Video on Demand

Digital television has been discussed in a fair amount of detail because it is one of the most talked-about, most significant market drivers for residential broadband. However, several other emerging services may also prove to be important in fostering a market for RBB. One of these is video on demand (VoD).

Service Description

VoD can be viewed as a special case of ITV . VoD enables consumers to order movies over a network rather than going to a video rental store. The sale and rental of video cassette copies of old and new motion pictures, called home video, is a $16.2 billion per year market in the United States, much greater than the $5.5 billion per year for domestic box office. Already, home video produces about 12 to 15 percent of the total revenue of a given Hollywood release. The scale of this market lures broadcasters and cable operators to consider VoD as a substitute for home video.

VoD service is a pull-mode service, which refers to the delivery method in which the subscriber demands and receives data from the provider. The consumer decides what to watch and when from a range of alternatives and then retrieves the selection. This is much like pulling information from a database.

VoD includes VCR controls, sometimes called trick mode, such as rewind, pause, and fast forward. Options also exist for jumping to selected scenes, choosing languages and subtitles, and captioning. It is widely believed that for VoD to be successful, features beyond simple VCR controls are necessary.

VoD's pull-mode delivery stands in contrast topay per view (PPV)which operates in push mode. Push mode refers to the data delivery method in which the service provider transmits data to the subscriber on a fixed, predetermined schedule, or in response to some event such as the updating of data in the provider's database. The consumer simply decides whether or not to partake. Figure 1-4 depicts the conceptual differences between pull mode and push mode.

In push mode, no VCR-type controls are available. Given the service characteristics of push mode, it is especially appropriate for live, one-time events such as boxing and wrestling matches, which are the two most popular forms of PPV in the United States.

In a pull-mode environment, no two subscribers are likely to be watching the same movie or using the same trick modes at any given moment. Therefore, separate data flows are established, one for each viewer. Each data flow consumes bandwidth dedicated to a single consumer.

VoD was made feasible by the development of digital compression. Without compression, a single color movie would consume perhaps as much as 100 GB of storage and could not be transmitted, even over a T3/E3 link to the home. With MPEG, a movie can be stored in 3 GB (providing broadcast TV quality) and played out at 3 Mbps. These are still large numbers, but they are doable over proposed networks.

The measure of the success of a VoD offering is the take rate, which is the number of movies rented per month divided by the subscriber base. If there is a subscriber base of 1000 consumers and 2000 movies were rented in a month, the take rate is 200 percent. Take rates of 200 percent or more are necessary to make VoD financially viable.

Key Benefits of VoD

Video on demand is a convenient and highly customized way to view stored content such as movies, documentaries, and other educational fare. This gives the viewer access to larger libraries than are available at a single retailer. VoD also is convenient because it uses search mechanisms to locate what you want. Furthermore, the technology is highly customized because the viewer chooses what and when to watch instead of having the service provider decide.

Storage prices are dropping, and access is improving. The costs of the technology also are improving, whereas costs for video rental and sale are unlikely to drop further.

Finally, the content of VoD service is not speculative or risky, based on the proven success of the market for video rentals and sales.

Key Challenges to VoD

Royalty payments for content comprise roughly half the costs associated with VoD; the other half is engineering costs. Providers must have terabytes of stored data to have a marketable library, and the network must have good bandwidth reservation characteristics. The essential characteristic of pull-mode delivery is that every viewer has his own connection to the service, not one that is shared with any other viewer. Therefore, each viewer has his own network connection and bandwidth. If one person is watching a movie, the network must support, say 3 Mbps. If ten people are watching, 30 Mbps is required. Each connection is expensive because the lack of sharing creates relatively few economies of scale for the carrier.

A robust conditional access system is needed to prevent unauthorized viewers from watching programs they didn't pay for. But there has been a cottage industry for years of people breaking cable security systems. More resilient procedures are needed as the economic stakes of VoD grow.

Viewer preferences pose another challenge to VoD. Viewers like watching a rented movie more than once, or want to watch only part of a movie—thes e preferences cannot be accommodated economically by VoD. One partial solution is to permit the viewing of a single movie over an extended period of time. For example, a two-hour movie may be viewed over a 3-hour time period. This provides enough time for the viewer to have frequent rewinds.

Like other digital distribution methods, VoD is hampered at the moment by a lack of available content. Existing VoD libraries are not extensive enough. Hollywood has 16,000 movies in its film vaults, only a small fraction of which have been digitally encoded. Encoding pictures is a time-consuming and expensive process.

Experience from hotel movie rentals and various consumer trials indicates that, given a sufficiently large library of content to choose from, VoD can be a popular consumer service. However, it is expensive to deliver, and high costs have service providers looking for alternatives.