A couple of years or so ago new interactive television trials were popping up all over the place. The excitement and promise was the chance to call up your favorite movie or soap on your television screen without having to walk all the way to the video store. Video-on-demand was the sexy new application that the press was hyping. Then all went quiet and the stories of new trials trickled away as everyone started to realize that maybe video-on-demand wasn’t quite as near in the future as originally expected. A year ago, the lack of decent communications into most people’s homes was one of the biggest barriers facing phone and cable companies hoping to offer interactive services. These can be offered over cable or over standard phone lines using Asynchronous Digital Subscriber Loop but some providers, including Bell Atlantic found that the costs of maintaining it were too high. Based on paper studies we believed we could use ADSL over copper wire for 95% of Washington DC, said Larry Plumb, speaking for the trial. After technical trials in 1994, the Bell decided that although had a cheaper capital cost, it was untenable because of maintenance costs. Instead it has chosen the more expensive fiber optic cable option, claiming it is a more stable environment requiring less conditioning, thus saving maintenance costs.
Enormously reliable
It accepts the heavy initial investment, but sees a 20-year pay back period, which will make it viable. The more people using it, the more the price goes down, it said, adding that video- on-demand is not reason alone for building a fiber optic network. US West Communications completed a 14-month technical trial in Omaha, Nebraska this March. It has decided against moving forward with a market test or deployment. We’ve been through numerous tests and failures and have recovered from them and improved the service. We could deliver reliable video-on- demand but the economics of providing broadband cable are prohibitive, said Harry Kennison at US West. Video-on-demand is premature. Bell is buoyant about interactive services and plans to go ahead with commercial deployment over the switched broadband network being developed in Philadelphia. Nearly 1,000 households in Fairfax County, Virginia took part as paying customers in the market trial, which began last May. Customers could select from about 700 program choices, 25% of which changed each month. Once companies have decided they have the technical ability to provide video-on-demand, their next step is to see if customers really want it, by moving on to a market trial in which users have to pay. How programming is presented to customers was found to be a key factor in the success with customers of the market phase of the Bell Atlantic trial. It found that daily promotions of different programs boosted ratings dramatically. Promotions took the form of on-screen messages highlighting content a viewer might find interesting. Who is going to pay to watch an old episode of the Love Boat on-demand? Not many. But they would if they found out that Tom Hanks made his debut in the series.
By Abigail Waraker
It said monthly buy rates in August and September 1996 were 35% to 40% up on those for August and September 1995, which were unaided by promotion. But new movies were still most popular, yielding 57% of total purchases. We are competing with the VCR and our content is competing with video rental and pay-per-view, Plumb explained. But it would be a surprise if people didn’t select video-on-demand over VCR. Bell Atlantic is not concerned about demand. People want video-on-demand and 90% have a VCR, which is a form of video-on-demand. So it’s a proven market. It is the best of cable and the best of on-demand, said Plumb. But profit is an issue and even Bell Atlantic admits video-on-demand revenue doesn’t cover costs, but still says it is viable if coupled with broadcast capabilities. Video-on-demand is a differentiator. It will entice cable subscribers over to Bell Atlantic. Although it isn’t yet ready to talk figures. The business case for video-on-demand could be as one that gets the consumer hooked, before he starts doing his shopping and banking on-line. But customer demand may not be enough. Pacific Telesis Group Inc now has 20 homes in San Jose testing full video-on- demand. It plans to expand this to 100 homes by year-end. We don’t lack faith in customer demand, but at the moment there isn’t the volume that the manufacturers can rely on, said Craig Watts for Pacific Telesis. Bell Atlantic are the cheer-leaders of video-on-demand. We are more pragmatic and not as vocally optimistic. It said it would love to roll out the service commercially next year, but does not see the economics of volume needed by the manufacturers. US West doubts even customer demand. It has moved away from interactive television after completing a technical test to 125 friendly users in Omaha, Nebraska.
Too early to tell
Our initial intent was to provide a competitive edge for our cable offerings, said Harry Kennison, at US West; a similar approach to that of Bell Atlantic. But we found the market demand was not as great as we had hoped. Customers in the US already have home shopping and pay-per-view and didn’t realize the opportunities video-on-demand offers, such as to fast forward and rewind and pause the selected videos, he explained. But not all the trials have gone this far down the road to market testing and some companies just don’t know where video-on-demand will go yet. BellSouth only started its 18-month market trial in Atlanta at the end of April. It remains very much a trial, said Al Schweitzer. It is too early to tell. We are not necessarily going full ahead into interactive television. But whatever the outcome of the trial, BellSouth is focusing on its eight cable franchises in the south eastern US. Bell Atlantic feels it has championed the infrastructure limits and intends to deploy. This could lead to a situation where some companies offer video-on- demand, giving them the competitive edge, in turn putting pressure on others. But this won’t happen until consumers become aware of the available options. Despite the rocky road, once consumers learn from early adopters like Bell Atlantic what on- demand offers, they will start demanding a mix of cable and interactive services. What people want will override the financial and technical viability and firms will be forced to keep up.
