Future of On-Demand Video Now Is in Play

The Comcast Corp. bid for Walt Disney Co. could help determine whether the living room of the near future looks more like Lydia Woods’ in Maryland or Kenneth Crudup’s in Los Angeles.

Both are Comcast subscribers who use new technology to take control of the television schedule, letting them watch what they want when they want.

The difference: Woods relies on the Comcast cable system to do the heavy lifting, while Crudup uses a digital videorecorder -- the approach favored by satellite TV operators News Corp. and EchoStar Communications Corp.

The satellite companies’ technique is more effective at delivering television on demand today. If Comcast ends up owning Disney, that will improve its on-demand offering. But persuading the rest of Hollywood to embrace the cable industry’s vision for a new generation of TV would be another matter.

Comcast is a leading advocate of “everything on demand,” which enables viewers to tune in to any show for a limited time after it is broadcast. The company wants ultimately to record all the programs it transmits and store them temporarily on computer servers in every region its cable systems serve. That way, customers who missed a show when it was originally shown could play it again later at no additional charge.

The problem for Comcast is that TV programmers have refused to give it the right to record and replay hit shows such as “Alias” on video-on-demand, or VOD, services. Comcast hopes to address that shortcoming by buying Disney, which owns the rights to “Alias” and many of the other shows aired on ABC, ESPN and their cable network siblings.

“There’s no question that Disney-branded and ABC-branded content would be a good thing to have on a VOD service,” said Jack MacKenzie of Frank N. Magid Associates Inc., a media research and consulting firm. “The question is, can they survive just being an outlet for their own stuff, or do they need to acquire other people’s content to make it a fully realized offering?”

Analyst Josh Bernoff of Forrester Research Inc. said that if Comcast proved it could make money offering on-demand Disney shows, other leading TV programmers probably would offer their shows for VOD.

Not only can on-demand services boost the number of people who watch a show, Bernoff said, but cable operators can reassure advertisers by preventing on-demand viewers from skipping commercials. By contrast, the commercial-skipping ability of home-based digital videorecorders, like those made by San Jose-based TiVo Inc., is a selling point.

The Disney purchase could help Comcast on other fronts as well.

By gaining control over Disney’s movie studios, Comcast could make Disney films available through video on demand as soon as they are released to video stores instead of delaying them 45 days or more, as Hollywood typically does. It also could offer popular Disney programming to subscribers with high-speed Internet accounts.

The key question, though, is whether anyone in Hollywood would follow Disney’s forced march.

Studios are nervous about video-on-demand services eating into the sales of DVDs, the most profitable portion of their business. Nor are they completely comfortable with the anti-piracy technology that protects programs delivered through the Net.

Although numerous cable networks are making their shows available on demand, the producers behind the broadcast networks’ popular comedies and dramas are not. Their main concern, Bernoff said, was that putting a show into a video-on-demand service could lower its value in the lucrative market for syndicated programs.

“My rule of thumb for VOD is simple,” Bernoff said. “The more popular a TV program is, the less likely it is to appear in VOD.”

Woods, a retired nurse, likes Comcast on Demand even without the broadcasters’ hit shows.

“What a joy this is,” she wrote recently in a note to a group of television fans on the Internet. “I missed ‘Carnivale’ and ‘K Street’ last night. Early this morning I was able to watch both at 6 a.m. using On Demand. It’s just like a VCR, you can play, stop, pause, fast-forward and rewind to your heart’s content and watch over and over.”

Adding all of Disney’s shows to the service would be very convenient, Woods said in an interview this week. But putting every program on demand would be better, she said, even if the shows were available only for a short time after they were broadcast.

“I would love this,” she said. “I miss some shows due to programming vagaries and I would be able to catch something I missed the next day.”

The response from customers like Woods is why the major cable operators are all rolling out on-demand services. Their recently upgraded networks have the capacity needed to support the shift to on-demand viewing, while their archrivals in the satellite TV industry do not.

But satellite operators aren’t conceding the on-demand field to cable. Nor are they trying to obtain licenses to record programs on their subscribers’ behalf. Instead, they bundle satellite TV service with high-capacity digital recorders, which subscribers use to store dozens of programs for themselves.

The result is the same as with cable’s on-demand service, with one important caveat: Satellite viewers have to schedule recordings in advance; cable viewers do not.

As for Crudup, he started using a TiVo digital recorder when he subscribed to DirecTV, the satellite service that recently came under the control of News Corp. The device made recording and replaying shows so simple, it transformed the way Crudup watched TV.

“I love my TiVo to death,” the software engineer said. “The only time I ever watch live television is if I’m at someone else’s house.”

Now a Comcast subscriber by default -- he moved to an apartment that didn’t receive DirecTV -- Crudup isn’t eager to try the cable company’s on-demand service. In his view, TiVo is far better on two fronts: it can record every network’s shows, and the recordings don’t expire until he wants them to.

Some entertainment industry executives agree with Crudup’s assessment and say television’s copyright complexities spell doom for plans like Comcast’s. The best way to make the leap to on-demand viewing, they argue, is to put recorders in people’s homes and avoid having to cut deals with the copyright owners.

Others think the shift to on-demand programming is inevitable, and the cable operators’ version will prove more attractive to the industry than the competition’s. One reason is that the cable approach could generate a new, lucrative type of advertising: individualized commercials.

James Kelso, a vice president at SeaChange International Inc., said a number of top advertisers are just starting to experiment with ways to target individual on-demand viewers with specific commercials.

“No one really knows how this new business is going to shake itself out,” said Kelso, whose company makes computer equipment for VOD. “But by and large, consumers, given the ability to get what they want when they want it, will find it irresistible. Especially if there’s no cost to it.”