Turmoil in On-demand Viewing Creates Opportunities

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Network Digital Video Recording services are just one area that will upset the status quo and open new opportunities to insightful companies

“Video on Demand” used to be thought of as cable television’s fledgling movie rental service. Now companies from all kinds of industries are falling over each other to provide unique new on-demand viewing services. On-demand viewing is hitting the consumer in theaters, television, PCs and phones. Old rules are giving way to new opportunities.

One example can be found in Network Digital Video Recording (NDVR), often referred to as Network Personal Video Recording (nPVR). NDVR lets television service providers (Cable and Telcos) record shows viewers request, but on the service provider’s big system disk drives, not on the viewer’s Digital Video Recorder (DVR).

Why would these service providers want to provide such a service? One reason is to provide an incentive to upgrade to digital cable, or to switch from cable to a Telco’s Internet Protocol Television (IPTV) service. Cable providers also want to win back some satellite television subscribers.

One nice side benefit of NDVR is that a program recorded in one room can be viewed in another room without the viewer having to worry about “networking” their televisions together. Consumer Electronics companies take note – they are working on somewhat competing approaches such as Digital Living Network Alliance (DLNA) and High-Definition Audio-Video Network Alliance (HANA). And, of course, DVR products are also threatened.

Cablevision was the first cable company to announce their intention to try NDVR. Comcast and Time Warner quickly announced their interest, too, “if things worked out”. One of the gating factors is content distribution rights. Some content owners feel Cablevision’s NDVR service would violate their distribution rights. Officials on the Cable side feel they are within their rights.

NDVR affects advertising, too. Ad agencies already worry about ad skipping by regular DVR viewers. Now they may have a new batch of viewers to worry about. On the other hand, Nielsen Media Research has already found that prime time shows get a rating lift when DVR viewing is factored in. Their new service is called “Live Plus Seven Day”, and it is now in the middle of another turmoil – should ad pricing be based on this new measurement?

So, NDVR is causing some turmoil in the industry by providing a new on-demand viewing service. But, where there is turmoil, there are also opportunities.

We begin with a DIGDIA forecast that estimates current VOD Cable viewing at just 0.3% of all Cable viewing today. By 2011 this percentage may grow to 1.9% as more subscribers switch to digital cable, more providers offer VOD and the content and types of on-demand viewing services get more robust. But, if you assume just four of the top U.S. Cable companies will add NDVR services, the percent of on-demand viewing jumps up to 8.6% of all cable television viewed – if so, this is an increase of over 450%.

Manufacturers that make the systems that support NDVR are the immediate winners of this opportunity. Up until now the peak VOD utilization rates have rarely ever exceeded 10% of the homes serviced, so cable systems and bandwidth have been able to handle the load. With NDVR the utilization rates will easily exceed 10%. Just look at TiVo, where 70% of the television watched by TiVo owners is from recorded shows.

People that support advertisers can also win. Advertisers want to see measured results and NDVR provides a way to see just which ads are watched or skipped. Rentrak is thinking along these lines with their new Ad Essentials service. System manufacturers are making it possible by providing automated measurements and dynamic ad insertion so that viewers won’t watch old ads, but fresh targeted ads instead.

In fact, as Disney’s ABC television network is experimenting with, once you put the on-demand experience under the control of the system, you can also control if the ads can be skipped or not. So, NDVR gives a way to prevent ads from being skipped, if the industry decides they can get away with it. Such is already the case with Time Warner Cable’s Start Over service. Start Over lets viewers go back to the beginning of a show if they happen to have walked into it after it started. They don’t have to miss a thing, but they also can’t skip past the ads.

And here is where the cable vs. content owner disputes may end up. If content owners realize that they can turn off ad skipping with NDVR and insert fresh ads into the show, they have found a new revenue stream. Money greases the skids.

NDVR is just one of the areas of on-demand viewing that is causing turmoil and opportunities. Virtually every one in the value chain is affected. The next five years are going to be “fun to watch”, pun intended.

About DIGDIA

DIGDIA helps companies find growth opportunities, create winning business plans and strategies

for companies in the digital entertainment value chain. Services include strategic consulting and market analysis with a balanced business & technical perspective. Reports on On-demand viewing, Digital Cable Ready, Digital Hollywood, Digital Cinema, Digital Consumer Electronics and other topics may be found at http://www.digdia.com.

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Gary Sasaki
DIGDIA
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