Back in the dot-com days everybody spoke of convergence. It was nifty word that encapsulated the promise of the digital age; signaling the imminent migration of everything readable, auidble and viewable into digital format. What MTV was to the music industry in the late 80s, video on demand is to the idea of convergence today. 

About 16% of UK internet users watch time shifted TV on internet or video on demand services. This figure compares with 27% using personal video recorders and 11% using in demand television services.

Video on demand offers television broadcasters a potential lifeline of revenue (via advertising and subscription) and audience share. The UK market is mainly dominated by two traditional VOD platforms, 4oD (Channel 4), iPlayer (BBC) that are distributed across multiple broadcasters including Sky and Virgin. Kangaroo, a free advertising funded platform being planned by the BBC, iTV and Channel4 is facing scrutiny from the Competition Commission due to concerns over its market power and control over content libraries. 

In the US the six largest cable operators announced “Canoe Ventures,” a project to promote interactive TV ads by standardizing the technical requirements across their systems. The group includes Cablevision, Cox Communications, Comcast, Time Warner Cable, Charter and Bright House Networks.  

Video on demand and IPTV (TV on broadband) have usually been defined as TV-centric, not PC-centric. This distinction implies a different user experience: a user experience of “lean back”, where the user takes a passive role of watching video content over a TV set with set top box; versus a “lean forward” experience of an active Internet surfer in front of his computer. With the convergence of devices, the difference between computer/monitor and set top box/TV screen will diminish over time. Mobile devices like the iPhone promise to challenge the traditional model of consumption. In fact a new version of the iPlayer service designed for Apple iPhone and iPod Touch devices was released earlier this year, already accounting for 3% of viewing requests.

Video on demand revenues and audiences will be increasingly threatened by the emergence of online VOD services such as Hulu.com, Joostand file sharing communities such as Uknova.com. These services will accelerate the shift away from the existing pay-per-view model into a free (advertising funded model) or subscription model. Hulu has quickly become the ninth most popular video site in the US, selling ad inventory at premium rates ” USD $60 to $70 CPMs.

Microsoft’s recent acquisition of Navic Networks confirms the advertising potential of video on demand.  Navic reaches some 35 million digital set-top boxes in North America via cable providers including Charter Communications, Cox and Time Warner.  Navic’s applications run on digital set-top boxes that can make TV a two-way medium. For example, a 15-second commercial can carry a graphic overlay and functions that allow the viewer to request more information about a product. Using viewership data gathered from digital set-top boxes, as well as additional demographic information, Navic can craft a more finely tuned picture of what and when people are watching, then serve relevant commercials.

But video on demand has a long way to go. In a perfect video on demand world, users would leverage their RSS reader to download any show into a subscription list whenever online for viewing later. That content could be from anywhere in the world and there would be no time limit on it. This will not be a reality until there is a proven and sustainable advertising and revenue model for video on demand.

Content owners and broadcasters/distributors will have to embrace there principles to ensure the continued growth of video on demand: 1) aggregation of content, 2) revenue collaboration 3) standardized measurement of audiences.

About Alain Portmann

My job is simple. To inspire staff, clients and consumers.

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