Ultimate telly
In the past five years video-on-demand has gone from being the
promised 'killer application' of digital media to a white elephant. Now
it is back
economist.com
THIS autumn will see the best test yet of video-on-demand (VOD), a service
that lets you watch whatever you want, whenever you want. The firm behind
the consumer launch of the first full service in Europe is Video Networks, a
little-known British company that has spent the past few years perfecting its
technology and negotiating the rights to screen films and television shows.
Crucially, Video Networks will reach its customers through the telephone
system.
Why should Video Networks succeed in Britain, when other, much bigger
and richer companies in America never made it past the experimental stage?
Early VOD pilots by telecoms companies proved popular but went nowhere.
It cost too much to build broadband fibre networks to every house (for
Britain, BT some years ago quoted a figure of nearly œ15 billion, or $24
billion). On top of that was the cost of installing the specialised computers
needed to hold thousands of films and television programmes. What made
VOD an even worse bet was the imminent arrival of digital television, with up
to 500 video streams and the potential to offer a changing menu of
pay-per-view movies with conveniently staggered starting times (something
known as near-VOD). With a wealth of content also becoming available on
the Internet, few thought that VOD would be missed.
Some, however, scoffed at anything short of true VOD. Video Networks?
founder and chief executive, Simon Hochhauser, a former venture capitalist
who specialised in technology, has kept the flame alive for seven years,
providing œ1m of his own cash as seed money. Since 1996 he has raised a
further œ20m from rich individuals, including Sir David Frost and
Switzerland?s Baron Steven Bentinck, and the American media industry?s
favourite investment bank, Allen & Co. The firm is seeking another œ40m in
private equity, and talking to strategic investors. A public offering is planned
for next year, after what is hoped to be a successful commercial roll-out.
VOD?s latest break comes thanks to cheaper ways of creating enough
bandwidth to deliver broadcast-quality video. With ADSL (asymmetric digital
subscriber-line) technology, the telephone network?s existing copper wires
become fat pipes that can carry 40 times more content than before. ADSL
has been around for a couple of years, but telephone companies, anxious to
preserve lucrative revenues from a less potent technology called ISDN, are
only just beginning to deploy it. In July BT announced that it would spend
œ750m over the next three years upgrading local exchanges to handle ADSL
services, eventually reaching four out of five houses. By March, a quarter of
Britons should have access to ADSL, including most homes in Greater
London.
Without BT?s commitment, which until recently had been uncertain, Video
Networks would still be stuck providing a trial service to 700 subscribers
from shabby premises next to London?s north-circular road. Yet to solve the
other big drawback to VOD?the cost of servers?Video Networks also
needed to develop its own technology .
Video Networks? breakthrough was to develop software that turns cheap,
standard Intel-based computers into video servers. The firm claims that
these cost a fraction of the price of the nCUBE machines used in earlier pilots.
What is more, with performance ever improving and prices ever falling, the
cost of Video Networks? infrastructure should drop rapidly.
Even then, the cost of providing the service will initially be high. Although
pilot studies suggest that subscribers will pay around œ30 a month for VOD,
Video Networks will initially have to pay BT at least œ40 a month for its
ADSL service. But Video Networks believes that a mixture of self-interest
and competition will soon persuade BT to drop its prices. Oftel, the British
regulator, has demanded that in two years? time BT must allow rival network
operators to install their own broadband gear in its exchanges, thereby
introducing competition by ?unbundling? the local loop.
Video Networks will face competition for every subscriber from cable,
which should, in due course, be able to offer a similar service. A handful of
small American cable operators recently dipped a toe in the water, offering
what appears to be a potentially profitable, if limited, VOD service using
technology developed by Diva Systems, a privately held firm in Silicon
Valley.
Yet cable firms intent on protecting their existing television business may be
half-hearted about VOD. And Video Networks? technology guru and deputy
chief executive, Gideon Senensieb, reckons that, in Britain, cable is at least
two years behind his firm, and will never have the coverage to match BT. He
also thinks that other pay-TV platforms, such as BSkyB?s satellite service and
the digital-terrestrial offering of OnDigital, which have limited capacity and
interactivity, should see Video Networks as a complementary product that
can help them in their battle with cable.
Whether pay-TV firms will see it that way is another matter. Research
suggests that most families have a limited budget for home entertainment and
they may choose to switch their spending rather than add to it.
However, the main losers, when Video Networks launches its service, are
likely to be video-rental outlets. Subscribers will be able to watch the same
sort of movies at the same sort of price. They will be able to keep them for
24 hours, pause them, rewind them and re-use them just like a conventional
video. But the picture-quality will be better and there need be no visits to the
store?nor any fines. As Video Networks? library grows, it will be able to
offer 3,000 or more titles, as well as music videos and current television
programmes. From 2001, when a legal restriction on BT is lifted, it will also
be able to carry channels such as the BBC and Discovery.
If the technology works as billed (there is nothing clunky about the pilot), if
enough content owners are willing to let Video Networks carry their movies
and television programming, and if BT?s wholesale prices tumble, Video
Networks has the chance to prove that, for some, video-on-demand is the
ultimate in convenience television. |
