Broadcasters Dont Get the Picture for Video-on-Demand
Cable is pioneering when-you-want-it programming, starting with HBOs Sex in the City and The Sopranos. Fans of ER and Seinfeld will have to wait for instant gratification.
by Warren Cohen



Thursday, August 30, 2001

Since July, some HBO customers in Columbia, South Carolina, have gotten a little more of a premium from cable's hottest network. Under a pilot program that hints at the future of consumer-friendly television, subscribers can pay $3.95 a month to watch old episodes of Sex and the City and The Sopranos whenever they want through a video-on-demand service.

Unfortunately for small screen addicts, the same access isn't available for other popular television series, whether current hits like ER and CSI or old standards like M*A*S*H, Cheers and Seinfeld. Most video on demand talk has centered on feature films. Earlier this week, iN DEMAND, a programming aggregator for AT&T, AOL Time Warner, Comcast and Cox cable systems, signed up movies from Sony to offer on-demand via cable systems. The company already has inked a deal with Vivendi Universal. Earlier this month, five major motion picture studios announced a joint venture to offer movies on demand over the Internet. But the broadcast television industry is ho-hum about the potential for a new revenue stream.

Not surprisingly, the resistance toward video-on-demand has to do with money. Movies have a payment structure established for video-on-demand, using the licensing terms that are similar to the existing pay-per-view terms for cable. (Pay per view, with its limited, predetermined showtimes and inability to stop and restart films, is seen as inferior to video-on-demand which allows viewers much more freedom.) Movies also have varying "windows" for releases, from pay per view to cable to home video to television.

In contrast, television lacks windows and is mostly about exclusive rights. After a network run, syndication deals prevent competition when airing a program. The syndication market is an annual $2.3 billion business, according to Kagan Associates, that television program owners don't want to jostle. "Everyone has the goal of being the primary destination (for television shows)," says Joe Boyle, vice president of corporate communications for iN DEMAND.

A further complication with television is that writers, actors and producers are all compensated for syndication sales. Rates are dependent on whether the shows air on cable networks, local stations or home video. While the recent actors strike threats centered mostly on the rates for these varying residuals, there is no category of payments for video on demand. "For all above the line talent, every deal would have to be renegotiated dating back years, a monumental undertaking," says one network executive. "It would open up a can of worms to make the previous strike talks look like pinochle."

Television shows may also be a tricky market proposition. It's unclear whether people will pay for television shows that they typically watch for free on prime-time or on reruns. "People are used to paying for movies already," explains one Hollywood executive.

The networks did give video-on-demand a test run in the mid-1990s through a service called Your Choice TV, a joint venture between Discovery Communications and Liberty Media. Like pay per view, it only offered programs at specific start times. At its peak, the tests had 10,000 users in six states who paid $1 for the most shows and 49 cents for children's programming.

But networks mostly offered soap operas and newsmagazines and held back their popular prime-time shows due to rights issues. (The tests predated much of the media consolidation that has put studios and networks under the same roofs.) The only prime-time show offered was the Disney-owned Ellen, which aired on ABC. With the emphasis on current programs, affiliates also balked at the plans for fears that the prime-time audience would drop if people knew they could watch the shows at a later time. Of course, this concern still exists with the rise of personal video recorders like TiVo, but that technology (or the Internet) wasn't on the radar screen at the time.

Another hold up was that the technology also wasn't available for mass deployment. That situation continues today. The founders of Your Choice expected that by 1994, there would be at least 10 million digital set top boxes, which are necessary for video on demand through cable systems. But today, only 7.4 million homes are so equipped, according to TechTrends. And as an alternative delivery means, only 5 million homes have broadband Internet connections, according to reports by Jupiter Communications. Those numbers pale beside the 105 million homes with television. The owners pulled the plug on Your Choice in 1998 after the venture burned through $25 million.

Some of the ownership issues may disappear in the future as the major television networks begin to produce more of their prime time shows. But in the meantime, they have more pressing plans for increasing revenues. The "repurposing" of programs allows networks second airings of shows on their cable properties to boost viewership and gather more advertising dollars. Mutliplexing will occur when digital television allows networks to offer multiple channels that can be programmed or scheduled differently. "Those other things are more important to us now," says one high-ranking network executive. "[Video-on-demand] at the moment is not."

With leery networks, the only pioneers for video-on-demand seem to be the cable networks. Along with HBO, iN DEMAND has negotiated deals to offer episodes of South Park from Comedy Central, Mugshots and Crime Stories from CourtTV, and The Flintstones and Johnny Bravo from the Cartoon Network. One-hour blocks of programming cost 95 cents. But for Seinfeld fans who have an urge to see "The Contest" episode will have to exercise self-control until it shows up again on their local station.