On Demand

Technology Analysis

March 20, 2008

by Tara Howard, Howard , Analyst—Enabling Technologies Service Provider, Broadband Solutions, [email protected] [email protected],, 617-598-7399

Living in an On-Demand  World The Bottom Line: Key Concepts: Who Should Read:

Moving to an on-demand environment is ideal for the consumer, but at what cost to the service providers, advertisers and networks? Video-on-demand, Video-on-demand, cable, advertising, network Product management, business development, corporate and product marketing e xecutive responsible for  investing in or developing video-on-demand network infrastructure solutions for the cable industry

Ph.D., Vice President—Enabling Technologies Service Provider, [email protected] [email protected],, 617-598-7260 Practice Leader: Philip Marshall, Ph.D.,

Meeting the Demand Time and time again we hear consumers want what they want, when they want and they want it now. According to the Yankee Group Anywhere Group Anywhere Consumer: 2007 US Entertainment Survey, Survey , 40% watch online video, 29% watch VoD, and 27% watch DVR   programming, illustrating illustrating the various means that users are viewing content and moving toward a more on-demand lifestyle. Service providers are listening, and MSOs have started to develop their own solution to addressing the trend toward on-demand viewing. Inherently, the cable network is a stagnant entity that was not built with the idea that today’s Anywhere Consumer™ would expect the network to provide ubiquitous connectivity to unlimited content regardless of location. The network can undergo upgrades and improvements to better address the needs of the Anywhere Consumer and better compete against an increasingly diverse landscape of rivals. However, service providers are facing an increasingly complex landscape where new mediums are challenging the television as the device of choice for video entertainment.

Project Infinity and Beyond At CES 2008, Comcast stepped up to the plate, announcing a slightly new direction for video-on-demand (VoD) and basic television services strategy. First, First, the company announced 1,000 HD choices will be possible on its system by the end of 2008. The marketing campaign will help fight against the satellite provider’s leverage of more HD capacity in the short term. The more strategically significant part is the latter part of Comcast’s Project Infinity where all content migrates to an o n-demand format. This includes basic television shows, movies and user-generated content. It is clearly a long-term goal, but the basics of  Project Infinity will shape the MSO’s plans, and most likely its counterparts across the country, for equipment upgrades and discussion with cable networks.

Trend Impact This trend to gear television to an on-demand environment will affect traditional television media markets, cable, satellite, telcos and programmers. Despite VoD’s market presence of several years, it’s just now experiencing the boom in viewer uptake and increased programming options that it deserves. Comcast has reported that at any given month, it is offering 10,000 titles on VoD, and it is rapidly approaching 6.5 billion views since launching the service in 2003. Usage is clearly increasing, but the availability of programming, specifically prime-time prime-time programming, is lacking in most regions within the United States. Cox Communications is the first provider to move on the prime-time issue. The MSO is trialing MyPrimeTime in its ondemand menu, offering NBC programming with the fast-forward feature disabled to require the viewers to see advertisements. This agreement raises two major issues cable operators must deal with when they move more programming to the on-demand menu. First is the relationship with the programmer to get on-demand content. The second is the advertising component for both parties. Programmers are hesitant to move all of their content into a VoD library because of  the existing relationships they have with advertisers. They will have to work to develop a VoD model, whether it’s not allowing viewers to fast-forward through advertisements or creating a unique approach such as graphic overlays and interactive advertisements without interrupting the program.

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Living in an On-Demand World

March 20, 2008

This first deal between Cox and NBC is a good start, but in reality consumers are not going to be very happy being forced to sit through the same commercials they would if they watched it on broadcast, so a newer model will need to emerge. This brings up the second problem of advertising. Programmers must readjust their model to accommodate the changing medium, whether that means overlays, interactivity, or some other format that permits advertisers to reach the right audience without forcing viewers to watch the same 30-second spot that is broadcast in prime time.

Recommendations for Service Providers •

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Expand the TiVo relationship to enable better user interface experience. User interfaces are critical to the success of an on-demand environment, and current VoD guides are less than ideal. TiVo is working with Comcast as a new tier for DVR  subscribers in a trial phase. This sort of arrangement could help cable operators implement a better guide, interface and search capabilities without having to expend any additional resources. Gradually expand server architecture to prepare for increase in on-demand offerings. Equipment upgrades are always critical when expanding or implementing a new service. MSOs will need to improve upon the existing architecture for  storage of the VoD programming as well as implementing interactive components and other advanced functionalities. Develop a business model for on-demand advertising to offset equipment and upgrade costs. Advertising is a critical revenue stream that MSOs can leverage to offset the expense of upgrading equipment. Additionally, advertising can improve the customer experience by ensuring the right advertisement reaches the right audience. VoD provides a gateway to target the user more effectively than traditional linear programming because of its one-to-one relationship, meaning the advertisement can be based on time of day, type of content and previous viewing habits—all to make the customer more interested in the ad instead of seeing it as a nuisance. Move more content to on demand and develop a review process for user-generated content. User-generated content is a major draw of the internet. However, being able to replicate that in a TV environment will take more work and require a  better review process to ensure content is appropriate and legal. Creating a social network where people can see themselves and their friends on television is a large draw, encouraging the move back to the television and increasing VoD usage.

Recommendations for Programmers •

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Develop new model for advertising in an on-demand environment. The 15- or 30-second spot ad will become less relevant as advertisers look to a more appropriate and effective means of reaching an audience. Network programmers must work  closely with service providers to figure out the best revenue model to attract advertisers without losing audience interest. Adopt and implement interactive advertising for on-demand programming. Interactive advertising is a perfect way to appease advertisers accustomed to traditional formats while not making the on-demand experience just like primetime broadcast.

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