Operators at CTAM digital make video-on-demand a priority: Starz's Sie says consumer choice is cable's best defense against the onslaught of satellite TV

Cable World, March 11, 2002 by Andrea Figler

The video-on-demand market and its potential to drive the growth of digital cable services was the all-consuming message at last week's Cable & Telecommunications Association for Marketing's Digital Conference in Los Angeles. But with standards for content transmission and vendor systems still under discussion, the cable industry has been forced into something of a holding pattern: While the lack of uniformity gives cable operators many choices for vendors and marketing, it also keeps them from moving into a market that most view as a chief competitive advantage over direct broadcast satellite, said John Sie, chairman and CEO of premium Starz Encore Group.

"DBS took 3 million subscribers last year, and cable kept flat," Sie said at the conference last Wednesday. "That's the nature of the beast."

Digital is the core platform all cable operators need to move forward, he said. It provides them parity with DBS in terms of channel capacity and provides a portal to many more services, such as interactive television and VOD. VOD allows consumers to choose which movies, or even programs, they want to watch when they want to watch them. More importantly, VOD and subscription VOD are the best incentives to convince subscribers to go digital, Sie said.

Apparently, Comcast Corp. executives agree. During the conference, Comcast execs actively promoted a turnabout in the way operators have heretofore marketed digital: Instead of promoting digital as a new platform offering an array of services, they should promote VOD, which is not possible without digital service. The change is subtle but significant.

According to Comcast, VOD was the service both digital and analog consumers most wanted. The Leichtman Research Group corroborated that research. It found that more than 46% of cable subscribers would go digital if they could get movies and premium networks on demand.

Comcast plans to sell two on-demand packages as an inducement for customers to move to digital service. One package will cost $9.95 for basic on-demand subscribers, providing free kids programming, free cable network shows, music, an electronic program guide and discounted movies on demand. The other, On Demand Plus, will charge $14.95 for free kids programming, free cable network shows and free premium network on-demand programming.

Under this VOD marketing plans, Comcast expects to double its 3 million digital subscribers by the end of the year. But there are significant hurdles to achieving that goal. For one, the operator needs the cooperation of basic cable networks. While several have been willing to help with trials, others have held back because of rights issues and advertising concerns, among other things. One basic network spokesperson shook her head candidly, wondering now Comcast plans to provide this "free" cable network programming for its on-demand services without the programmers' consent.

Discovery Communications, however, announced at the conference that it has created two new on-demand packages to help the operator's push to digital. President and COO Judith McHale said that prices of the new products--Discovery on Demand and Discovery Choice 10-remain undetermined. But she conceded that changes in the industry will require Discovery to be flexible.

Technical issues also abound. A seamless VOD system depends on cooperation among vendors that all have their own software codes, said Mark Hess, Comcast's vice president of digital television. If one changes slightly, the others must follow, he said.

Comcast is also still testing the waters with VOD vendors, including a trial with TVN Entertainment's transport system in 11 markets, which the companies plan to formally announce this week. TVN enables the transport and tracking of content delivered via VOD. Comcast will use TVN's content aggregation system for adult content as well, Hess confirmed.

While neither Comcast nor TVN would disclose the financials behind the deal, the VOD vendor explained that revenue streams differ greatly in the changing market. TVN charges a fee for its transport service but splits the revenue generated from movie sales. TVN also takes a percentage of the revenue created by subscription to its own exclusive content packages, such as a new kids package it's developing, said Ian Aaron, TVN president and CEO.

Intertainer, another VOD content aggregator, announced its launch of Demand E.S.P., an on-demand service platform for cable operators, broadband providers and content owners. With Demand E.S.P., any company can fully manage, program, distribute and track on-demand content via this system, according to Intertainer. The platform essentially redefines Intertainer. Instead of solely aggregating the content, it will provide the software and service for distributors and content owners to control their own destiny.

"It's time for cable operators, broadband service providers and content owners to seize the momentum and brand their own VOD services," said Jonathan Taplin, Intertainer's CEO, in a statement.