At this point, it seems we should move beyond the enabling regulations and technical obstacles surrounding premium VoD¹ and instead concern ourselves with market dynamics – who might be the big winners and losers.

Despite some changing dynamics in content licensing and security (see the new Verimatrix white paper on this topic), technology is not the long pole in the tent any more, but rather licensing terms and subscriber adoption – at least for early adopters. And we are clearly still in the experimental phase of verifying if a home theater movie experience in a similar release window as theatrical release provides a viable business upside.

There are still a significant number of unknowns, but continued experiments provide some interesting insights.

Consider, for example, that DirecTV, an early adopter of premium VOD, brought an Adam Sandler movie to their Home Premiere service in April as part of an agreement with Sony (This was part of a bigger deal with other major studios. See table below for details). The movie was released without much advertisement, eight weeks after theatrical release and with a price tag of $30. For a period of two weeks, subscribers could rent it and have 48 hours to watch it.  Apparently that VOD offer did not find a lot of takers, which many, including DirecTV CEO Michael White, attributed to the $30 price point.

Comcast planned to release the movie Tower Heist at the end of November but pulled it back due to theater owners’ protests. It’s tough to say why theater owners chose to protest this specific offering. It could have been the smaller release window of only three weeks, the holiday timing, or the fact that it was a bigger production. With a hefty proposed $60 price tag, though, VOD viewership would likely have been kept to relatively modest levels.

Time Warner Cable started offering smaller productions like Margin Call the same day of theatrical release for $6.99, and the VOD release did not seem to have limited the notable success in theaters. In the case of Melancholia, the movie was released even before the theatrical release to be consumed at home for $9.99.

The following chart summarizes some of the action so far:

So there has definitely been progress in the last few months, but additional experiments around this model are likely going to be visible before everyone places bets on the final outcome or the winning formula.  Strategies concerned with striking the right balance seem to vary between studios and that is expected when creating a completely new release window in a competitive marketplace. While the experiments come from different angles, it will be interesting to observe how the result will shake out.

In my opinion, here’s what needs to happen before we can move beyond “experimental” to “established” business models for ERW:

• Operators need to combine a compelling value proposition and a significant marketing campaign. This could involve increased advertising or bundling with physical media/digital copy strategies. The average consumer needs to be aware of the potential for a choice and to get accustomed to this option.
• Content owners should work towards identification of the scenarios where the ERW and theatrical window releases will complement each other, and drive an increase market penetration as a whole rather than being seen as competing with one another. Finding the sweet spot of the release timing, pricing and marketing effort will be part of that.
• It’s going to take a certain amount of patience for the studios, theater owners, content creators and certainly consumers to get comfortable with the new business model and equipment restrictions that support the delivery.

Would you pay for an early release movie to watch in your home (what Ben Schwarz calls “expensive VoD”)? What do you feel is the right formula for studios to make this successful?

I plan on continuing to follow the developments of premium VoD throughout 2012 – stay tuned!

¹ also called Home Theater or Home Premiere

Since last year’s show, it seems the digital TV industry has entered a new period of pragmatism and commercial maturity. This feels like a welcome period of stabilization after the recent cycles of hype following OTT’s emergence as a viable new technical option for service delivery.

The commercial and technical communities are now clearly rethinking some early bets. And we would argue that the tendency to give services and content away for free, or for minimal ROI, just because they represent new and flashy beachheads for promotion, is increasingly being eclipsed by the trend to include Internet delivery options as a component of existing video service relationships.

Yes, there are some pure play OTT providers on the scene that have certainly been aggressive and innovative. But as the dust settles, we anticipate that they may be increasingly been seen as complementary or niche service options among a field of competitive options led primarily by established service brands.

At IBC 2011, we expect to see the growth of content delivery over the Internet as a parallel and complementary component of pay-TV services, simply using a different technology base from the other components of the service delivered using traditional managed networks.  I expect that the two will look increasingly similar or highly merged as far as business models and key players are concerned.

From our perspective, Verimatrix is highly visible at IBC 2011 as a key independent player in the world of revenue and content security, offering a flexible and comprehensive set of solutions to multi-network, multi-screen video business delivery challenges.  Being independent has proven to be an increasingly valuable differentiator for us as it has provided us with the flexibility and means to focus solely on content security.

Drop by our booth (#4.B54) at the show, to learn more about:

• Enhancements to our OTT security solution, VCAS for Internet TV, and the rationale for investing in these areas. As the global footprint for OTT services grows, we are adding captioning support for multilingual programming, on-screen display (OSD) fingerprinting, dynamic copy control directives and more. Find out why.

•  The competitive advantage generated for our customers by the integration of Verimatrix IP technology and the mature DVB technology we acquired earlier in the year. One of the clear benefits is a common rights management approach and an architecture for hybrid client devices that enables dynamic dual network functionality for combinations of DVB and intermittent IP delivery networks.

• The alignment of our current products and development directions with the support for new technical and commercial standards that will serve to rationalize the industry moving forward, including DECE, MPEG-DASH and Open IPTV Forum.

• Our vision of the “new reality of multiplatform video distribution.” As multi-screen business models are being explored, the challenges of content licensing and rights becoming more apparent. Operators are faced with determining and managing a fast-growing set of rights. We’d love to share our current thoughts and experience on these issues.

•  The latest on our new watermarking solution, StreamMark.

We will also have several partner and customer stories to share, along with demonstrations that illustrate our multi-network, multi-screen security solutions – a space where we are unique in our ability to support the vision of the world’s most ambitious operators.

We are also delighted to announce that VCAS for Internet TV has been shortlisted for a CSI Award in the best content protection technology category.  A much appreciated nod, and a great way to kick off what we anticipate will be a very successful (and busy!) conference.

So if you’re in Amsterdam next month, drop by our stand, say hello and share your thoughts with us on the trends here and at @verimatrixinc that will define IBC 2011 and pave the way for the IBC 2012.

The targeted price point of a premium video-on-demand (VOD) movie – $30–is the center of the debate. The current discussion compares the success of one expensive VOD movie to cheap movie theater tickets. Cinema owners and movie directors have voiced their concerns about the shift in content consumption, with cinema owners noting that it is impossible to reliably predict consumer behavior. If it was that easy, every Hollywood title would be a blockbuster.

Early release windows, however, may provide a bit of safety net. I think that it will be an interesting offer for, initially, a small percentage of consumers. While the rate of adoption is questionable, it’s obvious to me that movie theaters won’t disappear any time soon and that electronic distribution will continue to grow.

The studios certainly have conducted their own research, and it is evident that they have high enough hopes to shake up the traditional models and to support premium VOD movies. From our recent press briefings and Chicago’s CableNET show, I also see that the media is interested and closely monitoring this topic.

But perhaps the most relevant indicator has arisen in our recent discussions with operators. They are evaluating this opportunity very seriously and investing time and resources in the digital watermarking requirement. This may be because even a small uptake by consumers will translate into a relevant chunk of revenue.

One technically interesting point for me is that operators often prefer server-side integration of watermarking. The tradeoff is whether the integration is done in the client device, or in the video server before delivery. For example, while our client-based VideoMark watermarking solution has the advantage of distributed processing without head-end integration, our new server-side StreamMark solution does not require modifications to client devices.

Fortunately we began researching and investing in watermarking years ago.  During the process, what we’ve discovered is that watermarking in the compressed domain means adding a server-side integration option; even if it means re-inventing the technology and taking a new look at digital watermarking.

The targeted modification of video pixels is too slow when we consider the complex coding of compression schemes like H.264. Therefore, we have focused specifically on enabling watermarking in the compressed domain by making modifications that can be expressed efficiently in the compressed bitstream and applied while the content is delivered.

Efficiency is key because the delivery infrastructure is all about delivering the maximum number of parallel streams. If we have to introduce overhead to it, it is crucial that it is small and fast. As underlying watermarking algorithms and requirements have matured, the ease of integration now is critical to broad adoption of digital watermarking.

The development will remain interesting because it’s an experiment on the technical front as well as for consumer behavior and I am sure there will be more progress to be reported in the future.

For more information on StreamMark, you can watch the video on ScreenPlays or download our white paper, “Integrated Watermarking Creates More Durable Pay-TV Businesses.”

StreamMark server-side forensic watermarking: Extraction Process

Earlier this month, we announced the availability of our new StreamMark server-side watermarking solution, which we demonstrated at CableNET 2011.

We are very excited about the launch and believe that StreamMark has tremendous potential to help shape the market for premium video on demand (VoD) content.

Yes, we realize early release windows and watermarking have been discussed, debated and hyped for many years. But premium VoD has been revitalized ever since the FCC’s ruling allowing selectable output control (SOC) for set-top boxes in the U.S. – and for good reason. The ruling opened up significant new revenue opportunities for premium VoD at earlier release windows. We can attest to the fact that several major content owners and operators are experimenting with early release windows to deliver a “home theater” experience.

While opinions on the potential success of early release premium VoD certainly run a very wide gamut, the overall forecast is good with many pundits predicting a rise in demand for technologies that enable early release windows for premium VoD content over the next several months.

We are very excited that to be able to meet this anticipated demand with a server side technology that is now in its prime, thanks to an enormous amount of research and insightful forecasting. We have worked closely with major film studios and other content owner to develop StreamMark and we are excited to help them realize the many benefits of premium VoD.

Check out video with CTO Petr Peterka and Sr. Director of Advanced Technology Niels Thorwirth explaining why we developed StreamMark and how it works with Fred Dawson from Screenplays.

You can also download white paper on watermarking at www.verimatrix.com/wm and get the industry’s reaction to StreamMark here.

While opinions on the potential success of early release premium VoD certainly run a very wide gamut, the overall forecast is good with many pundits predicting a rise in demand for technologies that enable early release windows for premium VoD content over the next several months.

We are very excited that to be able to meet this anticipated demand with a server side technology that is now in its prime, thanks to an enormous amount of research and insightful forecasting. We have worked closely with major film studios and other content owner to develop StreamMark and we are excited to help them realize the many benefits of premium VoD.

Check out video with CTO Petr Peterka and Sr. Director of Advanced Technology Niels Thorwirth explaining why we developed StreamMark and how it works with Fred Dawson from Screenplays.

You can also download white paper on watermarking at www.verimatrix.com/wm and get the industry’s reaction to StreamMark here.

We’ve received an overwhelming response to the report and we feel that’s because it hits on some major issues operators are currently dealing with, such as the infrastructure challenge, how to ensure revenue security across multiple devices, and tackling universal content rights that appeal to both the consumer and the content owner.

Based on the feedback we’ve had so far, we thought it would be valuable for Steve Oetegenn to expand on some key points from the report.

• What were you hoping to elucidate with the recent Videonet report, “Making all TV multi-screen TV?”

This report is timely and is another indication of the maturing of the over-the-top (OTT) video marketplace. Consumer expectations have driven the need for multi-screen TV and we are at a point where the technologies and standards are catching up for operators to enable such services – and operate them in a way that complements their more established business streams.

Now we are talking about how to more effectively scale and monetize these services; how to combine on-demand content (which has dominated OTT video) with live content; and how to deliver it over different networks to different devices without sacrificing quality of experience.

This is an exciting time because progressive operators are setting the bar for what is possible. The technology and business decisions they are making are critical to meeting consumer expectations and long-term development of the market.

• How do you see subscription-based and ad-based TV models co-existing in multi-screen services?

Informal polling results from our recent Light Reading webinar illustrated what the market is also seeing – operators taking a mixed approach to revenue extension, just as they have done on more traditional delivery platforms. The more you look at pure online offers today, the more they look like subsets of traditional cable operator models.

• What type of standards will need to be established to secure multiplatform content across different network domains and native DRM schemes?

Actually multiple DRMs and hand-offs during delivery seems like a highly unlikely scenario to us for the most part. The trend appears to be towards efficient and effective end to end models of cloud based services. The future development of these approaches seem likely to adopt “security neutral” forms of content distribution and service protection such as HLS, DECE/Ultraviolet CFF and YouView’s choice of Marlin. (Read more on this topic in ScreenPlays)

The use of DTCP-IP in the home is a counter example with a single “conversion” point in a home gateway, but one that is again vendor neutral in concept, enabling technology solutions to be created that add significant value to the underlying solution.

• What is Verimatrix’s strategy to ensure interoperability within a multiplatform world?

We have launched a strategy that offers two directions in support of optimizing and extending our customers service umbrella.

The first of these is certainly a focus on supporting a widely deployed standard for advanced adaptive streaming, which we believe is HTTP Live Streaming (HLS) at this point. Our value proposition here is to provide additional authentication and entitlement capabilities to existing device implementations and match more of what a commercial premium service is looking for. Clearly, this involves supporting many lightweight client implementations, but this is well rehearsed territory for us in the IP set-top box space.

The second is in response to a clear recognition that not all devices targeted by a given service operator will use a single protection mechanism or even similar file formats. However, it will remain important for operators to manage rights of all devices in concert and it will be vitally important that the consumer experiences a highly uniform and pervasive service offering. The Verimatrix MultiRights strategy provides an answer for this by licensing critical third party technologies and providing them under a common management umbrella.

• With operators facing major transition points for their network (e.g. analog to digital or MPEG 2 to MPEG 4), is there a common security consideration that will more easily enable multi-screen services?

Multi-screen services are just one aspect of an operator seeking to optimize commercial opportunities – and such network transitions are all a part of this kind of picture. Verimatrix provides a single security approach that addresses many aspects of the new commercial opportunities that our operator customers wish to exploit, which is in contrast to the highly siloed approaches of legacy conditional access (CA) providers.

• Where does digital watermarking come in?

Watermarking is a powerful tool that we bring to bear in a layered revenue security approach. The most interest in this extra layer has been for high value, early release content where high resolution video-on-demand (VOD) services offer a tempting point of interception for content pirates and we need to offer a multi-level, layered security approach.

It’s not obvious at present that the value of pirated video copies at mobile screen resolutions warrants the use of this additional security layer, but as screen sizes and service resolutions grow this will become significantly more important.

We will be launching our new server-based watermarking solution at CableNET. Stay tuned.

Click here to view the Videonet report.

Send us a comment or question that you feel hasn’t been addressed for the roll-out of multi-screen video services.

It means that cable, satellite and IPTV operators are allowed to offer content that can only be displayed on screens with HDMI connections protected via high-bandwidth digital content protection (HDCP). Any analog or unprotected outputs from the STB device would be disabled during the viewing of that content.

The contention is that, by eliminating the “easy” piracy option of recording the signal from analog outputs of the STB, studios can now consider a new release window for their movie assets. As proposed by Time Warner Cable, it’s called “home theater on demand,” and enables operators to offer a movie for domestic consumption just 30 days after its theatrical release.

While most articles deal with the business dynamics of selling video-on-demand (VOD) movies closer to the theaters and before DVD or BluRay, let’s take a look at the security implications.

The mandatory digital watermark for digital cinema provides some forensic traceability of illegitimate recordings by identifying the theater location and screening time. This helps deter repeat offenders and inside jobs. Nonetheless, some movies are still pirated with a camcorder in cinemas. Apparently, the commercial benefits of selling that movie on illegal DVDs still outweigh the risks for professional pirates. The quality of these recordings is poor and the financial loss to studios is arguably limited in that many who accept that quality would not otherwise buy theater tickets.

It’s also unfortunate that, right after the release of any noteworthy movie on DVD or BluRay, high-quality digital movies can typically be downloaded from Internet file sharing sites in several versions and sizes. The source is of course untraceable in this situation.

This new concept of a home theater on demand window enables the delivery of movies to end user devices. Despite the restriction to HDCP protected outputs, there is no doubt that content released in this high value period will be subject to piracy of commercial and non-commercial flavor. While HDCP provides much better security then that unprotected analog output, it has vulnerabilities.

If these vulnerabilities are too difficult to exploit, pirates will be able to resort to copying content from their HD TV with an HD camcorder in the comfort of their own home – the quality of readily available equipment makes this a relatively easy option. This is where digital watermarking can be used to trace and identify piracy of either approach.

We have been working on our digital watermarking technology, VideoMark, for more than five years now, and have proven results in the field. By enhancing the efficiency, invisibility and robustness of the technology, we have added variations that enable efficient and scalable embedding on the server side of managed networks and content delivery networks (CDNs).

This new home theater on demand requirement takes watermarking into additional networks with specific infrastructure and legacy architecture, with new and interesting integration tasks. It also adds possibilities to make watermarking a standard solution to secure content revenues on this distribution channel.

The recent discussions we’ve had with content owners and distributors certainly indicate that the studios understand the potential of digital watermarking to plug the crucial security vulnerability that is opened by home theater on demand and is only closed in part by selectable output control.

The home theater on demand release window, after all, adds a consumer option, and I believe that the combination of selectable output control and traceability is a sufficient deterrent against piracy to keep this option valid and profitable for content owners.

We will be talking more about the benefits of server side watermarking, so stay tuned . .

Without dwelling on the negative impression given by statistics, Mark underscored the promise of a more comprehensive transition to digital distribution where operators across the region can recapture a significant revenue base. The potential is even more dramatic when the new opportunity for Internet distribution makes content available to those subscribers who live away from their home country.

This hits a trend that we’ve been observing– Internet video is completely changing the way expats consume pay TV. Operators see an opportunity to broadcast local programming to expats all over the world. As you can imagine, this is both a huge revenue opportunity and potentially a devastating piracy challenge.

While some of these operators are rebroadcasting signals illegally, legitimate operators have the opportunity to enhance the subscriber experience with better quality and better selections of content. Asian operators have a special opportunity to service migrant populations and communities of temporary workers.

To reinforce another point in the article, Asia represents a lucrative market for content security providers. Cost is clearly an issue in this often low ARPU region; however technology and rising awareness of service theft are changing security dynamics. Operators upgrading to digital have a more compelling desire to protect their programming assets, and more advanced layered security approaches are making revenue protection way more cost effective.

Software-based content security is catching the attention of operators that are weary of the millions of cloned smart cards in the region. Software provides the flexibility to stay ahead of the hackers with renewable security and layered techniques like watermarking or fingerprinting. Even legacy smart card vendors are getting serious about software-based security.

We are certainly excited about the opportunities in Asia as hybrid networks, enabled by IP technologies, are on the agenda of most major operators.

Read Mark’s article where he breaks out some figures on piracy type and estimated costs per country.

At the same time, we have seen many recent changes from watermarking technology companies – Dolby has quietly closed Cinea, its watermarking business unit, Philips spun out its watermarking division, now called Civolution, which acquired Thomson’s watermarking technology (Thomson had previously acquired Mediasec and Nextamp).

Based on my past experience as COO of Mediasec and what we’ve discussed with customers at Verimatrix, I firmly believe that watermarking has the most business potential as an integrated layer of an overall content security solution. More specifically, I believe watermarking is a key component in monetizing premium content for pay-TV operators that are increasingly competing with “free” and the notion from many consumers that certain content should be free.

When viewed as a revenue security tool, watermarking can enable operators to develop new business models by offering higher value, better quality content for competitive over the top (OTT) and early release pay-per-view content.

I will be speaking at IBC2009 on this topic for the panel, “Content security: Ensuring content is not mis-used.” I will be presenting watermarking techniques that encourage responsible consumer behavior, rather than restricting the consumer’s media use. And if you are looking for more information on the topic, please download our whitepaper, “Integrated Watermarking Creates More Durable Pay-TV Businesses.”

See you in Amsterdam!

-Steve Oetegenn