The Dawning Of On-Demand

By Jonathon Barbato

We live in an extremely fragmented marketplace where advertiser reach is dramatically compromised. But television has not changed its delivery mechanism to adapt to the new trends. That is about to change forever with on-demand.

The current media landscape continues to expand with 300 cable channels, game consoles and the Internet increasingly cutting into the overall time that any consumer spends in one outlet. Cable distributors have invested over $70 billion on the infrastructure for digital cable and video-on-demand (VoD). And since 85 percent of U.S. households now get their television via cable or satellite, the proliferation of VoD is inevitable.

The technology is in place to accommodate a shift in consumer lifestyle. The revolution is most notably marked by the introduction of digital video recorders (DVRs) and VoD. Today there are four million households with DVRs and 10 million with VoD; by 2007 Forrester forecasts those numbers will increase to 30 million DVR households (about 27 percent of the U.S.) and 35 million VoD households (about 33 percent of the U.S.). Additionally, broadband Internet access, now in approximately six million homes, promises to more than double (12-15 million) in the same period.

The two major U.S. cable operators, Comcast and Time Warner, which together account for well over a third of all cable households, have already deployed VoD to a majority of their digital cable households. They see on-demand as a multi-tiered platform, offering several tiers of revenue generating opportunities, namely, a pay-per-view, subscription and even free-on-demand tier. Their research has demonstrated that once customers become avid users of free on-demand or subscription on-demand, their pay per view on-demand usage goes up as well. And claims have been made that digital customers with on-demand churn out of the category less than those not using on-demand.

HBO on-demand, a derivative of the HBO subscription service, offers episodes of HBO’s original series, specials and some movies to HBO customers, sometimes at an incremental fee ($3.95-$6.95), and other times as part of their HBO subscription. HBO on-demand has been launched extensively by both Time Warner and Comcast and has anecdotally been noted as having increased overall on-demand usage dramatically, in some cases by several hundred percent.

The question now is, how to take this subscription on-demand success and duplicate it in the free-on-demand space -- especially when the foundation is crumbling beneath the television advertising industry as consumers are enabled to digitally record programming and fast forward through commercials. In 2003, a record $9.3 billion was paid to networks in upfront advertising dollars, while 10 million of the 80 million TV households had DVR and fast forwarded 80 percent of the commercials in primetime. By 2007, 30-second and 60-second advertisements will be virtually obsolete, and unless the advertising landscape changes, Forrester projects a crippling 75 percent decrease in upfront ad spending.

One company, Ripe Entertainment, is addressing this issue head-on with their cable network, RipeTV, which they are only planning to launch as on-demand. RipeTV targets male viewers 18-34 with content ranging from reality programming to spotlights on beautiful women. Their approach is to offer advertisers new forms of advertising which have value both by being highly targeted and “resistant” to on-demand functionality (i.e., fast forward).

“We have seven different forms of ads in our programs,” said Ryan Magnussen, CEO for Ripe Entertainment, “everything from graphic borders to animated logos and a few other surprises. They are more like magazine ads than spots, because on-demand is more like a video magazine.”
However, it seems most certain that advertisers and their commercials will adopt somehow to accommodate the new on- demand universe. All of this offers new windows of revenue to content owners. In many cases, the VoD broadcast rights can be sold separately from the standard cable broadcast rights.

“Some of the content deals we’re currently negotiating are for programs already sold into the basic cable window,” said Magnussen. “We’re finding that the savvy program distributors are treating video-on-demand as a separate window.” Although VoD customers are a smaller subset of the total basic cable subscriber base, it is argued that since VoD is unscheduled programming, it represents a different platform of rights.

Jonathon Barbato is vp, content and distribution, RipeTV.