A year ago video on demand was the sole prevail of cable operators that made a few million dollars selling a selection of movies to their customers on a cost per download basis. Now it is being variously hailed as the holy grail or the doomsday device for the entire ad business-and has become a must-understand for all marketers, agencies and TV executives.
VOD dominated talk on the floor and at the podium at the recent National Cable & Telecommunications Association annual meeting, just a month after this time-shifting TV tool was the focal point of the American Association of Advertising Agencies' Media Conference. And it's not just hot air where marketing applications are concerned: In recent months Procter & Gamble Co., Coca-Cola Co., General Motors Corp. and Keebler have all unveiled VOD ventures, working with the likes of Comcast, Viacom, Time Warner and Gemstar.
It's easy to see why marketers are excited, because there is an opportunity here for them-or their agencies and production companies-to create their own, branded "watch it when you want" content. Home Depot can create a series of informational shows on gardening or DIY, complete with an interactive offering allowing viewers to purchase the relevant materials for the job; GM is already airing close-ups of its vehicles; Nike could make its entire ad archive available to the public via VOD, so consumers can watch those Wieden & Kennedy classics whenever they want.
And that's to say nothing of the potential for refreshing ad content in old shows that are available via VOD. In short, if the content is compelling, VOD could be the ultimate targeted, opt-in advertising medium.
"VOD is the next frontier in many ways," said Jon Kamen, chairman-CEO of Radical Media, a leading commercial-production company. "It's not really about format or time. It's about content and it is unique in its opportunity because of the ability to deliver rich content and to provide knowledge. It's just incredibly applicable to our times."
VOD also offers marketers the promise of convergence-linking the rich and interactive media of the Web with the TV experience. As Paul Allen, chairman of Charter Communications, explained during a session at the National Show, if viewers are ad skipping, VOD offers advertisers the opportunity to insert pop-ups as the ads are fast-forwarded. When clicked, the pop-ups might link to information about the product.
Still, only a minority of consumers have VOD in their homes, and revenue is still limited. Forrester Research estimates 28.8 million homes will have VOD by the end of this year, a figure that will rise to 44 million by 2009. That relatively small penetration has so far restricted revenue. Comcast, for example-the nation's biggest cable company, with 21 million subscribers-reckons it racked up around $19 million in VOD sales in 2004-it offers VOD services to about 8 million digital customers.
Nevertheless Comcast CEO Brian Roberts expects a major upswing in those numbers in the near future, and is moving aggressively in this arena. He expects Comcast customers will order more than 1 billion VOD sessions by the end of 2005. And Comcast isn't alone: Now that cable operators have largely built out their pipes for delivery of everything from VOIP, HDTV to VOD, they're in sales and marketing mode; and they find that those who do have VOD in their homes adopt it quickly.
"The average user of VOD views 27 shows and equates to 12 hours a month of on-demand viewing. Average use per household per month is 27 times," said Page H. Thomson, VP-general manager, Comcast on Demand.
In trying to buoy adoption, Comcast is following a Yahoo model, trying to build the audience by offering free content. Comcast's thinking is that advertisers-either seeking to sponsor existing VOD content, or create their own-will follow as the audience grows. Vicki Lins, VP-marketing and communications, Comcast Spotlight, the cable operator's ad-sales department, said, "We have more than 2,200 programs and expect to see it grow to 10,000-20,000. Just look at the content building. It really speaks to the momentum."
Comcast is wielding its power to get individual channels to create content for this VOD push. Already consumers with digital cable can sit down to literally hundreds of hours of free programming whenever they want to call it up. The Comcast on Demand platform for March included instructional TV shows on poker, two-minute videos of singles looking for love and weekly highlights of the best soccer goals from around the world. Such strictly targeted shows sit alongside better-known output from the likes of National Geographic, History Channel, Nickelodeon, MTV, Cartoon Network and news from broadcast networks NBC and CBS.
At the cable conference, NBC Universal and other Hollywood studios were talking to operators about how they'd be compensated for adding movies and current TV shows to the mix. NBC President Bob Wright said he was having conversations with both Comcast and Cablevision about a VOD play, and predicted NBC will have something ready by next year. "I'm a fan of the network-oriented VOD model, which will be safer and protect the ad revenue," Mr. Wright said. In essence, Mr. Wright's model would mean licensing already-aired network shows, complete with all their ads, to the cable operators for their VOD channels.
That's a model that would protect ad revenue for the networks, who are trying to work out if they can own a piece of the VOD pie. Unlike the threat of digital video recorders that can give viewers the option of skipping ads-and therefore scare marketers, agencies and TV networks alike-VOD is seen by many in the industry as a way to get consumers to invite ad messages into their living rooms. At the same time, VOD may also be a way for programmers to get revenue from viewers and lessen their reliance on advertising. Time Warner is already on board with subscription and premium services like HBO on Demand.
Either idea for the emerging technology is a radical altering of the traditional TV ad model.
Pete Blackshaw, chief marketing officer at Cincinnati-based Intelliseek, a company that tracks online buzz about technology products, said VOD is generating a huge amount of interest: "We've seen a rapid uptick in consumer interest, through message boards and blogs." The appeal factor is so high that VOD could eclipse the Internet in terms of consumer value. He gave the example of watching a VOD program on making creme brulee, when previously he might have gone online for a recipe. "It's very sticky," he said commenting on the appeal of VOD, not his creme brulee.
So much depends on how the VOD measurement model evolves.
Nielsen Media Research is due to reveal its plans for sampling in VOD homes by May. Already, publicly traded firm Rentrack, which began life providing instant video-rental details for Hollywood Studios, has agreements with the main cable operators to provide third-party analysis of who's watching what. Rentrack has measurement deals in place with Comcast, Charter, Cablevision and Insight Communications. Rentrack allows each vendor to see data about how their own service is used and comparative data on similar channels, but not about specific competitors.
For each title, Rentrack can provide total views per set-top box for each title, unique set-top-box use and total minutes viewed. Rentrack reports also provide fast forward, rewind and pause details.
"If you run a promo in the free VOD area, we can tell you how quickly the viewer watched the show," said Cathy Hetzel, senior VP, OnDemand Essentials, Rentrack's VOD-measurement product. What Rentrack can't yet do is give advertisers some pretty critical information such as ZIP codes, household and demographic data, although it says such information is coming.
Still, major advertisers such as GM, Coca-Cola and P&G are not waiting for all the issues to shake out before they get their feet wet.
"We've been working with most of the cable networks, the Scripps Channels, Discovery and A&E, CNN, those are the core guys, and we've also been talking to upstarts such as Music Choice," said Curt Hecht, senior VP-managing director of digital innovation at GM Planworks, Chicago. "General Motors is definitely the most aggressive marketer in VOD. ... We look at it as an extension of advertising."
Coca-Cola, too, has been testing a VOD project with Time Warner Cable in North Carolina, said Larry Fischer, president of Time Warner Cable media sales. The beverage giant also just signed on as the first and, so far only, advertiser on a live-music service Concert Channel, co-founded by Michael Shimbo, a former Open TV executive. The service is due to roll out to cable operators beyond Comcast this month. Mr. Shimbo is already looking at various ad formats beyond the 30-second spot, suggesting 10-second interstitials and long-form advertising. He said: "Creative can cost $350,000. We can create a 30-minute program with the same money."
make your own brand
Radical's Mr. Kamen is one of a number of speculators also creating his own VOD brand, just as Ted Turner did 20 years ago in cable or Jeff Bezos did a decade ago online with Amazon.com. Mr. Kamen claims to have carriage deals in place with the major systems operators and a broad range of branding partners. He won't yet say what his concept is, except to describe it as "entertainment and information about products." The venture is set to launch in June.
Comcast's Ms. Lins points out that VOD will not only change the shape of TV, but the shape of advertising. "Advertisers are pulling out all their B-roll and putting it to good use, many others are producing content for on-demand viewers," said Ms. Lins, adding that VOD will see the ascendance of media agencies. "Media [agencies] have finally come into their own. The days where creative used to drive direction are gone. Media will drive the direction of advertising. This year will be the tipping point."
The more level-headed research community offers a slightly different perspective of VOD. Brian Wieser, VP-director industry analysis at Interpublic Group's Magna Global, believes "VOD will have a hard time taking off until the programming that appears on network TV starts showing up and that could be years away."
Walt Disney Co. President-CEO Robert Iger doesn't discount VOD as a force, but believes it still has a ways to go before it hits the mainstream. "It will take longer than five years; it's maybe 10 years out."
Like all new technology, the hype always precedes reality. News Corp.'s President Peter Chernin was quick to douse the flaming rhetoric around VOD to offer this reality check: "I don't want to be a skunk at the picnic, but the future will depend on how well we do our jobs as distributors. Whether it's DVRs or a hit-driven VOD service, at the end of day it's incumbent on us to do a better job and be rewarded accordingly."