Video-on-demand is back with a vengeance, prompting widescale MSO preparations for service launches at a moment when the business model seems more unsettled than ever.
Just as the costs of providing server-based movies and other fare to subscribers have fallen to where operators can expect a reasonable return on investment in providing what might be termed a traditional version of VOD service, technical and strategic advances on other fronts are raising the question of whether the traditional version is the right approach. In a nutshell, the question is, are operators best served by focusing on a closed VOD platform offering only movies and services directly under their control, or should they prepare their platforms with the intention of supporting subscriber access to a wider range of VOD services from other sources as well, including, most significantly, the Internet?
That the traditional VOD model is now a workable concept seems not to be in doubt. "The economics look great," says Time Warner Cable CTO Jim Chiddix. In Time Warner's case, the economics in question are those associated with the VOD technology from SeaChange International Inc., which Time Warner is about to test in the field at an unspecified location. This year will be the "proving ground for VOD in the cable industry," Chiddix says.
"Eventually, VOD should reach every home that currently uses a VCR to play back rented movies," Chiddix adds. "In comparison, high-speed data will be a big success if we get to 15 to 20 percent penetration a few years down the road."
SeaChange says that with the cost of a VOD video stream now below $1,000, the payback on VOD, accounting for ongoing operational costs, has been cut to about 22 months. Assuming peak simultaneous usage rates of 10 percent, a single stream should be sufficient to serve 10 customers, which works out to $100 per customer, notes Yvette Gordon, the firm's director of interactive technologies. The per-stream cost includes all elements, such as additional QAM (quadrature amplitude modulation) modulators, that are needed for the VOD system, not just those elements supplied by SeaChange, she adds.
The SeaChange model involves use of server clusters consisting of up to five interconnected Windows NT-class servers per cluster, allowing operators to co-locate individual clusters at primary hubs, Gordon says. "Operators are looking at the optimal approach to the distribution architecture where a typical hub might serve 20,000 households, which might mean there are fewer than five servers per cluster," she adds.
Depending on the lengths of movies and other video material, a single server might handle up to 180 movies, which means just two or three servers might be all that's needed to accommodate the 20 percent of titles that typically accounts for 80 percent of the movie buys in a rental or VOD situation, Gordon says. Operators might then use a central, off-line repository to store the hundreds of other titles necessary to round out a full VOD library, providing dedicated bandwidth to each hub to support real-time delivery of movies not stored at the local cluster or setting up a delayed download over LAN connection from the headend to the hub, where the movie would be loaded and streamed within in a couple minutes of being ordered.
Of course, the impetus behind the rising enthusiasm for VOD among operators is not just the improving cost-benefits of VOD technology per se. Equally important is the success of satellite-delivered digital services, which are driving penetration of digital set-tops faster than many in the industry anticipated.
"VOD wasn't part of the plan when we put our digital operation together, but it is now," says a senior executive at Tele-Communications Inc., speaking on background. "We're going to move aggressively in this direction in '99, starting out with some trials and ramping up from there."
TCI led the cable charge into digital not because it saw a big revenue upside, but rather to defray the costs of upgrades by allowing its low-bandwidth systems to deliver more channels using digital compression and digital set-tops in conjunction with satellite feeds from its HITS (Headend-in-the-Sky) center in Denver. But, with the first year subscriber total at one million, exceeding company projections tendered just this past fall by 150,000, TCI and the rest of the industry now recognize digital packages are a strong draw regardless of local market conditions.
"We're seeing as much success with digital in our 750 MHz (110-channel) markets as we are in the lower capacity systems," says the TCI executive. "The big issue for us now is getting boxes fast enough to meet demand."
While much has been made of the industry's next-generation OpenCable set-top agenda as the key to launching interactive services, industry executives now look on current-generation digital boxes as more than adequate to the task of getting VOD off the ground, says General Instrument Corp. Senior Vice President David Robinson. "With the current state of the economics, at under $300 for highly functional digital set-tops, doing VOD on mainstream hardware becomes an easy decision," he says.
Already, GI has shipped digital headend gear to systems representing more than 20 percent of homes passed in North America, Robinson adds. With Scientific-Atlanta, the other leading set-top supplier to the cable industry, now shipping digital gear as well, the digitally equipped market is likely to cross the 50 percent threshold by sometime in 2000, he says.
"We're seeing companies like Cox (Communications Inc.) and Comcast (Corp.) with big urban plants at 750 MHz introducing digital tiers with outstanding results," Robinson says.
The first instance of commercial VOD deployment using volume production set-tops, in this case the GI DCT-1200, involves Suburban Cable's system in Delaware County, Pa. The company, a unit of The Lenfest Group, has been offering VOD over set-tops supplied through its turnkey VOD vendor Diva Systems Corp. Now, through a compatibility pact reached between Diva and GI, Suburban will be able to expand VOD on a wide scale, says CEO Gerry Lenfest.
"All of our GI digital convertors in the field will be Diva-enabled," he says. Diva, offering operators a 60 percent share of revenues after programming costs, is battling SeaChange for early supremacy in the VOD sweepstakes. Chiddix says Time Warner prefers the SeaChange model because, as a straight system supplier rather than a turnkey service, it allows Time Warner to reap a larger share of returns.
"We can secure contractual arrangements for movies ourselves," he says. But, straight-forward and compelling as the VOD model might seem today, developments outside cable suggest the planning process is going to be more complicated than it might seem at first glance. The big difference between planning for VOD today and a few years back when Time Warner was putting together its Full Service Network trial in Orlando is the proliferation of multimedia on the Internet, including content developed with broadband access specifically in mind.
Recognition that the trend lines in IP video and broadband access are about to intersect has touched off a stampede onto turf that, until recently, was the lonely stomping ground of a handful of startup visionaries. Moves in this direction by America Online and portal companies like Netscape Communications (soon to be acquired by AOL) and Excite are especially significant in signaling that video-enhanced broadband IP services, in all their consumer- and business-oriented permutations, represent an opportunity for Web-based players to take a big piece out of the mainstream electronic entertainment pie.
AOL makes clear its focus is on the broadband potential as it moves to support wider use of streaming media by shipping RealNetwork Inc.'s newly commercialized next generation "G-2" client with version 4.0 of AOL's access software. "We are absolutely committed to expansion of our subscriber base through the offering of broadband service," says Mario Vecchi, a veteran of the computer and cable data networking businesses who has taken the newly-created position of vice president of broadband development at AOL.
"Our goal is to have the largest possible footprint in order to make broadband service available to all our customers at the lowest possible cost."
To accomplish this AOL will continue to enhance its national data backbone infrastructure and "partner with other key players in the broadband industry," Vecchi says, adding, "In a very short time you're going to be hearing about some pretty interesting developments along these lines."
AOL, through its AOL Studios, has been ramping up for delivery of enhanced content to exploit the growing base of broadband users, now including in excess of 300,000 customers on the cable side, according to recent industry counts from Paul Kagan Associates and other sources. The company is also preparing to bring its data-over-TV capability to market on the strength of its recent acquisition of NetChannel, a competitor to Microsoft Corp.'s Web TV.
The new RN streaming technology used by AOL brings new levels of versatility, quality and simplicity to the creation and distribution of multimedia content over the Web, ensuring that use of video and animation will become more pervasive than ever. Perhaps most significantly for cable operators, the platform allows developers to set several streaming modes for a single file, thereby creating a bandwidth-consuming, real-time data feed to anyone accessing such a file from a cable modem.
The download rate options, any four of which can be assigned to any given file developed with the RN G-2 toolkit, range from 14.4 kilobits per second to a little over 1 megabit per second, says Pete Zaballos, marketing vice president at RN. "We're seeing a steady drumbeat of content development geared for access over DSL (digital subscriber line) and cable where the top setting is in the range of 100-300 kbps," Zaballos says.
A year ago, Zaballos notes, there were 14 million Internet customers who had registered as users of the previous versions of RealPlayer client software, which allow the computer to play back any streamed content that is developed with the RN toolkit or compatible tools from other vendors. Today, there are 38 million registered users, over 11 million of whom installed the G-2 player during the five-month beta test phase that ended in November, with most of the rest expected to do likewise in the months ahead, he says.
RN, of course, is not alone in seeding widely distributed software with streaming media players. Archrival Microsoft Corp. has been doing likewise with its own NetShow player for over a year by embedding it in its Windows operating system, though without the multi-rate streaming capabilities that RN's player brings to the bandwidth issue in cable.
According to a recent study by the research firm MediaMetrix, active use of the RN technology jumped 100 percent from the first to the third quarters of this year. The firm found the RN player registered the largest absolute growth of any software product offered over the Internet, and that streaming is now the most used application after browsers and online programs like AOL's.
At a streamed rate of 300 kbps, Zaballos says, the RN technology delivers full-motion video at full-CIF (the Common Intermediate Format 325-by-288 pixel resolution) and 25-30 frames per second, which is comparable to CD-ROM display quality in a window consuming about half the computer screen space. At 768 kbps, a speed common to several consumer-oriented DSL service rates, this level of quality is viewable at full screen, he adds.
Until now, most streamed video content, because it had to be set for a single download rate, was pegged to the most common access rates, running at a little over 20 kbps for 28.8 kbps modem access or, more recently, at close to 50 kbps as 56 kbps modems took off in the marketplace. Even at these rates, the bandwidth hit on cable data channels was such that @Home Network had to implement a policy of limiting individual streaming sessions of customers accessing Web sites to 10 minutes, @Home officials have acknowledged. The situation is bound to get worse now that the new technology is in play and content providers are targeting users who have access to the Web over high-speed links. Several users consuming bandwidth for streaming at several hundred kilobits per second each would leave other users little room on the shared access channel for fast downloads of non-streamed material.
"This is a really important question," Chiddix says. "People in cable are beginning to spend a lot of time thinking about it."
So far, most of the thinking in cable along these lines assumes the traditional demarcation between data and TV. But what happens when Web viewing via the TV kicks in over broadband pipes and content development on the Internet evolves accordingly? Here the question goes beyond charging more for bandwidth usage to the issue of how readily cable's controlled VOD offerings will compete with the VOD supplied over IP backbones to local points of distribution.
"As long as cable companies allow their customers onto the Internet, I can deliver full-motion video to those users," says Mark Cuban, president of Broadcast.com, which delivers classic movies, college football games and myriad other types of programming from a cluster of about 800 servers in Dallas.
Unlike a cable company that might be setting up a video server farm at a headend to reach a single marketplace with on-demand video content, Broadcast.com, with access to high-speed, long-haul data networks like the 155 megabit-per-second packet-over-Sonet network supplied by the UUNet unit of MCI WorldCom, can allocate its server and other infrastructure costs-per-user across a nationwide customer base, Cuban notes. "We're peering through nine different backbones out of Dallas, so we have a lot of ways to get to people," he says.
This centralized distribution model allows the company to create the content base that is sufficient to meeting the needs of a broadband on-demand marketplace, where the model calls for maximizing the number of options at minimal costs per user, Cuban adds. "We have 800 servers here in Dallas, with the capacity to store tens of thousands of hours of content," he says. "For us, if there are 200,000 people out there with high-speed access, it doesn't matter where they're located."
Broadcast.com, of course, like everyone else building a business around streaming media, must also cater to the vast majority of users who are constrained by dial-up access rates. But, Cuban notes, not only is the cable modem base growing in the consumer market, with DSL coming along behind, but a growing base of business users have access over ISDN and T-1 pipes, representing an opportunity to deliver video programming to desktops in offices where TV screens are few and far between.
To many cable operators, such offerings represent a much lower level version of VOD than cable will offer, ensuring that the cable version has a distinct attraction for cable customers over what they can get from general access on the Web. As Chiddix notes, video delivery via MPEG-2 has it all over any attempts to do the same thing in pure IP (Internet protocol) mode, making it unlikely that video streamed over cable data channels will be any match commercially for MPEG-streamed content.
"MPEG has a very low overhead packet structure that is optimized for the type of networks we operate," he says.
But what if MPEG becomes a commonly available framing mechanism for any IP video or multimedia content on the Web, accessible to subscribers from local storage centers where content of all types is collected and reformatted to MPEG for delivery to customers? Would such technology, using centralized computing to deliver Internet content directly to the TV set as if it were a PC monitor, significantly alter the way the cable industry invests in and develops not only VOD but the set-top platforms that go with such services?
A handful of suppliers offering such technology in anticipation of rapid penetration of digital set-tops believe Web-based entertainment is going to be too compelling to keep out of the family room for long, forcing operators to choose either to spend a lot for computerized set-tops or go with the centralized model. They suggest that to assume the low quality of IP fare will turn viewers off, especially with the likes of AOL looking for other broadband outlets to the TV and the PC, might not be a safe bet.
The centralized TV Web surfing model, obviating any need for a PC in the home, is evolving quickly from its beginnings by WorldGate Communications Inc. as a means of delivering fast Internet access to addressable analog set-tops to embrace the digital MPEG environment, notes WorldGate CEO Hal Krisbergh.
"WorldGate has entered a phase where more and more cable systems are going into trials using the digital set-top platforms," Krisbergh says. "Digital gives us the opportunity to increase the download speed to 27 megabits per second."
Such speeds in the context of delivering IP content in MPEG-2 format to the TV set essentially puts all video content on the Web into the VOD entertainment framework, Krisbergh notes. "The real opportunity for this service will come with streaming over digital channels," he says.
"In the past, the high cost of standalone set-tops appeared to be justified by superior capabilities," Krisbergh adds. "It is now clear that the superiority of the cable infrastructure and centralized processing overwhelms the standalone set-top solution."
Digital set-tops are drawing other entrants to the centralized model, including Peach Networks Inc. and MoreCom Inc. Both companies introduced their systems at the Western Show with IP-based video applications central to their selling points.
MoreCom, for example, delivered video clips from various Web sites to its exhibition booth and displayed them full screen at entertainment quality, as if they were regular programming. "Delivering high-quality broadband Internet to customers' televisions is like adding as many new channels as there are Web sites," says MoreCom CEO Ami Miron. The firm's MoreVideo "clip-on-demand" system supports picture-in-graphics and full-screen display with HTML (Hypertext Markup Language)-based navigation, allowing operators to create their own Web video sources, Miron notes.
Peach Networks is similarly focused on exploiting IP video content for TV applications, having developed a centralized processing and distribution system that includes a proprietary means of reducing the computer power needed to encode Web data to MPEG-2 for distribution over the cable network.
Peach is using statistical multiplexing with its encoder, which is a means of varying the amount of bandwidth allocated to any single MPEG stream depending on the amount of new information that stream requires from frame to frame. This allows more streams to be packed into a 6 MHz channel than would be possible if each stream was delivered at a fixed rate.
Where non-video IP data is concerned, the stat muxing delivers up to 400 streams at one time, meaning that 400 users can be accessing the Peach channel simultaneously at 100 kilobits per second, Ofir says. Fewer streams would be delivered in instances where users were accessing IP video rather than ordinary graphics, he notes.
"This system is designed to run all Windows applications and to run over very, very thin clients (low-computer power set-tops)," Ofir says. "We think the functionalities that come with centralized processing at this level will extend the life of digital set-tops, avoiding the costs of upgrading to more expensive boxes to accommodate higher levels of applications."
It remains to be seen whether such ideas will prevail as the cable industry sorts through the new service options created by the digital set-top. But it is clear that, however VOD is deployed, the cable industry can't afford to ignore the entertainment-oriented force taking shape in the IP domain.