Video on Demand: Is It Ready for Prime-time Use In Living Rooms?
MSNBC, February 25, 1998
Forget Internet browsing. Forget high-definition pictures. Forget even
e-mail. Video-on-demand, dismissed for years as too expensive and
too unwieldy to install for the masses, is probably the most powerful
feature on the upcoming digital-television menu. And finally, the
entertainment industry is beginning to wake up to its potential.
You're at home lounging on the couch, and nothing good is on the TV
schedule. No worry. You simply aim your remote control and switch
to a video-on-demand channel. Punch a button and you can
immediately start one of about 500 different movies. If a two-hour film
seems too long, you can try a sitcom, perhaps that "Mad About You"
episode you missed recently.
A video-on-demand system like this, of course, is the nightmare
scenario for Blockbuster and other video-rental chains -- the
long-forecast, and previously overestimated, catalyst of their
extinction. But it may well be the killer app of digital television, the
nationwide TV upgrade that's coming soon from a cable operator
near you. Imagine no late-night trips to the rental store. And never any
Too good to be true?
It certainly was in the past. Time Warner and others spent hundreds
of millions of dollars in the early 1990s trying out technically bulky
systems with no grounding in real-life economics. Set-top boxes
costing several- thousand dollars each were installed for free in
homes, and then connected to giant file servers costing much more
than that. The experiments demonstrated healthy demand for certain
enhanced TV services, yet yielded no way to justify the costs.
But both the technology and the economics have changed drastically
in only a few years. A new generation of digital set-tops costing about
$300 each is now beginning to enter the 65 percent of American
homes subscribing to cable-TV service. File-servers, used to feed
digital programs to users from a central office, are now several times
cheaper and more powerful as well. (To indulge in some cable-speak,
the cost of installing a single client-server "stream" is plummeting to
about $500 from several thousand dollars earlier this decade. That's
a significant decrease, considering that $1,000 per stream is widely
considered to be the threshold of cost-effectiveness.)
To date, Internet-like services have stolen much of the limelight in the
hype over digital TV. With so many millions of people browsing the
Web and chatting via e-mail on their computers, it's no wonder that
the Internet looms large in interactive-programming plans.
But as implementation dates get closer, entertainment companies
increasingly wonder whether people will actually use their television
sets like they use their computers. And the companies are also
wondering how they're going to make any money with all these new
Enter video-on-demand. The market is obvious. Americans spend
roughly $8 billion a year renting video tapes from corner stores. They
shell out several billion dollars more for other forms of home
entertainment, such as purchased video tapes and pay-per-view
So suddenly, video-on-demand is regaining its lost luster.
"Video-on-demand has kind of bumped back up the priority list," says
Sean Kaldor, analyst with International Data Corp. "They think it's a
concept whose time has come."
In Pennsylvania, customers pay $5.95 a month for access to the
video-on- demand service, then $3.95 for each new-release movie
and $2.95 for each older title. Diva, which bears the cost of
installation, pays a fee to Hollywood studios for access to their
content, and the company then splits the remainder evenly with the
"Clearly," says Bill Wall, chief scientist-subscriber systems for
Scientific-Atlanta, "the cable operators see [video-on-demand] as
their No. 1 added application beyond broadcast services."
Scientific-Atlanta, a maker of equipment for cable companies, is now
making and shipping hundreds of thousands of set-top boxes with
Meanwhile, video-on-demand trials are now springing up across the
country like so many geysers. Two different cable operators in
Pennsylvania are testing a service built by Diva Systems, operating
under the brand name OnSet.
With the clamor for video-on-demand services rising, new rivalries
are quickly emerging. Diva Systems is the industry's granddaddy,
having resulted from an RCA Labs project begun some 15 years ago.
But snipers are quickly appearing.
One competitor, known as Intertainer, emerged from obscurity just
a couple weeks ago. Backed by cable giant Comcast and chip maker
Intel, Intertainer can stream a wide variety of movies, games and
other programming to anyone with a recent-model computer and a
high-bandwidth connection through a cable or DSL modem. The
company is developing a TV set-top-box-based delivery system as
To Diva and Intertainer, video-on-demand should almost sell itself.
"The problem for anyone in the modern age is that the most precious
asset is time," asserts Jonathan Taplin, Intertainer's co-chairman.
"And TV today doesn't work on your time ... What the Internet has
taught us is to get what you want when you want it."
And yet, the sell job is hardly complete. One cable executive, who
heads the engineering operations for a large operator, says he still
has to be convinced that with video-on-demand he's not cannibalizing
his existing revenue streams. In other words, with a jillion movies and
hit sitcoms to watch on demand, who is going to sign up for a bunch
of premium channels and pay-per-view services?
"My analogy," he says, "is that with video-on-demand, you move
money from the left pocket to the right pocket, but you spill some of it
along the way."
Indeed. But thanks to the pervasive video-rental habit that's been
stoked by the likes of Blockbuster, some new money will be falling
from the sky as well.
And for that reason, the fast-approaching digital-TV era is likely to
bring video-on-demand into our homes sooner rather than later.