're watching. If stuff is just sitting there, not being watched, you don't want it to sit on the server, taking up valuable memory.