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.
