Personalizing TV With On-Demand Services

The fierce competition between cable and satellite TV services is driving a fundamental change in the way television is delivered, giving consumers a growing number of ways to seize control of the programming schedule.

After several years of dabbling with video-on-demand services, the country’s top cable TV companies are enabling millions of customers to watch what they want, when they want.

Four kinds of on-demand service are emerging from cable operators this year, with satellite companies working on a fifth.

The systems have some glaring weaknesses--they don’t offer the most popular TV programs, they’re not included yet in the regular cable program guides, and the selection is no match for the local video store. Yet cable operators, satellite companies, studios and networks all have a stake in getting the new services up.

For cable operators, VOD is one of the few services that clearly separates digital cable from satellite TV and traditional basic cable. Satellite companies counter with personal video recorders, which have limited on-demand potential but are extremely popular with their owners.

A number of movie studios, meanwhile, have embraced VOD as a step up from pay per view, which has generated fewer dollars than most other outlets for their films. And several TV networks see on-demand services as a new way to turn programs into cash, with or without advertisers’ support.

HBO, for example, is testing a service that lets subscribers watch any original program from that month’s lineup at any time. A subscriber can watch “Six Feet Under” at 8 p.m. Tuesday instead of 11 p.m., or even watch all four of the month’s episodes back-to-back.

The shift to on-demand is expected to be gradual, yet it challenges many of the ways networks promote shows, build audiences and attract advertisers. For starters, cutting programs loose from their time slots means networks lose the benefit of running new shows after popular and established ones.

And broadcasters can’t assure local merchants that their commercials will be seen before the big holiday sale or promotion ends.

Granted, cable and phone companies have been hyping video on demand for years without ever committing to it. But analyst Josh Bernoff of Forrester Research Inc., a technology research and consulting firm, said, “This is real. These [cable] guys are going for this in a huge, huge way.... This is the year they’re all doing VOD.”

For a cable operator, the new VOD services start with two-way, high-capacity digital networks. The operator stores several dozen movies on a powerful central computer, and customers browse through titles on their TV screens. When they find one they want to watch, the central computer streams it to their digital converter box. The computer can pause, rewind and fast-forward the movie in response to commands from the customer’s remote control, just as if the movie were on videotape.

The last wave of VOD services came and went in the mid-1990s, when a group of major cable and phone companies launched and then abandoned several experiments with interactive services. Although consumers liked VOD, the systems required such expensive set-top boxes and computers that they were economically unfeasible.

Suppliers of VOD technology eventually adapted their services to basic digital converter boxes, and the cost of computers plummeted to the point where on-demand services could turn a profit. The lingering issue today is obtaining the rights to offer programs on demand--some top Hollywood studios have yet to strike deals with VOD services, and winning the rights to the major networks’ prime-time shows is complicated by the interests of producers, licensees, syndicators and advertisers.

Nevertheless, cable operators are enthusiastic about VOD in part because it’s something the satellite companies can’t offer, said Mitchell E. Kertzman, chief executive of Liberate Technologies, which makes software for set-top boxes. VOD also helps convince consumers to switch from analog to digital cable, which cable operators view as a springboard to future services, Kertzman said.

Satellite TV operators DirecTV and DishNetwork don’t have the capacity on their orbiting transmitters to beam programs on demand. Instead, they’re offering receivers with built-in personal video recorders, laying the foundation for a different kind of on-demand service.

In recent roll-outs of VOD, the increased control and convenience leads consumers to order two to three times as many movies as they do with regular pay per view, said Greg DePrez, a vice president at Starz Encore Group. Their usage increases even more, DePrez said, when they can order an unlimited number of programs for a flat fee.

Starz has been a leading advocate of “subscription video on demand,” offering consumers on-demand access to 100 of the 800 movies that are scheduled to run on the Starz Encore channels each month. HBO and Showtime also have begun subscription VOD services built around their original programming, and Walt Disney Co. subsidiary ESPN plans one to let subscribers call up extreme sports programming on their TV or computer.

Companies still are trying to figure out how much to charge for these services. Fees for subscription VOD are expected to cost between $3 and $10 a month, although several cable operators have included such services in their digital cable packages at no extra charge.

A third version of VOD is being developed by Comcast Corp., which would become the largest U.S. cable operator if its $72-billion bid for AT&T; Broadband is approved.

Later this year, Comcast plans to offer a free VOD tier to digital-cable subscribers that includes 750 hours of programming each month from cable and broadcast networks, said Dave Watson, executive vice president of marketing and customer service.

Watson wouldn’t say which shows will be offered, but the networks developing on-demand versions of their original programming include NBC, A&E;, Lifetime, Discovery, CourtTV, Comedy Central, ESPN, BBC America and TNT. Comcast has found so much interest among programmers in its new on-demand service, it’s “running out of shelf space” on the company’s central computers, Watson said.

A final variation being explored by cable operators is to record programs digitally on central computers as they’re broadcast, letting customers replay them on demand. To avoid getting ensnared in a copyright dispute, the operators are focusing on news and sports programs whose rights are readily available.

The only deployment so far has been by Adelphia Communications Corp. in Buffalo, N.Y. Earlier this year, the company made Buffalo Sabres hockey games available on demand for free on digital cable.

The satellite operators’ on-demand strategy starts with personal video recorders, which Bernoff estimates were in 700,000 of their customers’ homes by the end of 2001. Once PVRs have sufficient capacity, satellite companies could broadcast 10 to 15 popular movies to customers’ recorders in the middle of the night, and users would pay only for the ones they watched.

Cable operators have been slow to deploy PVR-equipped converter boxes, but the pace is picking up.

Time Warner Cable and Cox Communications Inc. have started testing a PVR-equipped digital cable box from Scientific-Atlanta Inc., and Charter Communications Inc. has announced plans to deploy this fall a PVR-equipped box made by Motorola Inc.

One potential pitfall of PVRs for cable operators is that they may dim customers’ interest in VOD.

David Rothman, a Cablevision customer in Long Island, N.Y., has filled his customized digital recorder with movies from various cable channels. “Now I’ve got 120 to 180 hours of movies on my hard drive,” Rothman said. “It’s unlikely, unless there’s something very new, that I’m going to want to go to video on demand.”

Still, the recorders enable cable operators and advertisers to store personalized, interactive programming in subscribers’ homes, creating a new source of revenue, said Manu Mehta, chief executive of Metabyte Networks, which supplies the PVR software for Scientific-Atlanta’s boxes.

For example, he said, consumers could shift from a 10-second commercial for a cruise line to a stored program that provides an interactive tour of the ship. Or they could click on a beer ad to launch a video game sponsored by the brewery.

“In the long run, the cable operators see PVR as a new way of doing business,” Mehta said. “PVRs will change television.”

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A New Way To Watch TV

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