Dear Ken,

I thought you might enjoy this summary article on VOD from one of our
industry magazines.  Enron is mentioned but not interviewed so I didn't know
if you would have access to a copy.

Take care,
Mary Elizabeth

Link to article:

http://www.cvmag.com/contents/2000/0814/vod814.asp

Cut and paste:
Video on the Move
Dropping costs and rising competition are forcing operators to see
video-on-demand in a whole new light
BY SIMON APPLEBAUM
At VOD programmer Diva, the deployment forecast gets more specific, as does
the rationale behind why operators will push the action. Three factors come
into play:
* DBS penetration continues to fly and bite off operators' best customers;
* the plunging expense of video-server hardware and video-stream
transmissions, which make moot the big, prohibitive load operators have used
to justify not deploying VOD;
* the fallout from Time Warner's deal to merge with America Online --
namely, considerable encouragement to accelerate plans in every other
convergence direction they want to travel, be it digital cable services
(including near-VOD and tiers), high-speed Web surfing through cable modems,
or interactive TV.
Thus with cost and infrastructure concerns put aside, and competition
staring them in the face, operators see VOD in a new light. Now that DBS
reaches 13 million subs "and is heading for 20 million, cable is feeling the
pain," says Diva president David Zucker. "Every one of the eight largest
cable operators, every single one, will deploy or trial VOD in some manner.
The big rollouts will start the second half of the year." If they come, they
may hear another set of competitive footsteps entering the scene. Digital
subscriber line carriers such as SBC and Qwest, hunting for high-speed
Internet households, are poised to reach out and become must-see VOD TV
through Viacom subsidiary Blockbuster. With infrastructure help from Enron
Broadband Services, Blockbuster will deploy a movies-driven VOD service in a
number of cities by December, and all over the U.S. next year. The joint
venture will go after cable and DBS distribution, but off the bat, DSL will
be in the driver's seat, as routed through SBC, Qwest and other suppliers.
But right now, reality is nowhere near the perception Jacobsen and Zucker
suggest. Few multi-system owners have VOD formats fully deployed or in
trial; most MSOs don't, even though they are deep in digital-service
launches incorporating near-VOD, which takes up 30 channels or more of a
system's lineup. Video-on-demand, on the other hand, uses far fewer channels
than NVOD, because video servers, placed at or near the system's headend,
store the programming and transmit it on addressable command from
subscribers, any time, over streaming transmissions. How high is the payoff
for mass cable adoption? Try 40 to 60 percent, by 2010, of the multi-billion
dollar revenue pot home-video companies enjoy now, predicted Merrill Lynch
senior media analyst Jessica Reif-Cohen at the recent Myers interactive-TV
forum in New York.
Where the Action Is
You need more than one hand to count the number of VOD projects happening
around the country, but you don't need many more. Here's the scorecard:
 * Diva - VOD's veteran packager is doing full-deployment business in at
least 10 areas. Affiliates include AT&T Broadband in Marin County, Calif.
(outside San Francisco) and Atlanta (formerly MediaOne turf); Charter
Communications in the Atlanta suburbs; and a growing number of Insight
Communications locales (Columbus, Ohio; Rockford, Ill.; and Evansville,
Ind.) where VOD is bundled with Source Media's Local Source interactive-TV
service. Before Labor Day, Charter will add Diva to at least one of its Los
Angeles-area systems. More than 400 titles, from movie blockbusters to
special-interest videos, are available each month. Top films go for $3.95 a
pop, while classic flicks and other titles get priced at $2.95 or below.
Available attractions include library shows from ESPN, TNT, Discovery and
other cable nets. About 15,000 subs use the service at least once a month.
 * Time Warner - Cable's second-largest operator is in full VOD blast,
following a trial run in Austin, Texas, last summer. Honolulu became the
first Time Warner locale to make VOD available system-wide earlier this
year, covering about 250,000 subs. Tampa, Fla., turned on in June, according
to Concurrent Computer, which provides servers and streaming tech to Time
Warner. About 100,000 Tampa-area subs are getting their day in the VOD sun.
* Intertainer - After two years of development and tests, the VOD player
that includes Microsoft, Comcast, NBC, Sony and Intel among its equity
stakeholders will soon premiere in Comcast's suburban Baltimore system. That
follows DSL rollouts in U S West's Denver enterprise and Cincinnati under an
independent franchiser. The service has plenty of interactive features to
accompany the content, including opportunities to order an artist's CD after
watching his music video; local information retrieval; and e-commerce
choices. Intertainer CEO Jonathan Taplin promises a "stunning"
MSO-affiliation announcement over the next few weeks.
* In Demand - PPV's kingpin player was already talking to affiliates about
VOD rollouts and trials when new president Stephen Brenner assumed his post
earlier this summer (see sidebar, p. 30).
* TVN - In Demand's closest PPV/NVOD rival, whose affiliate base consists of
mid-size and small system owners, is in the midst of several VOD technical
and marketing trials. Some rollout announcements are expected early this
fall. Like Diva and Intertainer, TVN wants to combine programming with
interactive applications.
 * DemandVideo - This California-based firm surfaced this spring, initially
on a quest for cable overbuilder affiliates so that they wouldn't be absent
from VOD activity. Seren Innovations (which runs its systems under Astound
Cable TV) and Knology signed up before the National Cable TV Association
convention, and Seren put Demand's format through a 25-home trial in St.
Cloud, Minn. But at NCTA's show in May, Demand CEO Rajiv Juluria insisted
that his product will be available to all comers, entrenched or encroacher.
Knology will launch the service among hotels in Panama City, Fla., while
Seren commits to a full St. Cloud rollout, plus deployment in Contra Costa
County, Calif.
* E-Video TV - A new VOD player out of Scottsdale, Ariz., E-Video has
developed download technology through which digital cable subs can retrieve
feature films, programming and interactive games. Roy Bennett, E-Video's
president, says his firm will try the process out with a cable operator
before summer ends.
Up ahead in the player pipeline: StreamBox and AlwaysonTV.com, two ventures
running both video and Internet content. Both exhibited two months ago at
Streaming Media East in New York. Within VOD's own tech vendordom --
companies that provide video servers and program-insertion gear to operators
-- there's growing consensus that the on-demand era launches this fall. How
fast VOD takes off is more in the hands of set-top box providers than MSOs,
believes Concurrent CEO Steve Nussrallah. The sooner they flood the scene
with digital converters, the sooner deployments happen.  "We're at the front
door of an explosion. Late fall or early next year is the right time for
this market to happen," he says. "The only thing holding the market back is
the ability of set-top vendors to build and ship their product at a level
equal to the demand. By the end of 2004, we should be north of 30 million
digital set-tops, with the vast majority of them VOD-enabled. Deployment by
operators becomes a no-brainer." AOL Time Warner will push operators into
deployment decisions, adds nCube president Michael Pohl. "The convergence of
Time Warner's content with the broadband opportunities AOL looks at will
drive the content and availability of content for VOD," Pohl suggests.
"Movies are OK and great, probably a good place to start, but ultimately,
viewers want to go to their operator and ask for whatever they want to see."
"You see the operators showing excitement for VOD now, as opposed to the
vendors showing excitement, which is what it was for the last few years,"
says Yvette Gordon, interactive technologies VP at SeaChange Technologies.
"The AOL-Time Warner merger helps."
The Naysayers
But many people don't buy it. Take Playboy Television -- they're supplying
product to selected Diva and Time Warner VOD markets. They're in the game,
but Playboy TV president Jim English doesn't look for a breakout market
until 2002. Why? Despite big declines in server cost, "you need so many per
state, so many per [sub universe]," English reasons. "The more subs on the
line, the slower the traffic goes. It's still very expensive electronics.
I'm not trying to poke holes at anyone, but a lot of projections about this
industry didn't come out as advertised. How many years did it take for
digital cable to move? Even now, operators have more trucks dedicated to
installing high-speed cable modems than digital cable. And on cable's agenda
priority scale, just getting the digital box in is number one." For
Susquehanna Communications and Classic Cable, 2001 is the year VOD will make
it to their systems, provided the tech issues English raises get resolved.
As big as the case is for getting economics down enough for deployment among
large MSOs, it's magnified several times over for owners the size of
Susquehanna and Classic.  "Insight, for example, can serve tens or hundreds
of thousands of customers from a single headend. The best we can do is 7,000
customers from a single headend. For the small, non-metro markets we
service, how do you amortize the cost for initial equipment installation?"
asks Classic CEO Merritt Belisle. "When you take into account the
flexibility and long-term viability of the tech, and different content
avenues, there's a lot that's nascent and in development," responds Dan
Templain, Susquehanna's corporate marketing/programming director. "The
content and the tech have to become compelling enough to consumers that
we're willing to roll it out." Still, Templain's company is determined to do
a field trial somewhere this fall, and get deployment underway before the
end of next March. "That's accelerated thinking from where we were six
months ago." To SVOD or Not to SVOD? On the programming side, the train
everyone wants to be aboard is making VOD a diverse medium, perhaps to the
point where the medium should be relabeled "COD" -- for content-on-demand.
Movies, available at or earlier than home-video release, lead the way, but
not far behind are sports, live/taped events from all over, how-to and
special-interest videos, children's fare, games, adult entertainment and a
few genres spun out of the imagination of others.  "There may be
localized-content opportunities," chirps In Demand's Jacobsen. "Local
theater, high school football games with real community value." In a COD
world, "you're not limited to video product," says TVN senior business
development VP Jim Riley. "Eventually, you download computer software so you
can view it on your TV as well as on your PC. That's where we're driving
some of our development energies." TVN's vehicle is Chromazone, involving
California-based venture capitalist Digital Evolution. From the start,
Intertainer has embraced a link of COD with interactive elements. "If MSOs
make the investment in VOD, they must maximize it with advertising,
e-commerce and all sorts of interactivity," says Jonathan Taplan,
Intertainer's president and CEO. "That's the ultimate promise. If you think
about the capital investment and the possible return in gross revenues, like
$20 a sub per month, that's a damn good business." Diva, infused with $9
million earlier this summer from operating system/middleware players OpenTV
and Liberate Technologies (CV, 7/17/00, p. 98), now has economic backing to
pursue its own interactive-integration course. And soon, cable operators
will see if their VOD future should incorporate subscription
video-on-demand, or SVOD. Encore Media Group, under CEO John Sie, is betting
a substantial chunk of its future on it, and in a matter of weeks, AT&T
Broadband's newly acquired Atlanta system (off the completed MediaOne
merger) will test SVOD out using Encore, Starz! and Encore's multiplex
movies. Here's the SVOD deal, as Sie explains it: Premium service subs, for
an extra fee, get 20-30 titles running on that service that month on-demand,
with VCR functionality. The subs watch those films whenever they want, as
many times as they want, for that one fee. Six or eight dollars a month will
do. "We're using VOD as a viewer enhancement platform," Sie insists. "Movies
will drive things first. Once they drive penetration, you can do
subscription news-on-demand and other things on-demand." Lately, Sie's SVOD
advocacy comes framed inside a clarion call to move operators in the
direction of all-digital system conversion. Direct broadcast satellite
services are that way now, and Sie believes cable system owners have two
years at most to make that transition, contrary to the seven-to-10-year
timeframe other industry execs predict. "You know and I know consumer demand
for digital far exceeds set-top box availability, as well as the supply of
installation crews. DBS realized that and now they're ramping up," Sie
believes. But opponents find two flaws in SVOD: Because the product is
available in the premium window, six months or more after PPV availability,
there may not be as much audience demand for it compared to pre-PPV.
Independent of audience demand, there's the specter of cannibalization,
where on-demand use comes at the expense of premium-channel viewing. "Here's
a way to enhance and optimize premium services," Nussrallah concludes. "If
you get constant access to the programming, it's more customer-friendly, and
something DBS can't provide. Cable is built on the concept that the audience
buys more if they have more choice and convenience. It may be the next
opportunity window." Not so, Taplin figures. "It would be cool to get all of
The Sopranos on a VOD package. But why would people who already see movies
on premium pay for more of those same movies, after they've had the chance
to watch those movies in an on-demand way. Unless Sie prices it so low, or
unless they like those movies a lot, why would they pay again? The flat-fee
model is a great model, like cellular-phone pricing. People love paying one
fee for unlimited monthly use. But the window isn't the right window." Sie
defends SVOD as an enhancement option. "Would an operator launch digital
cable with pay TV only and not launch PPV, concluding that PPV cannibalizes
pay, or vice versa? No, because they complement each other beautifully. Same
here." Other VOD programmers and tech vendors will pursue SVOD experiments.
TVN is investigating one or more affiliate partnerships for a test. Classic
and Susquehanna are open to proposals. "What John says is super. What does
it cost me? I've got a stock market and bond market to work with," Belisle
says.
Stream Thinking
Susquehanna exec Templain calls SVOD "a work in progress platform." Others
say the same about streamed video content, another pot worthy of industry
exploitation. "Spectacular" may be the most accurate adjective for the
assortment of video Internet sites have streamed to PC households
everywhere, from quirky animation to short films to news clips. More
diverse, longer streamed content is coming down the pike. Will the very same
tech making mass VOD deployment possible now also make possible a new
original content pipe? What an ironic circumstance. Check in with the sites
themselves, from Real Networks on down, and the masterminds behind them
point to TV and cable display as their final destination. Fifty million PCs,
more than 100 million TV homes, almost 70 percent of them cabled -- the
market's obvious to them. In the end, that's the ticket, cable execs concur.
But for the near term, no. The broadcast quality's not there yet (although
tech strides are happening), and there's considerable fear that producers
will use streaming to bypass cable nets. Gordon targets mid to late 2001 as
the point where streamed content will be TV/VOD-suitable. Assuming the
industry locks its fears away, nCube's Pohl sides with the crowd awaiting
"this kind of ubiquitous media, where things go to the TV or PC." "We're
sleeping fine at night about this, because the quality is not there yet,"
adds Diva's Zucker. "But we will make video streaming a Holy Grail for TV in
the next few years, and cable will be uniquely positioned to take advantage
of it." *

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