Impressive revenue potential, falling component costs and re-tooled business models for video-on-demand (VOD) services by cable operators which could add revenue from ad sales and provide vital new branding benefits are attracting a crowd to the electronic and interactive program guide (EPG and IPG) side of the VOD business.

MSOs (multiple system operators), hardware and video server providers, IPG designers, middleware, software and middle management companies, on-screen guide providers and movie studios are all shouldering their way into the VOD space with hopes of capturing a piece of the potential multi-billion-dollar VOD market.

Their roles in the burgeoning VOD space vary from providing video server equipment to designing advanced on-screen imagery that will hopefully take viewers through an unforgettable program guide experience and form a lasting, top-of-mind corporate brand or advertising product imprint on their psyches.

Yet negotiating the at-times mind-numbing path to movies, TV shows, events and interactive services is becoming even more complex and confusing for viewers, experts say, and will require simple, yet snazzy on-screen program guides to cut through the clutter of several hundred choices and make use of the valuable first-screen impression of an IPG or EPG for what is expected to be valuable ad dollars and branding space.

"VOD can't exist without a guide, and the IPGs will be the portal to the TV. It's like a small Yahoo! page, and people hope the on-screen guide will be fertile ad revenue space and create a brand awareness for their customers–the MSOs," says Tracy Forbes, research analyst for Janco Partners Inc., a media research and analyst group.

The VOD space is expanding, albeit slowly, into a potentially fertile market for a growing number of companies, particularly for the big four video server group–Concurrent, DIVA, nCUBE and SeaChange International. Both IPGs and EPGs are becoming an integral part of their push deeper into the VOD market.

"When you talk about future capabilities, on-screen EPGs are crucial to the success of interactive TV, and more than just VOD. It's like a hyper-link, and the EPG is the focal point at the set-top box, so it's critical that cable operators have EPG schedules and (that) they do the business scenarios for the VOD business models," says Steve Davi, vice president of engineering for ITV at SeaChange International.

Using the on-screen "real estate" of an IPG to brand a product or company is growing in its appeal, industry observers say, and working its way into VOD business models, along with its advertising revenue potential.

"MSOs brand their companies on all the pages of Gemstar's guides (Gemstar/TV Guide has 90 percent of the on-screen guide market), and Gemstar gives advertising space on its guides. EPGs and IPGs are seen between four and seven times an hour, and people really use their guides. As more are deployed, that should be appealing to advertisers," Forbes says.

Questions remain about the effectiveness of on-screen ads, however. Forbes cautions: "Advertisers will be much harsher on Gemstar regarding the benefits of ads after seeing little ad revenue from the Internet, so it will give MSOs ad space on the guide to be used to promote their own service or sell local ads. There's also talk of using the space to brand products."

The "space" is the first glimpse viewers have when clicking on their TVs, so content which includes dazzling graphics and lasting impressions counts big time in getting their attention, albeit for a brief moment in time.

"We have to do enhanced graphics. Customers expect it, and we have to remain competitive by producing higher end graphics for both VOD and PVRs (personal video recorders)," says Kevin Hill, vice president of product management for TV Guide Interactive.

TV Guide, Hill notes, has extended its product line to include specific VOD access by viewers beyond the standard text-based grid. "We're adding new features like access to SVOD (Subscription VOD), new search capabilities and laser features," he says.

Yet more will be expected from interactive guides, and it's the platform that matters, experts insist. "Historically, interactive guides have been stand-alone and are now eight years old. It makes for a very difficult transition into this new VOD and interactive space. The key is flexibility of the middleware platform because the new customer base is not monolithic, it's complex, and if you can't provide several options, you can't compete," says Peter Mondics, general manager of TVGateway LLC, a group of cable operators which includes Adelphia Communications, Charter Communications, Comcast Cable Communications, Cox Communications and Worldgate Service Inc. The consortium was formed to provide the operators with an alternative to IPG giant Gemstar and develop more open standards, the company says.

Those options, he adds, must include the platform itself. "It's really about the platform allowing integration of other services, but we're also allowing programs to be promoted within the guide. We want that activity to happen where people make decisions about their viewing habits upfront," he explains.

TVGateway will introduce its new 2.0 platform at year's end and will include new graphics and navigational aspects from a variety of internal and outside design houses. "We're rethinking how guides work," Mondics says.

And for good reason. IPGs are now expected to not only drive cable customers to programming choices, but brand cable operators' products while creating new ad revenue. Consequently, effective applications and compelling graphics are becoming the cornerstones of their IPGs.

"The IPG is not just one thing you can do via the TV–it's an application. Today, it's the primary source for us to reinforce to our customers who the service provider is, but eventually, it will be the portal to the Cox TV experience. That's crucial for branding, and since we're sitting side-by-side with our DBS competitors, it's extremely important for us to have a presence in the guides," says Lynne Elander, vice president of product management for Cox Communications.

Yet with that presence comes a caveat. "We don't want to deliver animated, dashing logos across the screen. That investment isn't necessary. We also don't want to be intrusive and overwhelm the applications. Our on-screen presence must be appropriately integrated because customers don't want to watch logos, they want to watch TV," she says.

Intrusive or not, most operators, including Cox, are cautiously moving forward with advertising spots built into their IPG guides for VOD and digital programming. Adds Elander: "There is a great opportunity for advertising revenue on IPGs, but it must be used prudently. We're investigating how advertising could be integrated into VOD." Cox is trialing VOD in its San Diego system using Scientific-Atlanta's SARA, a digital navigator with IPG capabilities, and will roll-out other VOD services shortly, she notes.

For video server providers such as Concurrent and nCUBE, however, the IPG space in VOD is issuing new challenges, and new opportunities. "There are thousands of options now, so navigation is much more interesting and challenging, particularly with back office support and business management for VOD. A lot of effort is going into a flexible set of business rules. We're designing platforms to work with those rules and with portal navigation and guides," says Fred Allegrezza, CTO of Concurrent Computer Corp.

Branding and advertising are part of that mix as well, and for video server providers, they are vital pieces in the evolving VOD and IPG markets. "It's very valuable for us to support those. Branding is very important to separate operators from their competition, and targeted advertising will be helpful to them whether on a home page or through sponsored programming," says Jay Schiller, vice president of broadband strategy and product management for nCUBE.

Just exactly what customers see on their IPGs, and the value of cool, colorful and jumpy graphics is debatable. Nevertheless, a growing segment of the IPG industry now includes on-screen design houses. "We're advancing technology to bring multimedia imagery to IPGs and making it more multimedia-centric and easier for consumers to find programming. A grid-based text sheet made sense when there were few choices. Not anymore," says Gene Feroglia, CEO of iSurfTV Corp., a Sunnyvale, Calif.-based next-generation technology company for interactive television.

Maybe so. But for set-top box manufacturers such as Pioneer and its IPG application, "Passport," graphics, advertising and brand awareness aren't the most pressing VOD/IPG issues of the day. "It's the infrastructure that counts, and integrating VOD as the focal element of digital cable as one seamless solution. Rolling out the service is the top priority now, so we don't see many changes in the guides," says Haig Krakirian, vice president of software engineering for Pioneer Digital Technologies.

Once those changes do occur, however, the IPG market is likely to take on a whole new look–literally. "I think we'll have a co-branded product that will act as a guide to interactive services, and SVOD is an interesting model, too. It will take time for viewers to get used to the guides, but the VOD business has a return on investment of less than three years, and MSOs are excited about that. It will be a huge business," Forbes predicts.

In the meantime, a gaggle of IPG- related companies are determined to get their fair share of the VOD and IPG business, either on their own or through strategic alliances. Concludes Forbes: "Now, everyone has agreements with everybody, yet there are still some business models in the interactive space that will fall off. The number of participants will go from 100 to 25 in the future."