VOD Services: Economic Engine or Just the New Face of Pay TV?

Monday June 28, 2010 – Antonette Goroch

For many years VOD services were heralded as a robust new revenue stream for pay TV operators seeking to expand average revenues per subscriber. Indeed, ten years ago VOD was deemed the “economic engine of the new cable era”, a new technological innovation that would triple anemic pay-per-view buy rates. There’s no doubt that VOD has swept pay TV like a tidal wave, but just how much of an economic engine it is remains an open question.

Availability and consumption of video on demand has grown exponentially over the past two years. Pay TV operators across platforms have sought to use it as a way to beef up service offerings, upgrade cable STBs and retain subscribers in heavily competitive markets. But rather than being transactional based, as its predecessor PPV was, it has largely been available without a per-view transaction fee. Instead it’s included in subscription tiers. In a recent roundtable, several cable MSOs agreed that subscription-based VOD makes up the vast majority of VOD content. Canadian MSO, Rogers Communications, put hard numbers to this and noted that though its annual subscription revenue was more than $1.8 billion, transactional VOD was a mere $100 million, less than 5%.

This paradigm is unlikely to change, and far more likely to intensify. This is because the huge influx of VOD availability reflects a changing pattern of video consumption -- one that doesn’t include per-view fees and a new revenue stream for operators. Consumers expect large libraries of diverse content, available when and where they choose. Envisioning VOD as a separate revenue stream in this context actually makes it a competitive disadvantage, rather than an asset, because it places a premium on what consumers are coming to expect as the norm for viewing. While VOD has certainly proven to be as revolutionary as forecast, it hasn’t lived up to its promise as a significant new revenue stream. In this competitive pay and free TV environment, where many consumers now simply access their PVRs to watch TV off the “time grid,” the ability to access previously aired programs is regarded as a standard feature.

Digital Video PC Peripheral Shipments

Monday June 21, 2010 - Shelby Cunningham

These days more people are using their PCs to watch and create video, which is upping the demand for PC makers to include video-friendly and capable cards, tuners and drives in their PCs. And as more PCs come ready for people to watch video straight out of the box, less video peripherals are being shipped for aftermarket retail sales.

Retail PC video optical disc drive shipments are dropping rapidly because most desktop and laptop PCs come equipped with DVD drives. Retail PC video optical disc drives were still turning in respectable shipment numbers in 2009 with 62 million units shipped, but are forecasted to decline going down to only 34 million units in 2012. The only PC video peripheral with any growth are PC DTV tuners, which will see shipments of almost 12 million in 2012, up from 6 million in 2008. PC DTV tuner shipments will continue to grow slowly for a while, but retail graphics cards and video optical disc drives will continue their downward fall.

Source: DTC

Where's the Avatar 3D Blu-ray?!

Monday June 14, 2010 – Stewart Wolpin

If I were a geek or a nerd (and I'm both), I would be selling my blood and other bodily fluids, cashing in every bit of loose change around the house and maxing out my weary credit cards to get myself a 3D HDTV and a 3D Blu-ray player so I could drool overAvatar at home on 3D Blu-ray. And I'll bet millions of other blue-painted geeks and nerds would be tramping down to Best Buy and other big box retailers to do the same.

One problem. There's no 3D Blu-ray version of Avatar. And from a marketing point of view, I can't for the life of me figure out why.

Panasonic has been flaunting its relationship with James Cameron for nearly two years. At the 2009 and 2010 CES, Panasonic played video of Cameron extolling the virtues of 3D and how he valued his relationship with the company. Observers would have bet their farms (okay, I would have bet my farm, if I owned one) that Panasonic would start selling its 3D Blu-ray and 3D HDTVs to coincide with the home video release of the 3D Blu-ray of Avatar.

But sans a 3D Blu-ray Avatar, I'm guessing no one will sell as many 3D HDTVs or 3D Blu-ray decks this year as they could have.

It's hard to fault Fox Home Video for holding back a 3D version of Avatar. The 2D version sold 6.7 million units in its first four days of release, 2.7 million on Blu-ray, both records, and both versions remain among the top five sellers six weeks after its April 22 release. And Fox seems quite satisfied with this bounteously blue status quo. In fact, it'll dip a second time when it releases a special edition DVD and Blu-ray in November. A 3D version, which can now stand for the growing infamous home video third dip, hasn't even been scheduled and likely won't be out until sometime next year.

But this long-term thinking is paradoxically short-sighted. Avatar is the 3D killer app and could create a market for triple dips for all of Fox's other titles. Authoring tools can create 3D versions of nearly any film, much like colorization (I'm not saying they should, I'm just saying they could), plus you immediately open a fertile home market for all the current 3D films about to be released theatrically.

Instead, by waiting until 2011 for a 3D Blu-ray Avatar, Fox pushes back 3D Blu-ray sales potential not only for themselves but other suddenly 3D-happy studios and hardware makers, and leaves us Na'vi lovers disconnected from the 3D Tree of Souls. Well done, Fox!

It's clear Panasonic doesn't quite have the Unobtanium, metaphorically speaking, to get Fox to release a 3D version ofAvatar to support the 3D hardware launch. One reason I've heard for Fox's delay is that 3D authoring tools aren't up to snuff. I find that hard to believe. First, earlier this year Cameron was quoted as saying he believed a 3D Blu-ray version would be out in the fall. He must have felt it was totally doable, but was quickly contradicted by the suits at Fox. Second, it's hard to believe Cameron and crew are picker than Pixar, which already has released Up on 3D Blu-ray.

More likely, Fox is being conservative (what a shock), waiting for a critical mass of 3D HDTVs and 3D Blu-ray players to be sold in order to ensure the 3D Avatar makes as big a noise as the 2D versions, or at least doesn't land with a dull sales thud. But this creates the old chicken-egg game of chicken that hardware makers and content providers have been playing since the VCR first came out in 1976. You put out hardware first. No, you put out content first. Hardware first. Content first.

Ironically, Fox was the first studio to support home video in 1977 when it released 50 titles on tape, leading off withM*A*S*H. In fact, about a year later, Fox bought the duplication company, Magnetic Video, as the foundation to create Fox Home Video and helped launch the home video revolution.

Like the fictional RDA Corporation in Avatar didn't remember the sins of their forefathers in their rape-of-the-land encounters with indigenous peoples, apparently the folks at Fox have forgotten how they once helped create a new profit center for hardware makers, themselves and the other studios.

In the meantime, geeks and nerds like us will be blue until we can get blue in 3D next year.

Dried up ATSC STB Market? Don’t look for it to blow away yet

Monday June 7, 2010 – Myra Moore

Now that the U.S. analog terrestrial TV shut off is a distant memory, conventional wisdom suggests that the market for ATSC set-top boxes (STBs) will dry up. After all, DTC’s research shows that an estimated 21.6 million ATSC STBs shipped in 2009 (more than 15 million were digital-to-analog converter boxes) and we anticipate shipments will plummet to about 8.2 million this year.

The U.S. DtA converter-box market was an anomaly – an almost-forced purchase (backed up with a government subsidy) to accommodate a one-time event. In other words, it made possible a weird and meteoric growth spike that would leave any statistician scratching his head. In the future, digital terrestrial TV receivers found in STBs will mostly be coupled with other receiver types, such as IPTV or satellite. The 8.2 million ATSC STBs forecasted to ship this year will be made up mostly of hybrid STBs – DTH satellite and IPTV with hybrid ATSC/IPTV boxes are anticipated to account for the most growth in 2011. If there is a growth area for DTT STBs, it is as added receivers in over-the-top boxes designed to bring in video programming from select web sites.

Coupling local and national over-the-air programming with Internet-delivered programming makes an Internet STB purchase more appealing, especially if the OTA programming comes without a fee.

STB suppliers clearly aren’t going to sustain their businesses by selling single-purpose converter boxes in ATSC-adopting countries about to shut off their analog transmissions. With the U.S. shut off complete (with the exception of low-power TV stations), only Canada, South Korea, Mexico, El Salvador, and Honduras remain. Canada is scheduled for 2011 and South Korea in 2013 with the remaining countries with much later shut-off dates planned. The rest of the world that has adopted a transmission standard has adopted the DVB-T or ISDB-T standards.

STB shipments may not fly as high they did during the U.S. analog shut off, but that doesn’t mean that they don’t’ have a future.

Source: DTC

Dawn of a New Era for U.S. Satellite Ops Requires New Thinking

Tuesday June 1, 2010 – Antonette Goroch

Though both EchoStar and DirecTV saw subscriber gains in 2009, both are forecasting slowdowns in new subscriber additions for 2010, driving home the point that DTH satellite as a pay TV platform in the U.S. is clearly established and mature. It’s been years since anyone called DirecTV Death Star, as it was nicknamed by nervous cable ops upon its launch in 1994, and both Dish Network and DirecTV now rank in the top five U.S. pay TV operators. Today they have become the old guard and are no longer the feisty new kid on the block.

This maturation signals a new era for DTH satellite operators in the U.S., requiring a new mindset. No longer can they rely on the low hanging fruit of dissatisfied cable customers to achieve exponential annual subscriber gains as they did throughout the nineties and into the early 2000s. Most likely to have made the “switch” to DTH satellite already have, and cable operators have worked hard to achieve parity through better service (remember the days of waiting for a cable installation that would come sometime between nine and five?), triple play offerings, HD, VOD and now 3D. Added to this, they—along with cable operators—face new competitive threats from both IPTV pay TV operators like AT&T and Verizon, and over the top providers like Netflix or VUDU.

Both operators have responded to this shift by focusing on increasing ARPUs on existing subs through such means as more premium offerings, HD and on demand, and their respective financials show success in this regard. Perhaps more promising in terms of growth is that both operators have increased their international efforts, seeking newer, less mature markets. DirecTV recently consolidated its Latin America efforts and has seen impressive subscriber gains in the last couple of years in Sky Latin America. EchoStar, meanwhile, aggressive as ever, has increased its international presence through joint ventures in Mexico and Taiwan over the last two years.

Even with such moves, it is unlikely that DTH satellite will ever again see the rapid gains it saw a decade ago. Today’s challenge lies far more in just holding the ground it has so successfully attained.