An impressive library of digitized video–ranging from TV classics to new feature-length films–is available over the Internet. How serious of a threat
does that present to cable’s existing VOD and PPV revenue models?

Sidestepping the content gatekeeper isn't a difficult proposition anymore, thanks to broadband connections and a growing slate of packaged, digitized video available via the Internet.

Instead of ordering pay-per-view and video-on-demand titles directly from a cable or satellite service provider, it's becoming easier for consumers to execute an end-run, and to go direct to the source. Add in some home networking technology advancements, and the concept of streaming movies from the PC to the TV isn't beyond the realm of imagination.

Provided a high-speed connection is available, consumers today can tap the Web to stream dozens of full-screen, top-flight movies, plenty of B-rated fare and hundreds of hours of old fashioned TV shows and series–all on-demand. The options almost seem limitless.

Many Internet-based services, like Intertainer and CinemaNow, are legitimate, offering free and subscription-based video content. A growing number of others, meanwhile, stream on the digital edge of legitimacy or cross the line altogether.

Internet VOD is a hot topic, but, according to recent studies, it isn't ready for prime time...yet.

RealNetworks’ RealOne subscription service has netted more than
500,000 customers.
Although studios are starting to embrace the Internet VOD concept through partnerships or their own services, "substantial" rollouts in the U.S. won't occur until 2005, thanks to technical limitations, quality concerns and other consumer adoption-rate issues, according to a recent GartnerG2 study. Even then, only two percent of movie distribution revenues are expected to come from the Internet.

Morgan Keegan & Co. adds that cable will provide the primary platform for VOD for the foreseeable future, and doesn't expect to see Internet VOD generate "meaningful revenues" until sometime in 2003.

Even though the promise of legitimate Internet VOD isn't expected to flourish for some time, about 80 million consumers, representing 35 percent of Americans ages 12 and older, have watched or listened to streaming media, according to Arbitron Inc. and Edison Media Research.

At the same time, digital bootlegs are becoming a huge cause for concern for movie studios. No longer are taped bootlegs, shot with a shaky camera inside the theater, the only problem they face.

Taiwan-based grabbed plenty of attention in February when it allowed users to stream, or "rent," Hollywood movies like The Wedding Planner and Spy Kids for about $1 per title. Local authorities shut it down later in the month after finding that the site violated international copyright laws.

Of course, concerns about streaming media aren't limited to movie studios and other content owners. Streaming video has become a sensitive issue among cable operators, too, especially when the application can dilute the value of programming they already pay for and distribute to customers.

Last June, for example, Charter and ESPNNEWS crossed swords after the MSO tried to place limits on how much content the programmer could make available via the Internet. Before that, in April 2000, MSNBC streamed a live feed of the network, but stopped soon after senior company executives learned of the practice. Several MSOs have reportedly started adding language to their programming contracts that limits the amount of streaming a network can offer via the Internet. For this story, several MSOs declined to comment on specific streaming terms or restrictions tied to their programmer contracts.

Although studios are ultra-concerned about digital piracy and protecting the residual value of their products, several industry observers disagree with, or at least question, that Internet VOD services, legitimate or otherwise, would cannibalize an MSO's VOD or PPV revenue models.

"[Operators] have relationships with studios," says David Novak, director of marketing for Pace Micro Technology Americas. "They're not worried that they won't get the content in an on-demand world...They represent a viable alternative for on-demand content, and have the best network to achieve it."

That doesn't mean, however, that competition for eyeballs for that content won't exist. Studios, for one, can strike deals with different media providers, or move ahead with Internet-based services that circumvent existing VHS and DVD rental models.

Although Internet VOD services could hurt a cable operator's PPV and VOD revenues, subscription-based streaming media services like Intertainer and RealNetworks Inc.'s RealOne view themselves as complementary, rather than an outright threat, to cable service providers.

"I can see why some people may think in that fashion, given their individual business models," says Stephen Ste. Marie, president and COO of Intertainer. "But Intertainer's attitude from the beginning was always one of being agnostic with technologies and the distribution platform."

Intertainer offers movies from studios such as Warner Bros., DreamWorks SKG, Twentieth Century Fox, MGM and New Line Cinema, but also distributes "lean forward," shorter-form content through relationships with networks like A&E, Discovery and ESPN.

Though the company has recently found some success with its new IP service, Intertainer also has relationships with cable gatekeepers such as Comcast Corp. and Adelphia Communications for their respective MPEG-2 video-on-demand services and IP-based cable modem offerings.

"We think our business and our vision folds very nicely into [cable's] business models," Ste. Marie says.

The lion's share of Intertainer's business comes through its cable distribution relationships, which reach an aggregate 400,000 households. The service supports roughly 50,000 registered customers (homes capable of receiving the service). Though not all 50,000 subscribe to Intertainer's pay packages and a la carte product, those who do spend between $14 and $15 per month, Ste. Marie says.

RealNetworks' RealOne service, meanwhile, is one of the biggest Internet subscription VOD success stories today. RealOne has signed up more than 500,000 subscribers. RealOne offers long- and short-form programming through relationships with networks like CNN, ABC, E! and Fox Sports and franchises such as and

Like Intertainer, RealOne's goal is to augment, not replace, the cable model, explains RealNetworks Vice President of Programming Scott Ehrlich. CNN Quickcast, for example, is an hourly headline news update created only for RealOne's paid distribution audience.

Ehrlich argues that RealOne's programming partners are actually looking out for and protecting the cable operator's interests by building a broadband product that has created the incremental demand for broadband connectivity. "It's not freely available, so it's not undermining the value proposition of cable."

Cable operators, meanwhile, have to determine just how they will participate in the value chain. Consumers "will have to go through the ISP or the cable operator, which might be the same," says Joshua Wise, a senior analyst with research firm Allied Business Intelligence. There's less concern about getting cut out of the pie, "but how they are going to be included," he adds.

For example, Internet VOD could add more tangible value to tiered data services, and movie lovers might be more apt to pay for an extremely fast, platinum-level service.

Streaming from the PC to the TV

Although some consumers will want to watch video clips and some longer forms of streaming video on the PC, the majority would rather view full-length Hollywood films on their television screens.

Some products, including a few from AITech International, claim to make that possible.

The company's MultiPro 2000 uses a patented digital signal processing technique to convert a computer's VGA signal to the NTSC or PAL TV platform. AITech's Airlink II product, meanwhile, wirelessly links PCs to televisions up to 100 feet away using the 2.4 GHz frequency.

Though such devices carry claims of easy installation and use, a consumer still must have the requisite know-how to make it work, Wise says. "It's doable, but [consumers] can't be afraid to poke around their TVs and PCs," he says.

Piping streaming video from the PC to the TV through existing home networking technologies is a novel concept, and carries with it a set of technological and economic barriers.

"Streaming needs guaranteed throughput...or there will be some disruption," says Navin Sabharwal, director of residential and networking technologies at ABI, who notes that caching content to a hard drive and watching it at a later date is a more viable practice for now.

On the wireless front, the effective range for a protocol like 802.11a represents another problem. Lopped on top of that, a wireless feed would require a raw data rate of about 11 Mbps to deliver just one MPEG-2 stream. "The technology isn't there yet...unless you have repeaters in the home or multiple nodes in the home," Sabharwal says.

That, of course, adds costs, perhaps beyond what a typical consumer might be willing to pay. "It's just not cost-effective today," Sabharwal says.

But today doesn't necessarily mean forever. New wireless technologies and protocols are expected to support higher data throughput levels and better quality of service.

Distributing streaming video over wired home networks offers more potential today. An Ethernet-based home network can handle the job for one MPEG-2 stream, as can HomePNA 2.0. HPNA 3.0 is expected to offer 100 Mbps of raw data speed, and between 50 Mbps and 60 Mbps of throughput to play with–enough for multiple MPEG-2 streams or even high-definition television, Sabharwal says.

Networking aside, subscription services from Intertainer and RealOne install their own safeguards to ensure a good experience for their PC subscribers. Intertainer's IP service, for example, does not run on the public Internet, but leverages the company's private Broadband Entertainment Network to avoid potential QoS pitfalls.

The caveat is that Intertainer's IP customers are required to have connection speeds of at least 580 kbps. Based on experience with DSL providers Qwest Communications International and Broadwing Inc.'s Zoomtown, Ste. Marie says Intertainer found that, on average, about half the customers could get speeds high enough for the company's IP service.

That requirement should improve as codecs evolve. Intertainer, which uses a Microsoft Corp. version of MPEG-4, has seen those figures drop to about 500 kbps from 1.5 Mbps only 18 months ago–and the picture quality improved with each change, Ste. Marie says.

In comparison, RealOne pumps almost all of its content through the public Internet to narrowband and high-speed subscribers.

"Because we create the player and the technology in-house, we have unique insight on the best way to use that technology," Ehrlich says. "The video content is certainly a richer experience with broadband, but we have a pretty compelling offering at narrowband speeds, as well."

A set-top streaming future?

In addition to offering tiered data services for a movie-hungry audience, cable operators have explored the idea of streaming content directly through the set-top. In that scenario, Internet VOD buy rates would definitely be higher than they are today via the PC, Novak says. And cable operators are starting to spot that potential.

Streaming dreams: This gear from AITech converts VGA signals to the NTSC or PAL format to wirelessly link PCs to televisions as far as 100 feet away.
There is a "fair amount of interest" in putting streaming media players in cable set-tops, notes Bob Van Orden, vice president of product strategy for Scientific-Atlanta Inc.'s subscriber division. "We're working on and investing in that area."

Intertainer is also exploring the idea of delivering its IP service to the TV environment. Thomson Multimedia recently made an investment in Intertainer, and is planning to build an IP set-top box.

RealNetworks has made forays beyond the PC, as well, inking deals with TiVo Inc. and Moxi Digital in the entertainment electronics arena, as well as with Nokia for wireless handheld devices and Sony Corp. for the Playstation 2 gaming console.

Adding streaming media capabilities to set-tops could also open revenue doors for MSOs, perhaps in a walled-garden environment, where the operator controls what can and cannot be streamed.

Cable operators "don't want to just be a pipe provider," Novak says. At the same time, "they don't want to lose control of their network."

Interest in monetizing streaming media via the set-top aside, legacy digital boxes don't have the processing power to support such an application. Today's digital set-tops are equipped to handle MPEG-2 streams for video-on-demand, but can run into problems with straight Internet streaming, unless the box processes information at 400 MHz or more, Van Orden estimates.

Better speeds also carry higher costs. "Right now, operators have resorted to combination, scaled-back plans for these power-hungry boxes. It's possible, but the equipment and cost are the rate-limiting factors at this point," Wise says.

That could change within the next six to 12 months, Van Orden adds. "I think in 2003 you'll see set-tops with [cable] modems with enough processing power for streaming."

Even if set-tops gain the technical horsepower to stream video, Van Orden believes such an application would augment, not replace, "entertainment" video, which is already moving toward DVD and high-definition quality. "We think [streaming video] is a niche, and not a mainstay market. It's more of a technology searching for a market, rather than a market problem being solved by technology," he adds.

Still, a walled garden for streaming media, offering video clips from programmers, could become a compelling offering once the set-top and the network are outfitted for it, Van Orden says.

Further down the line, operators could change the way they deliver digital multichannel video. An operator, instead of using QAM (quadrature amplitude modulation), could migrate to a PacketCable system to run voice, video and data services off of one IP network.

The advantages of an IP network include better system control and one-network economics. MSOs such as Comcast and Charter Communications are both looking at set-tops with on-board DOCSIS modems specifically for that purpose, Novak says.

Even so, a streaming media-television combination might not be used to deliver multichannel video at all, but could instead be leveraged "to do some on-demand content that's pushed on the IP network," Novak says.


Predictions for Internet VOD: Not so fast

Despite the hype of studio-backed services like Movielink, "substantial" Internet VOD services won't rollout in the U.S. until 2005, research firm GartnerG2 forecasts in a recent report.

As for its bearish outlook, GartnerG2 notes that the technology infrastructure (broadband, home networks) and consumer enthusiasm for such services isn't here yet. Even by 2002, the company believes that only a meager two percent of all movie distribution revenues will come through Internet VOD as incremental revenue, rather than a cannibalization of the retail channel. Additionally, Internet VOD will only have a minimal effect on U.S. retailers that sell high-quality, digitally mastered movies, primarily because consumers are unlikely to tolerate the lower quality unless there is a big price difference.

Morgan Keegan & Co., meanwhile, sees cable as the primary platform for VOD for the foreseeable future, and forecasts more than 30 million cable VOD subs within the next four to five years. Though Internet VOD might start to generate "meaningful" revenues in 2003, Morgan Keegan expects that service to remain a niche product for consumer segments such as college students.

Playing at a PC near you: Internet VOD

The number of legitimate sites with on-demand video libraries–ranging from old television shows to recent big-screen movies–are on the rise as high-speed services continue to proliferate. Here are just a few of them:

CinemaNow ( Site touts a library of roughly 1,200 feature-length films from studios such as Lions Gate Entertainment (CinemaNow's majority owner; Microsoft and Blockbuster are also investors), Trimark Pictures and Allied Artists. The company, which encodes content in bit rates as low as 56 kbps and as high as 700 kbps, claims it delivers nearly 2 million video streams to about 1 million users per month.

CinemaPop ( For $4.95 a month, subscribers get unlimited access to CinemaPop's vault of TV classics, documentaries, short-subject films and movies, including the 1970s-era The Boy in the Plastic Bubble with John Travolta. The site also offers a number of free movies, such as The Cop in Blue Jeans with Jack Palance–provided the user has a broadband connection.

IFILM ( Serves as a comprehensive guide to help users find and watch features and short films over the Internet. Liberty Digital, Rainbow Media, Vulcan Ventures and Sony Pictures are among IFILM's investors.

Intertainer ( DSL and cable modem customers can tap into Intertainer's IP VOD service to watch newer full-length movies like Shrek, Osmosis Jones and Legally Blonde, and its full library contains more than 700 hours of programming available at any one time. Intertainer's IP service complements the company's VOD content aggregation service for cable operators.

Like Television ( For $5 per month or $50 per year, basic membership provides access to all of the site's streaming videos, which are broken down into categories such as Classic TV, Movies, Cartoons and Sci-Fi.

Movieflix ( Specializing in cult-classics and B-movies, this Hollywood, Calif.-based operation maintains a library of more than 2,300 films and TV shows, including Teenagers From Outer Space and Godzilla vs. Megalon, for $4.95 per month. Partners include AOL, RealNetworks, Road Runner and Rogers Communications.

Movielink ( Five major movie studios (MGM, Paramount Pictures, Sony Pictures Entertainment, Universal Studios and Warner Bros) plan to go direct to consumers later this year with a broadband-centric, on-demand movie distribution service.

Yahoo! Broadcast ( Library of on-demand audio and video content ranges from band concerts and space shuttle launches to full-length movies. The service requires at least a 56K connection.