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Don't Look Now, But Video-On-Demand Is Back
By Fred Dawson, Contributing Editor
December 14, 1998 7:57 PM ET
To the surprise of many cable industry strategists, the buzz going into 1999 isn't about high-speed data or voice services; it's about digital television and video-on-demand.
While delays in availability of standardized modems and snarls in negotiations between AT&T Corp. and potential cable telephony allies have slowed the pace of development on those fronts, cable operators have stepped up their digital agendas in the wake of much higher than expected demand for satellite-delivered digital tiers and faster than expected cost cuts in delivering video-on-demand (VOD) services from locally based servers.
The issue right now isn't so much whether to offer on-demand entertainment as it is what to do about the rising volume of on-demand content, which now extends far beyond stored movies to include the legions of World Wide Web content companies that are gearing up to use high-speed access to deliver video content. A new generation of vendors is offering the cable industry a low-cost means of exploiting the Web on-demand environment that could radically alter the long-standing industry approach to building a VOD infrastructure.
Time Warner Cable (www.timewarnercable.com), which got some early, hard-earned VOD experience with its Full Service Network trial in Orlando, Fla., is convinced that customers want VOD. At the end of that trial two years ago, Time Warner left open the question of when the costs of providing such services would allow the business to proceed, says James Chiddix, chief technology officer of Time Warner Cable. "Now, the economics look great," he says.
'Proving Ground'
Chiddix calls 1999 the "proving ground for VOD in the cable industry." Time Warner Cable is getting set to field-test VOD technology from SeaChange International Inc. in an unspecified market.
"Eventually, VOD should reach every home that currently uses a VCR to play back rented movies," Chiddix says. "In comparison, high-speed data will be a big success if we get to 15 [percent] to 20 percent penetration a few years down the road."
While much has been made of OpenCable, the next-generation set-top, as the key to launching interactive digital TV (DTV) services, industry executives make clear they now see today's digital set-tops as more than adequate for getting VOD off the ground. Cost of memory and integrated circuits have plummeted to the point that boxes currently shipped to support one-way digital services have all the functionality needed for VOD, allowing operators to add such services on the existing digital home platform.
"VOD wasn't part of the plan when we put our digital operation together, but it is now," says a senior executive at Tele-Communications Inc. (www.tci.com), speaking on background.
TCI led the cable charge into digital cable to defray the costs of upgrades by allowing its low-bandwidth systems to deliver more channels using digital compression and digital set-tops with satellite feeds from its Headend In The Sky (HITS) center in Denver. But with first-year subscriber demand for digital service running about 18 percent higher than expected, TCI now recognizes that digital service is a strong draw regardless of local market conditions.
"We're seeing as much success with digital in our 750-megahertz [110-channel] markets as we are in the lower-capacity systems," the TCI executive says. "The big issue for us now is getting boxes fast enough to meet demand."
General Instrument Corp. (www.gi.com) has shipped digital headend gear to systems representing more than 20 percent of homes passed in North America, says David Robinson, senior vice president at GI. Robinson expects digital cable plant to reach 50 percent of all homes passed sometime in 2000.
GI is building its next-generation digital set-top, the DCT-5000, to conform to the OpenCable specs being developed by Cable Television Laboratories Inc. (www.cablelabs.com). But operators plan to offer VOD on today's boxes, Robinson says. "With the current state of the economics, at under $300 for highly functional digital set-tops, doing VOD on mainstream hardware becomes an easy decision," he says.
Here And Now
Suburban Cable, a unit of The Lenfest Group, already offers VOD through a turnkey VOD vendor, Diva Systems Corp. But a compatibility agreement reached recently by GI and Diva will enable the cable operator to expand VOD service, says Chief Executive Officer Gerry Lenfest.
"All of our GI digital converters in the field will be Diva-enabled," Lenfest says.
Diva, which offers operators a 60 percent share of revenue after programming costs, is battling SeaChange for early supremacy in the VOD sweepstakes. Chiddix says Time Warner Cable prefers the SeaChange model because, as a straight system supplier rather than a turnkey service, it allows Time Warner Cable to reap a larger share of returns.
"We can secure contractual arrangements for movies ourselves," Chiddix says.
Meanwhile, the cable industry is being induced to look at another VOD model -- one based on content delivery via Internet Protocol (IP). The pervasive presence of IP-based services in the future may obviate the need for developing stand-alone VOD services. This model evolves from the idea of giving households access to the Web via their TV sets without requiring PCs or special processing gear in the home.
WorldGate Communications Inc. (www.wgate.com), the pioneer in this field, is launching its services on the addressable analog set-top platform, where Pentium-class PCs at the cable headend handle the Web surfing for all subscribers, and the dedicated bit streams go out over the unused vertical blanking interval for display on the TV set.
But WorldGate and two start-ups seeking to compete in this arena are pegging their long-term ambitions to the digital set-top platform, where Web content will be packaged into Motion Picture Experts Group (MPEG)2 video frames and transmitted over DTV rather than data channels.
"More and more cable systems are going into trials using the digital set-top platforms," says Hal Krisbergh, CEO of WorldGate. "Digital gives us the opportunity to increase the download speed to 27 megabits per second." That data rate is divided among users online at one time within any given dedicated serving area of the Hybrid Fiber-Coax network. Thus, if 27 users within a 500-home serving area are online at once, each would get a download speed of 1 Mbps.
Such speeds in the context of delivering IP content in MPEG2 format essentially puts all video content on the Web into the VOD entertainment framework, Krisbergh says. "The real opportunity for this service will come with streaming over digital channels," he adds.
The newest entrants in the TV surfing arena are MoreCom Inc. and Peach Networks Inc., both of which introduced their systems at this month's Western Cable Show in Anaheim, Calif. MoreCom delivered video clips from various Web sites to its exhibition booth and displayed them full-screen, as if they were regular programming. "Delivering high-quality broadband Internet to customers' televisions is like adding as many new channels as there are Web sites," says Ami Miron, CEO of MoreCom.
Peach Networks has developed a centralized processing and distribution system that includes a proprietary means of reducing the computer power needed to encode Web data to MPEG2 for distribution over the cable network, according to CEO Ofir Paz.
VOD: Try, Try Again
Some developments expected in 1999 that may boost video-on-demand (VOD) in the cable business:
Time Warner Cable will field-test VOD technology from SeaChange International Inc.
Suburban Cable will expand limited VOD services already offered in Delaware County, Pa., to all subscribers with digital set-tops.
WorldGate Communications Inc. and other developers are moving ahead with VOD services based on Internet Protocol technology.
Industry executives make clear they now see today's digital set-tops as more than adequate for getting VOD off the ground
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