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According to the Yankee Group 2005 VoD Forecast, video-on-demand (VoD) deployments grew steadily in 2004, with 16.7 million digital cable homes capable of using VoD, up 47% from the end of 2002. Yankee Group estimates about one-third of all enabled subscribers are using the service, but usage varies widely from market to market. For example, several Comcast markets report 60% or higher monthly usage. There appears to be a strong relationship between content volume and usage. Marketing and consumer education play a critical role as well.
Advertising-Sponsored Content Will Be a Critical Usage Driver
VoD is constrained by the limited content offered today. Major studios continue to favor video rental stores with earlier release windows. Consequently, MSOs find it difficult to increase movies-on-demand (MoD) buy rates. Pressured by the MSOs, programmers are offering some programming on-demand. However, without a clear revenue stream, they aren’t developing original on-demand content or offering their most valuable programming for VoD.
Consumers value free content because it enables them to sample the VoD service without risk. If MSOs and programmers can develop effective advertising models for VoD, they can drive usage and generate revenue. Effective on-demand advertising requires two major initiatives:
· Timely and in-depth reporting of usage data
· Creative advertising models beyond the 30-second commercial
However, programmers must beware of MSOs selling against them. Multiple MSOs sell VoD spots nationally and locally. On occasion, they use VoD as a free value-add for local linear spot sales. This could hurt programmers’ ability to sell on-demand advertising and monetize free VoD (FVoD).