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Digital Dangle

Wed, 07/31/2002 - 8:00pm
Jeff Baumgartner, Assistant Editor

Until the big Hollywood studios decide to play some serious on-demand ball with cable operators, MSOs are taking a closer look at filling their video servers with a variety of re-purposed and unique "free" fare.

In addition to creating a tool to help customers navigate the on-demand realm, so-called "free-on-demand" (or FOD) programming is also being trumpeted as a digital churn reducer, a complement to subscription-VOD, and as a competitive foil against direct broadcast satellite providers, which are attempting to draw video-on-demand parity with cable operators through the use of receivers rigged with digital video recorders.

Cablevision Systems Corp. is already adding value to its digital tier with free on-demand content from the Mag Rack library, and enhancing even that with tests that leverage free on-demand access to Fox Television's popular "24" and "The Shield" series and content from a local PBS affiliate.

Though the term free-on-demand has hit the wall and stuck, it's a bit of a misnomer, says Jay Kreiling, director of new product development at AT&T Broadband. Offering "free" content on-demand, he argues, is actually analogous to adding a new channel on the digital lineup. Instead of touting that new channel as "free," operators typically market it as part of a package of content that the consumer is already paying for.

Still, Kreiling adds, the FOD concept should help in the sense that subscribers are not on the hook for any incremental charge above and beyond what they're already paying.

While AT&T Broadband is one of several MSOs considering so-called free-on-demand, Comcast Corp. is moving quickly down that path in the Philadelphia area, where the MSO is in the process of building out enough servers and infrastructure to offer up to 1,500 hours of programming on-demand from several sources. Comcast hopes to have that ready to go sometime during the fourth quarter of this year.

When the service is launched, Comcast plans to offer a wide range of on-demand content, including traditional movies, subscription-VOD and "cable content-on-demand." The Philadelphia launch "will be the broadest package we've ever tried to deploy," says Mark Hess, Comcast's vice president of digital television. "We're talking to all kinds of content providers to fill those servers up, and to give customers a lot of choice."

Just taking a quick glance at the number of programmers starting to line up with their own FOD services shows that choice is what Comcast should have.

DISCOVERY'S HYBRID PLAY

Discovery's free service, Choice 10 Discovery, will offer a menu of 10 programming categories. The programmer's ad-supported service, dubbed Discovery Sponsor Cinema, will be packaged in with Discovery's slate of Choice 10 programming, and absorb one to two hours of server capacity.

Stinchcomb
Discovery’s Stinchcomb
Clint Stinchcomb, vice president of new media for Discovery Networks U.S., says those services are expected to launch about the time Comcast fires up its Philadelphia VOD offering. "We're in active conversations with everybody," Stinchcomb says, "All of [the MSOs] are now embracing the whole notion of free-on-demand."

That's because operators are going to need a significant consumer conditioning process to help their customers understand the on-demand environment and teach them how to use it effectively.

"We recognize that, so in an effort to help [cable operators] enhance digital box value, reduce churn and differentiate themselves from DBS," Stinchcomb adds, "we'll offer an entry-level service of free-on-demand to help educate consumers in the navigation of the file-server world." That no-risk, on-demand education, he says, will drive them toward the adoption of Discovery's subscription products and other revenue-driving on-demand services an operator might offer.

Discovery's free-on-demand tier will likely be comprised of 25 hours of programming that's refreshed on a regular basis. Determining which content is free and which is offered on a subscription basis will require some programming acumen.

By way of example, Stinchcomb says Discovery could offer the first episode of its critically-acclaimed "Blue Planet" series for free, and then direct viewers to the subscription product to watch the other episodes in the eight-part series.

MAG RACK: MAKING VOD UNIQUE

But offering what essentially amounts to "redundant" free-on-demand content to digital cable customers won't be enough to erode digital churn, argues Matt Strauss, executive vice president and general manager of Mag Rack, a Rainbow Media division that offers a stack of on-demand video magazines.

Mag Rack content for VOD players
Mag Rack offers content exclusively for VOD platforms. The company plans to launch up to 40 niche video magazines
by the end of this year.
An FOD service populated with hours of unique programming, Strauss adds, will give cable something that satellite will have tremendous difficulty replicating–even through the use of receivers with massive on-board DVRs.

Mag Rack is taking that tack with cable operators by offering categories that "are underserved by television today," Strauss says. Mag Rack is quickly approaching 30 different magazines, with titles such as "Better Golf Club," "BirdSight," "Classic Cars," "Cook with the Pros," "Mission: Space," and newer additions such as "Let's Go Garden" and "Celebrating Dogs," but expects that number to jump to 40 by the end of 2002.

Instead of being offered as a subscription service, Mag Rack is "baked into" the cable operator's digital tier. Cablevision Systems carries Mag Rack today, and Insight Communications plans to offer the service sometime in the fourth quarter.

In exchange, Mag Rack charges a fixed license fee per each VOD-enabled cable subscriber. That model "is no different than a digital cable network," Strauss says. What is different is Mag Rack's method of distribution via video servers. Cablevision has allocated about 150 hours of capacity for Mag Rack content, and Insight will probably start with about 40 hours, Strauss says.

Though server capacity is an issue today, it's expected to be non-existent or at least negligible as Moore's Law does its handiwork on lower cost but higher-density servers.

Mag Rack, which has cost roughly $50 million to develop so far, leverages both original and acquired programming. Depending on the category, magazine content can be refreshed weekly, monthly or quarterly.

Though it's perhaps too early to draw conclusions on Mag Rack's overall effectiveness, preliminary data has shown that almost half (48 percent) of Cablevision's digital customers use the Mag Rack service at some point each month, Strauss says.

WEB-BASED FOD

One of the early FOD pioneers is Intertainer, which balances its VOD relationships with cable operators with a broadband-enabled, Internet-based service that offers content ranging from premium a la carte movies to subscription-based tiers.

Intertainer Web based VOD
Intertainer allows users to test out its
Web-based VOD service with a vault full of free videos. Once users get comfortable with the service and its quality,
the company hopes they’ll
migrate to pay content.
Before customers spend a dime, however, they're given the opportunity to sample movie trailers and music videos for free. That technique allows users to get comfortable with the concept and to gain confidence in the quality of the service before they migrate to Intertainer's pay models, says company CEO Jonathan Taplin.

"The free content gives [users] a sense of what VOD is," he says. "That, surprisingly, is a barrier that they need to overcome."

Though Intertainer's Web-based service is still in its early stage, people who try the free content tend to get hooked on the idea, Taplin says, noting that Intertainer has signed on more than 105,000 registered users.

"The average user is spending more than we thought they would," Taplin says. "It's almost equal to what they're spending on cable VOD, which surprised us."

Users who sign up for Intertainer's subscription packages are spending about $14 per month, he adds. That equates roughly to the subscription fee, plus an additional two or three buys a month–numbers that blow typical cable pay-per-view buy rates out of the water.

"We're trying to learn different ways to market to people and whether a subscription model works or the a la carte model works," Taplin says, adding that Intertainer will continue to experiment with different packages and price points.

FOD? NOT SO FAST

Although free-on-demand is gaining steam among cable operators, all programmers are not exactly enamored with the concept, arguing that it can dilute the value of programming and break down the traditional television advertising model.

ESPN, for example, "will not be a player in the free VOD arena," says company Executive Vice President of Affiliate Sales and Marketing Sean Bratches. "What we're seeing in the marketplace goes well beyond a package of services for free that is intended to familiarize the consumer [with VOD]."

Still, ESPN plans to help operators build a larger stable of on-demand programming with subscription fare that it hopes is compelling enough in and of itself to draw a paying audience.

SVOD leader Starz Encore
Even SVOD leaders like Starz Encore
see free-on-demand as a way
to build in viewer habits.
X-on-Demand
X-on-Demand: ESPN will expand cable’s subscription-VOD library next year
with the launch of EXPN,
Action Sports On Demand.
That starts with EXPN, Action Sports On Demand–a hybrid broadband/SVOD service that ESPN intends to launch by January 2003. An extension of ESPN's popular "X Games" franchise, EXPN content will be piped through an operator's cable modem service (with content cached at the headend) and/or offered as a television-centric subscription-based service. Bratches says operators plan to market test the "convergent" EXPN service later this year, and plans are underway at ESPN to create similar platforms for other programming categories such as women's sports, college sports and fishing.

ESPN is also tapping into its 900,000-hour sports library to bolster operators' VOD vaults. For example, ESPN forged a deal with Cablevision Systems to offer vintage U.S. Open tennis matches on-demand as part of the network's promotion of the tournament. Turner Network Television also arranged a similar offering this year to complement its Wimbledon coverage.

Starz Encore Group LLC, like other premium programmers, is not fond of giving away its product, either. However, offering a limited-time, no-risk VOD education to customers could benefit both cable operators and programmers, as long as it doesn't get out of hand, says company Vice President of Subscription– VOD Greg DePrez.

He says Starz Encore research has found that most viewers are accustomed to pressing a remote's up and down button–and that's about as involved as they typically get. Having them become more active navigators through the use of other buttons can remove a barrier for VOD, DePrez adds.

"Over time, we have to establish usage. We want to create a habit," he says.

In addition to sapping value from programming, there's also fear that FOD could wreak havoc on TV's advertising model if viewers are allowed to zap or zip through the commercials.

Creating an advertising model for on-demand and time-shifted environments "is absolutely a legitimate concern, no question about it," Discovery's Stinchcomb says. He acknowledges that free-on-demand might help cable push the digital needle, "but at the same time, we have to preserve the advertising relationship that underwrites the programming."

That means programmers will likely have to get extremely creative with their advertising strategies and tactics, such as running spots at the top and the tail of the show or employing targeted advertising.

In the case of Discovery Sponsor Cinema, the programmer plans to use standard-length TV spots as well as longer-form infomercials–in the range of six to eight minutes.

NAVIGATING THE OBSTACLES

Expanding an operator's palette of on-demand fare also comes with its own set of technical hurdles. Cable systems must be prepared to pipe more content to the headend, manage that content, ensure that the associated metadata is correct, and then propagate the video out to various servers from a central location.

Instead of preparing new HBO content for the month for SVOD, operators could be confronted with FOD content that can change weekly or with even greater frequencies.

"There are new challenges in making sure the content gets there at its appointed time, because you want it fresh," Comcast's Hess notes.

Adding more on-demand content could also put a strain on an operator's contention ratio–the number of simultaneous streams it can handle. Contention figures for general movies-on-demand services typically range between 10 percent and 12 percent.

But, as more content is available, the belief is that usage will also ratchet up a few notches, but exactly how many notches probably won't be known until the service is deployed. At the same time, an operator doesn't want to build too big (and spend too much capital) or build too small (and be faced with potential denial-of-service issues).

However, new instantaneous methods of reporting usage on the network should eventually help cable operators make those decisions based on the allocation of more bandwidth, Hess says. "There are ways to go relatively quickly from 10 to 15 percent," he says, "if you've got enough storage and enough streams built into the network."

Hess adds that a network's reliability will also be put to the test as the amount of on-demand content is increased and consumer usage, theoretically, goes up. "Reliability so far has been very, very good, but [the network] hasn't been hammered," Hess says. "We're getting good buy rates and good usage percentages today, but with 1,500 hours of content, if we can get it there, it's quite a breadth and depth of content."

Billing for free-on-demand doesn't present much of a problem today, notes Scott Morris, senior product manager at CSG Systems. "Our system is built to do just that kind of thing," he says. "It's just the addition of a 'zero dollar' service code."

If an MSO wants to charge for some on-demand content and not charge for other content, a billing system can also be set up for that as well.

AT&T Broadband's Kreiling agrees that billing shouldn't be much of an issue, as the infrastructure is already in place. Complexities could arise, however, when creative content packaging (two-for-one; half-price deals, etc.) comes into play, he says.

Kreiling warns that the user interface must improve and grow in efficiency if customers are to get the most out of their on-demand experience–free, transactional or otherwise. Instead of drilling through endless screens of categories and subcategories, the interface must make it easier for customers to sift through content and find what they're looking for.

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