Up to now, the digital video market has been a question mark (see Digital TV: Who'll Tune In? and We Want Our Packet TV!). Folks haven't seemed eager to use their computers to rent movies if it's easier to drive to the corner store or use pay-per-view services.
Now that seems to be changing. According to Tom Nolle, president of consultancy CIMI Corp., customers like movies that can be downloaded via the Internet and then played and replayed at the customer's behest, with pauses for pit stops and snack retrieval. Two deals, announced today, put the spotlight back on the market:
- SkyStream Networks Inc. announced $4 million in new funding from several investors, including Amerindo Investment Advisors Inc., AOL Time Warner Inc. (NYSE: AOL), Comcast Interactive Capital, and Shaw Communications Inc. The input completes SkyStream's fifth round of funding, the majority of which closed back in March 2003 and now totals $29 million for this year (see SkyStream Scores More).
SkyStream CEO Jim Olson says the funding will be used to increase development around its Mediaplex product line, which converts analog video signals to digital ones for use on packetized networks (see SkyStream Wants Its IP TV ). The multiple systems operators (MSOs) that are helping will also direct R&D for the product, ensuring it meets what's shaping up to be a big market in video-on-demand and interactive TV, Olson says.
- BellSouth Corp. (NYSE: BLS) announced a partnership with Movielink, an online video rental provider, to enable DSL customers to download movies via the Internet, then play them separately on home equipment. In its press release, BellSouth cites figures from GartnerG2 that indicate the market for video-on-demand from cable TV operators could hit $2.8 billion by 2006 (see BellSouth Goes to the Movies).
CIMI Corp.'s Nolle notes that the model acording to which films are downloaded to a hard drive and played back at the customer's convenience makes it easier to apply encryption and license control as well.
In BellSouth's new service, for example, customers pick movies on their DSL screens and pay between $2.95 and $4.99 to download (pricing is set by the movie studio that distributes the film). Flicks can be viewed on the computer, or transferred to TV using a set-top box, anytime within 30 days. Each customer has 24 hours to play, replay, stop, and start the video, which is copy-protected. Nolle thinks it could be an $8 billion to $18 billion market annually.
Other IP video options have emerged. According to media and entertainment analyst Adi Kishore of Yankee Group, another big market is forming among cable TV providers that are eager to offer video rentals, not on the Internet, but on their own dedicated networks. The technology involves streaming video from specially designated servers. The speed of delivery is faster than store-and-play via the Internet; delivery is straight to the TV; and the quality is significantly better than what can be obtained on a computer monitor.
Kishore says streaming video services from MSOs are growing faster than downloads. He estimates that 10 million to 11 million cable TV users in the U.S. now have access to services from their MSOs, and that by 2007, 32.5 million will be using such services.
Counter to this view, Nolle says streaming video involves a range of problems not common to video on demand, since greater scaleability, security, and administrative options are required. This, he feels, could hinder its spread among RBOCs.
One thing all parties agree on is that video is on the rise. While kinks remain to be worked out, service providers and vendors think consumers are ready for more video from their Internet providers, and vice versa. They're starting to see the synergies among PCs, phones, and other gear lying around their living space.
On the way to market expansion, there will be some false starts and dead ends, as service providers of all kinds find a niche. "You're going to find a lot of strategies hybridized, as cable and satellite providers and RBOCs extend video over their networks... but there's no question that digital video content will be a powerful revenue generator in the future," Nolle says.
— Mary Jander, Senior Editor, Light Reading