VOD and the Programming Balance of Power

Cable MSOs never miss a chance to tout video on demand (VOD) as a differentiator from satellite services. While this is true, and VOD is shown to help improve digital customer satisfaction and reduce churn, VOD has yet to prove itself as a major driver of new revenue for MSOs. Last week Comcast announced it topped the 1-billion mark for VOD streams served to its customers in 2005. Comcast boasts it has more than 3,800 programs available via its 'On Demand' VOD services, enabling customers to watch what they want, when they want, with the ability to fast forward, rewind and pause selections. Pretty nifty. Of course, 95% of Comcast's VOD offerings are available at no additional charge to subscribers. Long term, rather than competitive differentiation, the real value in VOD for MSOs may be redefining the balance of power with cable programming networks. Paying hefty monthly fees per subscriber for basic cable channels that subscribers may or may not watch eats into MSO video service margins. Program developers and studios could find it makes more sense to ink deals directly with MSOs, rather than through cable networks. And in that case, MSOs could use this stick to force cable networks into an economic model that is per stream, rather than per subscriber, per month. That wouldn't boost ARPU, but it would improve margins for MSOs. Along these lines it is interesting to note that, excluding news and sports, during the 2004-05 cable season, theatrical movies pulled in the best ratings in the 18-49 demographic. Indeed, 15 of the top 25 programs for the year were movies. ( See http://cablefax.com/cfaxdb/archives/databriefs101005.htm ). If subscribers become accustomed to movies that are always available from the MSO via VOD, the value equation of basic cable networks changes. And, stream-based reporting will provide a tremendous edge for MSOs selling advertising versus 'ratings-based' networks. Some food for thought.