Special to Cable World
Cable operators around the country may find Dreamworks? new action title
Gladiator a cathartic experience. Operators are in a fight for their lives with
DBS, which continues to add subscribers at a record pace.
?DBS is the fastest growing MSO,? quipped one programming executive.
?DirecTV is at 8 million subs, and at the rate they?re adding people they?ll be
at 10 million before the end of the year.?
DBS is not only taking it to cable in sub count, but also in PPV revenue.
DirecTV gets buy rates of 200% to 250% per month from a selection of 50
PPV channels. Cable operators average 75% buy rates for movies across
their addressable base, which covers only 45% of all cable homes.
Cablers have a secret weapon ready for action. Thanks to video server
advancements, headend upgrades and the accelerated rollout of digital set-top
boxes, video-on-demand has made a cable comeback on the field of war. In
the best case scenario, VOD will differentiate cable from DBS competitors
through anytime-availability of movies. ?Satellite guys can?t do what we?re
doing. It will be years before they can have this kind of capacity, if they ever
have it,? said John Dickinson, director-operations for Time Warner Cable in
Tampa Bay.
?We?re narrowcasting; there?s any number of simultaneous streams we can
send out to homes. Even in a small metropolitan area, they just couldn?t do it.
If you look at the amount of megabits you need to do it on a large scale, its
pretty overwhelming,? he added.
So far, Time Warner Inc. has been the most aggressive of the major MSOs in
testing and deploying VOD. In January, Time Warner?s Oceanic Cable
system in Oahu, Hawaii, made VOD available to all 260,000 of its customers
using Concurrent?s MediaHawk servers. The system says it has a 10% take
on digital boxes to date.
Time Warner?s Tampa Bay cable system, the MSO?s second largest, will also
proceed using Concurrent servers in May, making it available to 200,000
subscribers. Some 60,000 VOD-enabled digital set-top boxes already are
deployed. Finally, Time Warner Austin, long a testing ground for new
services, is ready to introduce VOD using SeaChange servers.
It?s no surprise to see Time Warner take such an aggressive approach; it?s
among the industry leaders in upgrading systems to digital. Since those
systems are so well-clustered ? 12.6 million customers in systems of
100,000 subs or more ? if VOD catches on, digital uptake could improve
rapidly.
Hawaiian deployment
Time Warner Oceanic has deployed separate servers at 16 different locations
throughout Oahu. Each hub is used as a separate server, so each is better
able to send simultaneous streams to the hub, node and home level. The
system can provide 3,200 simultaneous streams, which translates to about a
7.5% simultaneous usage rate.
?Right now we?re keeping a low profile,? said Alan Akamine, VP-marketing
for Time Warner Oceanic. ?Our purpose is to work the bugs out of the
system and insure we can achieve proper streaming and the proper
architecture following the streams to each neighborhood.?
In its early days the system got a taste of the kind of buy rates VOD could
deliver, according to Akamine, with ?tremendous? hits on blockbuster, adult
and shelf titles when the systems first went on-line.
?VOD offers clear revenue streams and clear differentiation from satellite,?
said David Morales, VP-sales and marketing for Concurrent Computer
Corp., who helped coordinate the Time Warner Oceanic launch. ?The good
news is that it?s now a proven technology for us, proof positive that the
system is deployable in size, reliable and, from a performance perspective,
behaving exactly like it?s supposed to.?
The bad news is that Time Warner Oceanic has currently cleared only 70 new
release titles and close to 70 library titles. The MSO is negotiating with
Hollywood studios for more content to bump the library up to 300 or 400
titles. They are also waiting to acquire karaoke music rights from Pioneer,
Toei and Sony in Japan, which may prove to be a nice sidelight, particularly in
Hawaii. ?Without fresh content it?s extremely difficult to retain good buy
rates,? said Akamine. ?But it?s an enormous task to convince the studios
VOD is a worthy business. VOD needs a while to prove itself yet.?
Time Warner Cable in Tampa Bay also plans a go-slow approach, with a
?soft launch? available to 200,000 subs in May using Concurrent?s
MediaHawk servers and S-A Explorer 2000 digital set-tops. The initial
system will be limited to a 34 quam modulator per server, with 10 to 1
MPEG compression, meaning each server will be limited to 340 simultaneous
streams.
Tampa will rotate 40 new release titles a month, mirroring PPV and local
home video pricing at $3.95. ?We won?t blast the world with advertising at
first,? said Dickinson. ?Getting it launched, scaled, and working is the initial
focus. Once everyone feels comfortable with it, from marketing to customer
service to operations, I think we?ll go full guns with it.?
Time Warner will experiment with different pricing plans to drive viewers at
different times of the day, according to Dickinson, discounting in the middle of
day or late at night. VOD billing will be consolidated with other Time Warner
services, which will provide customers incentives for ordering more by
offering suite discounts for subscribers of digital cable, premium channels and
Road Runner Internet service.
Marketing approaches
So far, cable systems seem uncertain how to market VOD to the public. To
start, it?s difficult to launch an aggressive campaign before the service is
available to everyone. There are definitely differences of opinion on how to
sell VOD?s advantages and how to position it in the marketplace.
Starz Encore Media Group won accolades at the CTAM Digital and PPV
Conference in March for its ?Digital Cable Video Store? marketing campaign
for PPV, VOD and Subscription VOD. Its central message to consumers:
save money on renting videos by signing up for digital cable. Its message to
operators was that there?s an annual $8 billion home video industry just
waiting to be tapped into. Greg Mills, VP-digital strategy for Starz Encore,
said company research shows that ?non-premium cable homes, which make
up two thirds of the cable world, were almost as active video renters as
premium subscribers. Fifty-nine percent of non-premium cable homes had
rented in the past 90 days, the top half averaging 7.6 titles a month, compared
to 66% and 9.2 titles for premium cable homes. This presented us with a
prime opportunity to market digital cable directly to video renters.?
MediaOne, which is preparing to launch Diva?s soup-to-nuts VOD service in
Atlanta this year, disagrees with this approach.
?If you position yourself against a video store, you don?t stand a chance,? said
Maria Rothschild, director-marketing for MediaOne.
?There aren?t enough titles available on VOD. Besides, people like to go to
the video store; we don?t want to take that away from them.? MediaOne
plans to make a more subtle reference to how VOD can save on having to
return the video or pay late fees, says Rothschild.
A more palpable competitor to VOD may by personal video recorders such
as TiVo Inc. and Replay TV, according to operators and vendors. After
years of downplaying VOD as a threat to its business, which included
producing an internal report in 1993 titled ?The Battle That Isn?t Happening,?
Blockbuster Video announced an alliance with TiVo to rent a list of videos
electronically by downloading them to TiVo machines in the home.
?The Blockbuster/TiVo tie validates us as a real competitor in a huge
entertainment market,? said Concurrent?s Morales. ?The jury is still out on the
feasibility of that.?
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