While clearly maturing, video on demand (VOD) is not necessarily aging.
As one might expect from this stage in its product life cycle, VOD is now reaching into niche areas, such as international and small-system markets (see sidebar on page 39.) Consumer demand, network requirements and applications such as advertising, however, are all conspiring to keep this category fresh.
Consider sheer scale, as indicated in numbers shared by the industry’s largest MSOs. In the first seven months of 2007, Comcast clocked 1.5 billion VOD views (i.e., narrowcast streams) putting it on track to break 3 billion for the year. Time Warner Cable expects to hit 1 billion for 2007.
The growth curve behind those numbers is also impressive. Breaking 3 billion streams would give Comcast a 60 percent increase over its 1.9 billion in 2006.
Fueling that particular growth curve has been Comcast’s free-on-demand model, but there are other drivers. In Time Warner’s case, for instance, StartOver has led to a 50 percent increase in the use of narrowcast bandwidth in on-demand service groups.
Leaving aside for a moment the question of revenue, what these numbers indicate is not only growing popularity of on-demand services, but also increased demands on the network infrastructure. Meeting higher performance and extremely high volume requirements, as it happens, is one goal of a live Comcast request for information (RFI) on VOD, according to one engineer from another MSO familiar with the request.
The outcome of that process remains to be seen, but insiders say that only second-generation server technology will make the cut, with some traditional "big iron" players such as Sun Microsystems or HP possibly joining the mix. Business case, ads What about revenues and a working business model? Many small-system operators have up until recently seen nothing that really works. "Why deploy, if you can’t make money on it?" asks Cable One VP Digital Services and Technology Steve Fox.
Dropping price points and the loss of pay-per-view revenues, however, have changed that equation. Cable One issued a request for proposals (RFP) on VOD earlier this year, and Fox expects VOD to be a project for 2008.
Market scale, consolidated headends and optical backbones give larger cable operators a better chance of turning a profit from VOD. Costs notwithstanding, it has clearly generated revenue for the industry, about $1 billion in 2006, according to Sandford Bernstein Cable and Satellite analyst Craig Moffett.
Then there is that dirty big secret about VOD, namely adult content, which Kagan Research says accounted for more than half of that total, or $515 million in 2006.
Like other analysts, however, Moffett thinks there’s an even bigger upside if studios could do away with the 30-45 day window between a film’s pay-per-view and its DVD release. That narrowing of "windows," which is a matter more of brokering deals than of tweaking the network, is one potential revenue catalyst; another is advertising.
Important activity in advertising technology continues to emerge from Working Group 5 of the SCTE‘s Digital Video Subcommittee, chaired by Comcast Spotlight VP Technology Paul Woidke. Several years in the making and now in initial balloting stages, DVS 629 aims to for a rational division of labor between vendors working in linear and on-demand advertising.
"It divides vendors into those who are making ad decisions and those who are executing," says Guy Cherry, C-COR principal video architect.
Balloting on the first four parts of the proposed seven-part standard closed in early November, with at least one round on this first phase expected to follow. The second phase will address questions of subscriber information and ad placement qualification.
Operators are already working with these technologies. The nABLE on-demand ad insertion solution from C-COR played a key role in a trial that Charter Communications launched a year ago.
Basil Badawiyeh, C-COR vice president for on-demand strategy, says that the company incorporated lessons from that trial into the product’s next iteration. The ultimate goal, he says, remains to help operators "leverage the existing infrastructure that they have, subsidize some of the VOD costs and capitalize on a lot of additional revenue."
Another player in this arena, Tandberg, has upgraded its AdPoint product "so that ad decisions are truly made on the fly," says Jonathan Bokor, Tandberg vice president business development.
Notwithstanding ongoing standards work, and that includes the so-called "Canoe" advanced advertising project emanating from CableLabs, Bokor says a large remaining hurdle remains another business question, namely: "How do the programmers and the operator split the cost and the revenue?"
Tandberg announced that Comcast Spotlight was using its AdPoint across the entire Comcast footprint almost two years ago, in February 2006. SDV, HDTV Although bandwidth management is the primary driver of switched digital video (SDV), targeted advertising is considered a potential bonus. It is one of several ways in which switched and VOD technologies overlap.
Another area of convergence is in the management and configuring of edge quadrature amplitude modulation (QAM) devices. And one general trend there has been movement from what’s called implicit to explicit mode.
The latter "explicitly tell(s) the QAM how much bandwidth to dedicate and how to route the input to the output," says Keith Rothschild, BigBand Networks manager of cable edge product marketing.
"Implicit mode is a much more simple mechanism," he continues, "but offers less protection and assurances and makes it a lot harder for sharing multiple resources."
Another area of overlap is actually more of a particular service that was originally envisioned for the VOD platform, high definition TV (HDTV).
In September 2006, Comcast announced its plan to provide 100 hours of HD VOD programming. Now it is aiming to double that by the end of 2007. The story line differs slightly at Cox Communications, which announced this summer that SDV – not VOD per se – would enable it to increase the number of HDTV services.
The ongoing marketing skirmish over what Comcast calls "channel choices" and DirecTV defines as channels is yet another matter, but the need for SDV’s bandwidth-saving graces are fairly well-acknowledged across the industry. The upshot is that the shared SDV infrastructure may deliver what VOD first promised. Skeptics and bets Despite the increasing usage numbers, cable-style VOD remains a question mark for some. At the Future of Television conference in New York in November, TiVo‘s President and CEO Tom Rogers says that MSOs made a "bad bet" with VOD.
It would be more accurate to say that MSOs hedged their bets, having placing chips on both VOD and DVRs for years. In the latest of its DVR ventures, Comcast has begun deploying Motorola set-tops with integrated TiVo software, with Cox following suit.
The bet on VOD did not come cheap. MSOs have been raising their stakes (Comcast Interactive Capital is one indicator) and telcos are in the VOD game, too. However much navigation remains a challenge for consumers, the number of streams continues to grow. Whether it’s driven by fresher studio content, a leveraging of VOD and SDV technologies or dynamic advertising, the cable industry expects the potential payoffs to grow, as well. Jonathan Tombes is editor and Jennifer Rinaldi is associate editor of Communications Technology. Reach them at email@example.com and firstname.lastname@example.org. Sidebar: Niche Markets, New Methods On Demand in the Baltic
Concurrent has an established VOD beachhead in the Baltic states.
Lithuanian telecommunications provider UAB Alpha komunikacijos chose Concurrent’s MediaHawk on-demand platform for a new broadband system that is projected to reach up to 40,000 IPTV subscribers in a decentralized architecture covering most of the major cities, including the Lithuanian capital of Vilnius.
Concurrent technology has already been deployed in Estonia, making Concurrent the sole on-demand vendor in the Baltic region, the northern European area bordering the Baltic Sea and that traditionally comprises Estonia, Latvia and Lithuania.
Concurrent Vice President of International VOD Del Kunert speculates that Baltic "pent up demand" for VOD stems from those states’ having spent much of the last century in the shadow of the former Soviet empire. Now that Western Europe has embraced its northern and eastern neighbors, the already strong demand for VOD from European telcos and cable operators is likely to grow ever larger through 2008.
"This is finally going to be the year for IPTV," Kunert says.
This Lithuanian sale is Concurrent’s second in the Baltic secured through partner Scansatec. More to come?
"In Lithuania alone, cable television operators pass approximately 620,000 households, which represent a huge growth opportunity", said Gary Trimm, president and CEO of Concurrent, in a statement.
Wholesaling on the Sea of Japan
In the summer of 2007, Japanese telecom operator KDDI began wholesaling VOD services using SeaChange technology. This project marked the first deal between Seachange and KDDI. It is also says to be the first example of a telco wholesaling on-demand to cable operators.
"KDDI, like the other telcos, has been using IPTV as a way to differentiate," says Lincoln Owens, director of broadband sales for SeaChange’s Southeast Asian markets. "Now it wants to expand its opportunity in the TV market by actively participating in cable TV."
Owens says the reasoning behind the KDDI deal is two-fold. First, many Japanese cable operators were not in a viable position to develop VOD from scratch. Second, the Japanese marketplace for cable is splintered.
The Japanese market is crowded with approximately 140 cable providers serving more than 7 million homes. KDDI is now supplying VoIP, backbone Internet and other IT services for more than 60 of those operators.
By supplying this pre-packaged, wholesale VOD technology, KDDI was able to offer a managed platform that allowed Japanese cable operators to quickly launch VOD without confronting the technical complexities underlying the service. Leapfrogging development straight to deployment of an existing VOD platform, Japanese providers could avoid diverting resources from other areas of their business.
The start of a trend? Owens says it is not likely.
"There are not any other telcos that would be in a position to do that," Owens says, adding that the Japanese market presents a unique case.
Phonoscope Takes Its VOD to Go
Founded in 1953, Phonoscope prides itself on being Houston’s first cable company and the self-proclaimed "holder of the largest privately owned fiber-optic metropolitan area network (MAN) in the United States."
Phonoscope’s subscriber base is a collection of multiple dwelling units (MDUs) and businesses situated in five counties throughout the greater Houston area. Like other small operators, Phonoscope had been keeping a close eye on the cost of emerging technology and an ear to the increasing volume of customer demand.
"With the winding down of pay-per-view, VOD was the obvious next-generation offering that meets customer demand," says Rhonda Druke, president of Phonoscope.
How would an operator of this size be able to stay competitive in its market and offer the latest VOD technology without having to incur the hassle and expense of expanding the company’s technical operations?
Phonoscope’s solution was the Comcast Media Center/C-COR platform known as "VOD in a Box." Launched in January and targeted at providers with fewer than 25,000 subscribers, it was designed to bring a turnkey solution to operators such as Phonoscope.
"VOD in a Box" includes C-COR’s n5C compact video server platform and offers around 1,000 hours of premium, pay and free programming aggregated and managed by CMC. The package includes receiving equipment, storage and streaming hardware, a suite of management software and tools, as well as professional services, installation and support.
"For a company of our size, it really looked appealing to us," says Ron Cruz, Phonoscope’s technical manager.
By striking this deal, Phonoscope was able to outsource management of its VOD with minimal impact on the company’s own operations. That allowed for a fast, simplified implementation, say Cruz and Druke.