Plenty of Competition for Video on Demand

Cable providers have made major inroads with video on demand (VoD) systems since its inception just a few years ago. But, analysts warn that continued success of VoD is not a guarantee, especially as competition from a variety of entertainment sources comes into play.

For starters, VoD is a digital-cable-only medium. It is not available on analog cable or satellite. So, of the 115 million American TV households, only 30 million are equipped to receive VoD, according to a JupiterResearch report (JupiterResearch and are both owned by Jupitermedia).

And of those, “Only 31 percent of actual subscribers ordered VoD at least once over the last 12 months,” said Todd Chanko, an analyst with JupiterResearch, adding that 18 percent of digital cable homes don’t yet have access to VoD.

Further slowing VoD growth is the rate at which the remaining 82 percent of VoD-capable homes access the platform: JupiterResearch estimates that only 27 percent of VoD-capable homes have tried VoD.

“That is not insignificant,” Chanko said. “But it isn’t enough to dislodge traditional video services such as home video rentals, box office and traditional TV watching, because you only have 25 percent of the American TV households capable of doing it.”

Chanko said the lack of use doesn’t necessarily equate to a bad product. In fact, he suggested, VoD has tremendous potential yet to be tapped.

“Among digital cable subscribers, those that have used VoD rate it as the most valuable feature of their digital cable service,” he said.

Looking toward the upside of VoD — sales in 2006 are predicted to surpass $500 million — multiple service operators (MSOs) continue to rely on VoD to fight off satellite’s encroaching business.

Also, while the platform may be relatively small and underused, Hollywood and TV networks alike are increasingly looking toward VoD as a complementary distribution platform, according to the report.

ABC and other Walt Disney recently made some of their programming properties available via iPod, which Chanko said counts as another form of VoD. This
past November, Comcast
said it planned to make four CBS shows available via

NBC Universal landed a similar deal with DirecTV (DTV) to deliver hit shows “Law & Order: SVU,” “Law & Order: CI,” “The Office,” “Monk” and “Surface.” The shows will be delivered commercial-free through DirecTV pay-per-view and the DirecTV DVR for one week.

Thirty percent of VoD users subscribe to a DVR service, compared with only 17 percent of those that haven’t used VoD. In fact, 34 percent of intense VoD users — those who use VoD two or three times per month or more – subscribe to a DVR service, according to the Jupiter report.

A pair of recent studies shows VoD is growing in popularity and will start to make an impact on television programming within five years, a move that will trump traditional TV scheduling, as people choose their own times to watch a movie.

ABI Research says it expects VoD will start to make an impact on television programming within five years, a move that will trump traditional TV scheduling, as people choose their own times to watch a movie.

Media companies like Time Warner and NBC Universal are hoping VoD will deliver more engaged viewers to advertisers. From HD to VoD and interactive TV, customers may be pushing for more content.

Last October, the pair renewed a deal allowing Time Warner customers to restart television shows already in progress, signaling Time Warner’s growing commitment to provide its affiliates with new services, and also includes the rights to on-demand content from NBC News, CNBC and MSNBC.

In another recent JupiterResearch survey, 16 percent of online consumers sampled movies or other programming on VoD at some point in 2005, compared with 12 percent in 2004.

The slight increase was due more to increased digital cable penetration than increased demand for VoD among digital cable homes, according to the study.

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