VOD: Cable Movie Home Delivery

Bill Marchetti

If 1999 can be characterized as the year cable operators kicked the tires on video-on-demand, then the cry for 2000 might be "Ladies and gentlemen, start your engines!" But the start promises to look more like a cautious lap around the track, with most operators not yet pushing the pedal to the metal.

"We do expect to be more active with VOD in '00 than we were in '99," said Jeri Korshak, VP-strategy for MediaOne Group Inc., "assuming that everything goes smoothly with our trial." The trial, just getting underway in Atlanta with VOD service provider Diva Systems Corp. over General Instrument's DCT 2000 digital platform, is expected to run several months.

"We have accelerated our own digital rollout and we think video-on-demand is a terrific enhancement to the digital product line," Korshak said. "We think this will be a very compelling offer to help blunt some of the inroads that DBS has been making."

"In addition, VOD economics have improved when you look at the technology that's involved and some of the storage costs coming down," he said. "Finally, the technology appears to be more robust than it has been in the past, so we feel confident that we'll have a very solid offering for our customers."

"The economics continue to improve, and we're doing a significant amount to improve the operational aspects," echoed Fred Allegrezza, president of VOD provider Vivid Technology. "Viewer's Choice and TVN Entertainment are becoming more active in providing content. So I think everything is getting lined up for 2000 to be quite a big year. Some of the MSOs we're talking with are talking about multiple sites launching in 2000."

AT&T Corp., which is acquiring MediaOne, "is very supportive of our video-on-demand efforts," Korshak said. "AT&T is very excited that we are moving down this path and that we will be able to get VOD up in at least one market and hopefully expanded to other (MediaOne) markets. Then AT&T will be able to capture those learnings and apply them to the markets that they currently hold."

Among other large MSOs, Time Warner Cable is testing VOD hardware and software in Austin, Texas, and Tampa/St. Petersburg, Fla. It seems a safe bet that during 2000, commercial deployments will occur at those two sites and tests will begin in other markets, but the company hasn't committed to a specific timetable.

Cablevision Systems expects by summer to start rolling out VOD to its 2.8 million customer households in the New York metro area. The SO announced in September that it's working with Sony Corp. to develop a digital platform featuring VOD plus other services such as interactive games, e-mail and an interactive program guide. Sony will furnish system design and software integration. Meantime, Cablevision is hunting for a VOD server provider or providers and is evaluating several contenders including Diva, with whom it is currently affiliated in Monmouth County, N.J.

At Cox Communications, "We have plans during 2000 to test and evaluate video-on-demand types of services," said VP-business development Tom Nagel. "We've done a lot of work in '99 in terms of infrastructure, building the business model and lining up technology partners. We're also looking at the complexity of systems integration to bring this type of service into our digital tier offerings and onto the Scientific-Atlanta or the GI platform. This is not a simple task, but we expect to have it done by the second or third quarter" of 2000.

Also during 2000, Cox will "begin to bring content into the mix and put the equipment into the headend," Nagel said. "Then we'll roll out VOD to a certain number of users as an offering. We'll look at the buy rates and plug that information into our business model, to see what the long-term potential is and to compare the economics with the strategic implications."

Next, "if our VOD efforts are successful and we think it's the right thing to do, then we'll continue to roll it out and go system-wide," Nagel said. "Then we'll start building that infrastructure in our other markets. But there's a lot of work to be done before that happens and there is some business-case analysis that needs to be proved out."

Such as VOD's ability to generate superior buy rates to those produced by "near" video-on-demand systems. MediaOne's Korshak, asked whether she is looking for three times NVOD buy rates to decide that VOD is economically feasible, said "we believe that we'll have an incremental lift, but we're not planning on a tripling of buy rates. Our economics don't rely on that much of an incremental buy rate, although we do expect that the percent of customers who buy (usage rates) will be higher."

That's because MediaOne believes "VOD will have broader appeal (than NVOD)," Korshak said. "It will be very compelling to customers because they will have a large breadth of titles to select from" and will enjoy VCR functionality such as rewind, pause and fast-forward.

Comcast's VOD activity, at least publicly, is limited to a trial in suburban Philadelphia running the Intertainer service to customer PCs via cable modems. Comcast is just one of several big-name investors in Intertainer, along with NBC, U S West, Sony and Intel. The Culver City, Calif.-based firm also boasts a rich variety of content: movies, TV shows, concerts, music videos, children's programs, shopping and documentaries.

Beyond the land of MSO giants, Insight Communications and Chambers Communications have hooked up with Diva for VOD launches in multiple markets - Rockford, Ill., and Columbus, Ohio, for Insight and Edmonds, Wash., and Novato, Calif., for Chambers.

As cable operators pick up the VOD pace, the scramble among hardware and software providers to cut deals is also heating up. In October, Concurrent Computer Corp., Time Warner's server supplier in Tampa, agreed to buy rival VOD vendor Vivid. The same week, the sector also gained a new player when Unisys Corp. threw its hat into the ring.

"We plan to announce the full product at the Western Show," said Unisys spokeswoman Kary Galloway. "We've been working very closely with GI, S-A and Bosch to ensure compatibility with their platforms. We feel our strength lies in the scalability and reliability of our servers, and the fact that these have been out there for years. Large enterprise systems, like the NASDAQ stock exchange, have been running off our servers. We feel that we're uniquely situated to be able to offer VOD on a wide scale."

VOD activity is accelerating overseas, too, especially among the technology firms angling for cable alliances stateside. SeaChange International, Time Warner's server provider in Austin, is living up to its name by striking VOD deals in far-flung places around the globe, from Guandong Cable TV in China to Telewest in the United Kingdom to Rogers Cablesystems in Canada. MediaCUBE4 developer nCUBE is also working with Telewest and now counts at least four partnerships in the U.K. Elsewhere in the U.K., Diva has inked a pact with NTL Inc. to commercially deploy VOD over NTL's cable network starting in mid-2000.