Video On Demand: Users Take Charge - Technology Information

Telecommunications, Sept, 2000 by Sean Buckley

It's seen as a home run for cable companies, but can telcos make a go of the service?

How important are video-on-demand services to telcos and MSOs? Many industry insiders see the move to a diverse on-demand service package as key to continued success in the first mile. "The real game is integrated voice, data and video-cable on-demand controlled not by the telco or cable MSO, but by the user," said Kathie Hackler, telecom analyst for the Gartner Group.

While voice and data services are somewhat established by both types of providers, video-on-demand enables consumers to choose the movies they want via an on-screen menu, and control the sessions with VCR-like functions such as stop, fast-forward and rewind. This is unlike traditional pay-per-view, where the consumer has to watch the movie at a fixed time.

Video-on-demand applications come as both precached and streaming services. Under the precached service model, content is stored in a video server located at either the CO or on a consumer's set-top box; customers can simply chose the moves they want to watch at any time. Streaming services, on the other hand, require up to 10 Mbps of bandwidth to deliver a movie to the home. New advances in compression technology like MPEG-4, however, could enable carriers to stream VHS-quality moves and possibly DVD-quality movies in about Mbps to 3 Mbps.

Kim Maxwell, founder of one of the earliest modem manufacturers, Racal-Vadic, said video-on-demand may drive a whole new network topology that will require storage and bandwidth requirements that exceed today's data network.

Coming of Age

Like any new technology, the rollout of video-on-demand has been a painstaking process. Originally, it was thought that video-on-demand would be the killer app for DSL. Although early trials by Bell Atlantic and Time Warner proved that video-on-demand was possible, the capital expense of $10,000 per video stream proved to be an unjustifiable business model. If a provider wanted to sell each stream at $4 per movie, clearly the return would have been less than profitable.

But thanks to a continual drop in bandwidth prices and advances in optical technology, video-on-demand may be ready for prime time. The price for video-on-demand servers form manufacturers such as Concurrent, Diva and Scientific Atlanta has come down to $500. Because of these factors MSOs will be able to launch a real business model for video-on-demand.

"Video-on-demand server technology fortunately has been subject to Moore's Law and a lot of other steep innovations," said Braxton Jarrett, director of interactive TV strategy for Cox Communications. "What used to cost $10,000 just for the server or head end, now costs under $1000."

Incumbent MSOs such as Time Warner, Charter Communications, Cox Communications and Insight Communications are now beginning to roll out video-on-demand services in major segments of their markets. Since MSOs have been aggressively updating their cable plant with two-way capability for voice and data services, the move to video-on-demand service is a natural part of their growth (see Figure 1).

Once the cable plant has been updated, the incremental operations cost is extremely low because the operator has already trained its staff how to manage two-way services and deal with digital boxes.

"We had the network to do this, but it was not efficient on an analog basis because of the number of channels it would take to offer a reasonable video-on-demand service," said Tom Jokerst, senior vice president of advanced technology for Charter Communications. "I think video-on-demand is going to be a major home run for the cable industry."

Content distributor Encore Media sees video-on-demand as a plus. "We see the opportunity to use video-on-demand as a device to add value to Starz movie channel subscriptions," said Greg DePrez, vice president of video-on-demand services for Encore Media. "We can charge the customer a few more dollars because we offer the convenience of letting them add a movie any time."

Analysts are also seeing video-on-demand as a positive addition to growing revenue source for MSOs. "MSOs still have a strong revenue base from their core business and are getting increased revenues from high-speed Internet access with penetration rates of about 6 percent, which will become a real revenue maker," said Patti Reali, senior telecom analyst for the Gartner Group. "Video-on-demand is not necessarily core to their business, but it will provide them with another key differentiator."

CLECs and RBOCs are also now beginning to launch their own flavor of video-on-demand over DSL. Enron Broadband Services and Blockbuster Inc. recently signed a 20-year, exclusive agreement to deliver Blockbuster movies on-demand over the Enron Intelligent Network. Beginning in 2001, Blockbuster will provide content for the entertainment service and market the service to its customers, while Enron will encode and stream the content over its global broadband network infrastructure, provision bandwidth on demand and store the entertainment content. Distribution providers Covad Communications, Qwest, ReFlex, SBC Communications Inc., Telus and Verizon Communications will deliver this service to customers through their respective DSL networks. In addition, Blockbuster will sell the DSL service through its retail stores nationwide.