Sandra, I found the following posted on the CCUR thread:
From Page One of Electronic News: August 31, 1998 Issue
Enter Video-On-Demand
Industry had given up on it but that has radically changed; 'We're just waiting for the market to talk'
By Carolyn Whelan
New York--Dead on arrival. That's what they called video-on-demand, at least a few years ago. Cable's attempt to stream video on request was considered lame, at best. Myriad problems, including poor quality, low latency and inadequate bandwidth to improve both made it difficult to take the new medium seriously. Overall, the industry had given up on it.
But that's radically changed, say high-fliers in the cable industry, executives from companies like Warner Brothers, Showtime and Cablevision, largely due to new, larger bandwidth channels from several sources. Also, the notions of subjects on demand, interactivity and video streaming have been accepted as a result of widespread use of the Internet.
At the same time, the high cost of producing and distributing movies is pushing movie production houses to search for new sources of revenue at a time when revenues across the board are flat. Moreover, following the demise of Pay-Per-View, creative, viewer-friendly providers like DirectTV are changing the perception of renting content over the black box. And new lesser-known trailblazers like Diva, Celerity, SeaChange and others are driving entrepreneurial innovation.
"The rising tide on which all boats will ride is video-on-demand," said Jeff Morris, Sr., VP, new media and technology development, Showtime. "Not only for transactional business, but for subscription services, too."
At a seminar organized by Kagan Associates recently, cable executives discussed a number of issues, among them, video-on-demand (VOD). Experts agreed that VOD's time had finally come.
"The technology is here, or close to here," said Ed Bleier, president of Cable, Pay TV and Network Features at Warner Brothers. "We're just waiting for the market to talk."
VOD's viability opens up many opportunities for component makers. But only when issues around standardization and distribution are resolved.
Those conducting VOD trials find that consumers are signing up as soon as they see the service. E-commerce applications that are currently being developed are also making it more economically viable.
U.S. trials are citing buy rates in the 20 to 50 percent range, while multi-channel near-video-on-demand (NVOD) offerings on DBS achieve buy rates in the 100-200 percent range. The 2.5 movie per month rate VOD trials are currently seeing are only marginally less than the three to four videos an average video store customer normally rents per month, says Kagan.
Based on those trials and other research, Kagan Associates projects that some 40.7 million cable homes could be equipped with digital set-tops by 2008, 70 percent of those with some VOD available.
Other applications, beyond movies and ads, could also accelerate VOD buying. The technology can be used to deliver time-shifted television, educational and instructional videos, corporate applications, favorite TV episodes and animated and children's programming on demand.
Technical Milestones
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Executives like Terri Richardson, market development manager at Oracle's media server division, who has been working on video-on-demand for a number of years, ranks the business case as the number one reason people now take VOD seriously.
"The whole business case rested on VOD and applying that model to other services," said Ms. Richardson. "You had a small amount of revenue coming in, with an enormous network infrastructure cost. Today, the business case is there."
In trials conducted by Time Warner in the early eighties, the set-top box alone cost $16,000. At the time, the box was an incredibly complicated system with myriad technical shortcomings.
Back then, a 2MB IBM server for video-on-demand cost around $2,600, according to Ken Van Meter, president/CEO, Celerity Systems. At the time, VOD opponents argued that VOD required too much bandwidth for ordinary phone lines, or even coaxial cable, and needed to be transmitted by fiber optic cable. Even three years ago, insufficient bandwidth meant choppy and slow streaming of data down the pipe.
"Only a year ago interactive trials bombed," added Sujata Ramnarayan, multimedia analyst, Dataquest, referring to tests driven by the convergence of digital TV and PCTV, and the capability of sending data to the TV.
But technology advances over the past few years have drastically changed the landscape. With the advent of the Internet, using the infrastructure, Internet services can be merged with VOD for a whole range of services that are now considered profitable.
Today, with the widespread availability of broadband, an off-the-shelf Pentium PC with 16MB of RAM can do the trick, via cable modems or Ethernet. As opportunities arise and markets grow, that system can be easily scaled, from an office building to a university campus, to a small town or city. Today's video-on-demand architecture also eliminates some costly components used in trials, such as ATM switches, which have been replaced by more intelligent, OpenCable-based QAM modulators.
Moreover, a drop in the price of servers and set-tops, more affordable storage, a choice of set-top box vendors--Scientific Atlanta or Navigator, for example--and, most importantly, the availability of high-speed services, either through cable modems or DSL, are all making the service viable, available and affordable.
In the ramp-up to VOD, what are OEMs looking for? There are still issues around the set-top box, and the miniaturization and inclusion of the MPEG chip on the board. Solving those problems will make VOD systems cheaper, faster and better, and, overall, make systems more viable.
"We'd like to see MPEG 2 decode built into hardware, along with a "video serving ready" hardware system," said Ms. Richardson. "That means hardware, software and network connectivity built into chipsets." Ms. Richardson also noted the lack of focus set-top vendors have on the telco market. Major players including Scientific Atlanta and General Instrument have not addressed the requirements of the telecommunications market, she said, focusing instead on DVD or cable.
"The main issue that faces the industry is the integration and availability of chips," said Henri Joubaud, technical director of Canal+, Europe's largest cable television company. Canal+ launched its premier multimedia service in France two years ago, and now offers enhanced services in Spain and Italy. "When you are thinking of making multimedia products that are more sophisticated, and you want something affordable for consumers, you need to have good prices. So at the end of the day, the issue is with the silicon industry, and the ability to have reliable chips for a cheap price."
Local Trials
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"The reduced cost of the head-end and the end device will accelerate the deployment of the digital box into people's homes," said Alan Bushell, president/COO, Diva Systems Corp. Diva is a U.S.-based cable operator that currently delivers video-on-demand, on a trial basis, to four markets in Pennsylvania, New Jersey and Georgia. The Menlo Park-based company was spun off from the Sarnoff Research Institute, subsequently raised some $200 million in venture capital funds, and recently, in turn, acquired the Sarnoff Server technology company.
Unlike other operators that use set-top boxes, Diva concentrates its processing power at the head-end. Its server-centric approach employs a 1,000-stream server which supports 10,000 interactive customers. The advantage to using servers, says Mr. Bushell, is that they can be scaled up. Streams in the next generation are expected to double.
Diva's original plan was to install a proprietary set-top box to run off a server-based system which the company says is much more efficient than previous efforts to deliver VOD. Its set-top software code is currently being ported over to the GI and Scientific Atlanta digital boxes. The company's business plan also calls for cable operators to pay Diva a per subscriber minimum guarantee in exchange for Diva installing the hardware and running the video system.
The company's service is seeing tremendous success. Diva cites an overall buy rate of 350-400 percent, per month, or approximately twice what DirectTV's NVOD services generate. About 26 percent of homes exposed to initial marketing said "yes" to Diva Systems' OnSet VOD service, according to studies by Rifkin and Associates in Atlanta.
Among challenges the company still faces are figuring out how to incorporate OnSet into a single monthly bill. Diva is experimenting with using pricing to shift peak usage around, to even-out usage patterns. It is also considering a "pay-on-demand" service, whereby subscribers would pay a fixed amount per month to get unlimited viewing of a different group of movies and programs daily.
A well-known provider, Cablevision, also cites success for its recent VOD trials on Long Island. Though the service it introduced, initially, was modest--only 15 movies-- the company noted a 35 percent take-up the first week. Months later, after upping its movie selection to 35 titles and introducing a Kid's channel, subscriber numbers leveled out at 10 percent. That offering, and VCR-like motion controls, have particularly proven popular among consumers, said David Wicks, VP, of Cablevision's new media division, contributing to the 5-10 times higher subscription rate that the company has been seeing, over demand for Pay-Per-View.
The marginal costs associated with the set-top boxes, an investment further amortized with analog services and Internet offerings, says Mr. Wicks, will also drive cable operators to offer video-on-demand.
"I am extremely bullish on video-on-demand," said Mr. Wicks. "1999 will be the year that we can really give the numbers. There's no reason that we can't have a set-top box in every household."
Cable operator Intertainer has taken a much different, IP-centric, approach. The company built its offerings of entertainment, E-commerce and ads on a system made up of a Unix server, an IP platform and Java-enabled applications. Intertainer uses an off-the-shelf server, and touts IP for its ability to be used with ADSL or cable modems, for NTSC output.
"It's all about open standards," said Jonathan Taplin, co-chairman and co-CEO of Intertainer. "The IP horse is out of the barn, and anybody that ignores it does so at their own peril."
With Intertainer's offering, a server that sits at the head-end is periodically refreshed through a virtual private network. Some 100 hours a week can be updated, while content that no longer works is extracted. In the future, software, the company said, will be far more important than hardware.
Many add-on services will drive cable operators to go for video-on-demand, Mr. Taplin added, services like fee-based music downloads, baseball card sales, and recipe purchases. Casual polling offerings in which users rate a show, video or game will also be of interest to content providers and advertisers.
"We believe the world is changing very quickly and the system has to be very versatile," Mr. Taplin added. "We see a world of digital devices and entertainment devices, in which services will run over a digital set-top box that is Java-enabled."
Knoxville-based Celerity systems (CLRT) has 14 active digital servers pumping out movies, karaoke videos, medical training and data. CRLT is also collaborating with overseas Telecoms giants like China's Guandong Public Telecom Authority, Israel's Bezeq phone company and Korea Telecom to supply digital content.
In the long term, CRLT hopes to convince operators to invest in high-end T6000 digital set-top boxes, priced around $500, for a variety of ITV services including a high-speed web browser and third party merchandising/retail applications. The company's current unit features 166MHz Pentium, 16Mb RAM and 24-bit graphic displays. The company is also courting small market cable systems with its digital server that converts movie streams to baseband analog before leaving the head-end, a system designed to substitute for VCR-based PPV applications.
Broadcasters, telco and cable companies have all cast their vote of confidence in VOD, and are investing in the infrastructure. Hollywood also wants to reach more homes. FCC mandates for broadcasters to upgrade their infrastructure to digital should also help accelerate the process.
Timing Is Everything
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One caveat: though VOD is well on its way, it might be a while before it arrives in everyone's household. As with all new technologies, regardless of how the technology fared, issues around standardization, distribution, and content still need to be worked out. That will take some time.
"The technical issues are being worked, and it looks a lot more positive than it did before," said Ms. Ramnarayan of Dataquest, due to recent technical developments, like the IP interface for streaming, which has driven down the per-stream cost dramatically.
But it's still a lot further out than cable executives might think. "Is it going to happen tomorrow? No. But in five years we'll start to see things, and 10 years from now it will be prevalent," she added.
The VOD installed base is still small, and only 10 percent of the U.S. population can currently receive VOD via ADSL and cable modems. Right now, the primary focus of the technology is on education. But, regardless of quality, the infrastructure is still lacking. "A lot of those issues are impeding the adoption," said Ms. Ramnayaran. "Gatekeepers and bandwidth are holding back VOD."
Still unknown is how widely consumers will accept VOD, and, subsequently, the economic viability of the service. For it to be so, consumers needed to watch movies more often than they currently do in trials.
Standards, too, need to settle. Standards for set-top boxes, data delivery, computer TVs and broadcast PCs have yet to be sorted out.
Also impeding take-up are the slow rollout of digital boxes, the lack of cable system billing software to track transactions, and difficulties in obtaining broadcast network program rights in the middle of must-carry negotiations.
And though VOD may have arrived, DVD is already here. Innovative services that movie rental stores are eyeing, like disposable cassettes, could prove to be a formidable challenge to VOD, which is, for all intents and purposes, still in its infancy. Also, higher-quality digital cable might lure would-be-watchers away.
Video rental behemoths like Blockbuster may market offerings and push for exclusive rights--hard. To postpone sharing the pie in the $7.5 billion home video rental market, video companies have long been fighting the inroads Pay-Per-View and NVOD have already made, by having 30- to 45-day exclusive rights to titles over Pay-Per-View and sell-through priced movies. One video-rental giant, Hollywood Entertainment, is preempting cannibalization by acquiring Reel.com, a player in the VOD space. Microsoft co-founder Paul Allen, Intel and former Blockbuster co-Chairman Scott Beck have all invested in the new business.
Even if VOD is here to stay, the medium through which it is delivered has cable operators uneasy: in this converged world, video streaming can take place over cable, analog TV, via phone networks or through the Internet. And NVOD through satellite services like DIRECTV, along with quickly-developing interactive TV services, do pose a threat. |
