Is on-demand a video nasty for advertisers?

Fragmentation and PVRs have already strained commercial TV’s advertising-funded business model. Now, video-on-demand could cause further upheaval for the medium, says Amanda Wilkinson

You’ve missed the latest episode of EastEnders, and you forgot to set the video recorder, but you can’t wait to know what happened down the Queen Vic. Most fans of the soap, in that situation, would have to wait for the omnibus edition. But a lucky few may be able to watch the episode using a video-on-demand (VOD) service either through cable or broadband.

Cable operators NTL and Telewest Broadband have just begun rolling out FilmFlex, which they claim is the first mass-market VOD service outside the US, as tipped in Marketing Week last year (September 30, 2004; last week). The promise to their digital television users is content they want to watch when they want to watch it, as many times as they like within a set time period, with the pause, rewind and fast-forward functionality of a DVD.

Video Networks already delivers on-demand content to its Home Choice subscribers using ADSL broadband technology, but its subscriber base is thought to be less than 100,000. Other players also considering launching pure on-demand services for TV include BT, which is testing an ADSL-based system through set-top boxes that may also give viewers access to Freeview channels. BSkyB is also thought to be looking at using some form of broadband to deliver pure on-demand services. And as the technology develops, more people will also be able to access on-demand content via the internet – already, users are distributing unofficial copies of the latest episodes of popular TV shows. Eventually, mobile phone users could even be able to watch programmes on their handsets.

Whether or not they would want to is open for debate, but there is a risk to media owners that the widespread availability of on-demand content will change consumers’ viewing habits, affecting scheduled television and its predominantly advertising-funded business model.

NTL and Telewest between them have 2.5 million digital television customers, all of whom will have the opportunity to use FilmFlex, which will allow them to choose movies from a selection of more then 150 titles, for a fee of £2 to £3.50 for 24-hour access. In addition, NTL is offering a “pick of the week” service that allows viewers to watch programmes that have been shown on scheduled television in the last week. The BBC is supplying content such as EastEnders, Casualty and Top Gear free for a 35-hour period on a trial basis. In total, NTL has put 500 hours of content on the system, but it has capacity for 3,000 and is talking to other broadcasters such as ITV and Channel 4 and production companies about supplying more content.

NTL also offers children’s content supplied by Nickelodeon, BBC Worldwide, Jetix and Entertainment Rights, that includes titles such as The Tweenies and Basil Brush, priced at between 20p and 30p for 30 hours; music videos and concerts, supplied by Warner Music and others, priced at 20p to £1.50 for 35 hours; and adult content from Playboy, available between 10pm and 5.30am at £7 for 50 hours of access.

The cable companies are hoping that the VOD service will give them an advantage over rival BSkyB, which has more than 7.4 million subscribers and currently only offers near-VOD films at set times. In the past, BSkyB has claimed that its personal video recorder box, Sky Plus, also allows users to watch the content they want when they want, but the difference is that the machine has to record the material in the first place. NTL and Telewest are also due to launch PVRs, which allow users to skip ads, later this year, as first revealed in Marketing Week (September 30, 2004).

Video Networks chief operating officer Dean Hawkins is confident that VOD will lead to a change in viewing habits, as PVRs have reportedly done. “There will be a massive change in the way people consume media as on-demand content services become available through the TV, the internet and mobile phones. Consumers are being handed back control by the platforms, allowing them to select content and direct how and when they consume it,” he says.

But Hawkins does not believe there will be a threat to linear TV and draws an analogy to the music industry, which despite the popularity of MP3 players still has radio as a platform.

NTL On-demand director Gidon Katz also plays down any threat, referring to the experience of cable operators such as Comcast in the US: “Most viewers go through their favourite channels before going to on-demand.”

Nevertheless, he says, Comcast claims that customers in Philadelphia take on average 50 streams a month, varying in length from feature films to music videos.

But Katz himself considers that “VOD will not absorb all viewing. I believe it will be ten to 15 per cent. People still like to watch sport and reality television live.”

So far, all NTL and Telewest’s on-demand content is ad-free. However, Katz anticipates that there will be opportunities for advertisers to get involved. In the US advertisers are already sponsoring content relevant to their brand, or running ads around it. Katz says that commercial broadcasters could also offer content interspersed with the same ads as when it was first broadcast on linear television, replacing time-sensitive ads with more appropriate commercials using technology developed by Seachange in the US.

He claims that technology exists to prevent viewers from fast-forwarding through the ads, although he admits that this would have to deployed in a sensitive manner. Other opportunities include “t-commerce”, allowing viewers of music videos, for instance, to click the red button in order to buy a CD of the band.

Video Networks does not run ads around its VOD content, either, although it has launched an “Ad Chart” that allows its subscribers to view commercials on-demand.

An ITV spokeswoman, admitting that the broadcaster is considering supplying VOD content to various platforms, says it would want to involve advertisers: “We are working with the platforms to see how ads can be incorporated into the content and measured through BARB.”

But Channel 4 head of 4services Michael Comish says that VOD offers little potential to generate revenue through advertising. Additionally, he contends, broadcasters will probably follow the BBC’s initial lead and supply content for the first seven days after broadcast free of charge.

In Comish’s view, the revenue potential will come after the first seven days, when viewers will pay subscriptions for VOD channels, similar to the model adopted by Video Networks, or one-off fees as with NTL and Telewest. “Here you are not talking about the broadcast medium: you are dealing with one-to-one communication and I don’t think there is massive potential for advertising.”

Even where advertisers are prepared to pay a premium for that one-to-one communication, Accenture analyst Theresa Wise still believes that any advertising revenue will be small. She says that on-demand services may have some effect on viewing habits, but will not threaten linear TV, just as DVDs have not – consumers still enjoy TV’s “lean-back” experience. Advertisers can only hope she is right.

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