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

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.

Anyway, IBC 2010 was exciting especially for us consumers. Large screens, 3D, 20-channel audio, video on any device (sorry no toasters yet), interactivity, personalization, more commercials (sorry, did not mean to be facetious), combination with social networking (c’mon, get off Facebook at least while watching movies).  

All the new technologies are giving us more freedom in what, where, when, on what device and with whom we watch. That should be all good, right? It should also give us access to more content that suits our personalities, family values, sense of humor and so on. Yet more is not necessarily better – personal recommendation engines that have our interests in mind without compromising our privacy are coming to the rescue. At the end of the day, it is really up to all of us to make the right choices when spending our valuable time in front of the tube (in whichever form factor it comes today). 

Alright, philosophy aside, one thing that drew a lot of interest from content and service providers this year was a good old DVD player. You are wondering how could that be, right? OK, it was an off-the-shelf connected Blu-ray player (a.k.a. BD-Live), which allows any service provider to deliver their content to a device that millions of users already own.  No custom integration, no special embedded applications – just an ordinary Blu-ray disc that launches a service provider’s entire VOD library (without competing with the maze of preinstalled applications and widgets).

And of course, even though we are talking about an over-the-top (OTT) delivery here, this is protected content that is perfectly suitable for a paid service. In addition, it is protected by AACS, which is natively implemented by every BD player and loved and trusted by studios (or so they tell me). It is actually pretty surprising with all the talk about standardizing DRM. Here is a device that can play the best HD content and already comes with a multi-vendor DRM system. 

The BD-Live technology also provides support for different business models and usage rules. The fact that this is a two-way connected device also enables service providers to update the look & feel, as well as functionality, online, which guarantees the user is always running the latest version of the service. 

From a security point of view, the dynamic entitlement control, monitoring of suspicious behavior possibly related to piracy attempts, ability to insert a user-specific forensic watermark and online revocation makes this service more secure than shipping traditional Blu-ray discs.

And I almost forgot that the rich metadata, adaptive rate streaming and connection to other related information (e.g., IMDB) and services (e.g., buying a soundtrack at Amazon) makes me wonder why this is not offered by every service provider. 

As you can see, I am very excited about this – mainly because this technology is offered by Verimatrix and our good friends at RCDb. Read more here if you are as excited as I am. 

Hopefully, I saved you a long trip to Amsterdam although I cannot serve you virtual poffertjes (at least not in this decade). 

Let me know what you liked at IBC.

• Flexibility in wiring infrastructure (CAT5/6, cable or telephone transmission)
• Fully digital quality distribution and display, including HD support
• Common components with in-room broadband access
• True interactive program guide and guest service utility displays
• Broad choice of middleware, video-on-demand (VOD) and in-room client technologies.  

When combined with earlier release windows that hotels enjoy, IPTV also allows network operators to take advantage of state-of-the-art digital TV security that enables licensing of on-demand content, including and most importantly HD.

Hotels must deal with more stringent content protection requirements to gain access and keep the rights to offer premium movie titles. In fact, the MPAA recently released its 57-page “Content Security Best Practices” document that provides 25 dimensions of content security across three areas. 

We have been developing hospitality security solutions and working with our broad partner ecosystem since 2004. In partnership with our hospitality resellers, including Guest-Tek, InfoValue and Tangerine Global, VCAS for IPTV is operational in many hospitality deployments around the world. 

We will have a team at HITEC, the world’s largest hospitality technology show, June 21-25 in Orlando to discuss how VCAS for IPTV can support a wide range of hospitality applications. Please contact us to schedule a meeting at the show so we can discuss how VCAS for IPTV can secure your:

• VOD Services
• Wholesale IP Broadcast Services
• DTH Broadcast Services 
• Additional Local Broadcast and VOD Encryption Services
• Expanded Capacity and Redundancy

Download a more detailed overview of our VCAS for IPTV has been optimized for a range of hospitality applications.

See you in Orlando!

The conversations were far removed from the hype that has been elsewhere, but rather focused on how service providers can capitalize on advanced OTT technologies to enable new streams of business. 

Steve Christian recently answered questions posed by CSI Editor Goran Nastic on monetizing video on demand (VoD) content that portrays Verimatrix’s perspective on the opportunity of OTT. For the resulting article, click here. 

Q. Monetisation issues of VoD have been around for a while now and given that all evidence suggests that consumers love the service and value it, why has this proved to be such a challenge?

A. The challenge is that some operators have created the consumer expectation of free content and now they are having a hard time putting the “genie back in the bottle” when it comes to charging a fee for that content. It really puts into question the first mover advantage efforts by OTT providers to offer free content, as it appears they have potentially cannibalized their own long-term revenue streams. The question is if they can successfully extract money from existing and/or new viewers.

History confirms that consumers are willing to pay for something that satisfies their threshold of quality, convenience and cost. At this year’s OTTcon, where we presented, the reoccurring theme was how operators can balance the quality-convenience-cost equation. 

• Quality – quality of the overall experience – not just picture quality – including responsiveness and reliability.
• Convenience – how easy is it to browse content, how to conduct channel up & down, how many clicks are required to start a video, how many channels are aggregated in a single location, etc.
• Costs – what is the right price point and fee model, how to price content consumed on different devices, etc. 

People have a high tolerance for intermittent quality if something is free. However if you start charging for the same content, the balance of these dimensions needs to be maintained at a higher level. People will expect an Internet service to function like a cable service – or perhaps better!

Q. Given the widespread availability of free VoD, is there now a risk that the window of opportunity for making money is quite small? 

A. I think it is important to debunk the assumption that content owners are not making money on the content shown on VoD sites. The revenue streams from more traditional viewing forms, like DVDs, are still in operation. 

I feel the availability of free content will actually shrink when operators start finding the right quality-convenience-cost ratio. 

Q. How big is the opportunity given the right strategies? (Parks Associates, for example, expects 38% of free VoD streams could potentially be monetised by 2012)

A. What’s the alternative? Total industry collapse?  I feel it is inevitable that this content will be more effectively monetized as time goes on. So, the opportunity is huge. 

Another common theory – that I believe is still very much only a theory – is that consumers are willing to cancel their pay-TV subscriptions and rely on fee online entertainment options. 

Goldman Sachs released an interesting report on online video (titled “Broadband 100″) that found while the consumption of online video is increasing steadily, it is not cutting into traditional pay-TV viewing. To put it in perspective, the report cites that consumer usage of online video is surging, with time spent currently growing over 60% yoy and at a 40% CAGR since 2007. This is set against a backdrop of more than 75% growth in online video traffic as measured in bits. Yet consumer usage of online video still represents only about five minutes per day for an average consumer.  The report goes on to say that professional long-form content is the fastest growing and most easily monetized. 

Q. What are, in your opinion, the top  ways that broadcasters and/or payTV operators can monetise VoD? 

A. For streaming – yes, the existing methods are advertising-based, subscription or transactional. 

For a download service, there is also the possibility of electronic sell-through – digital delivery of a file. Consumers may pay more for this option because it is potentially higher quality, they can own it forever, and view it in different ways and on different devices. Plus once it is downloaded, you do not need to be connected to the Internet each time you want to view it.

 Q. Assuming VoD is monetised, would you expect advertising, subscription or PPV models to dominate and why?

A. We expect the subscription or transaction model would be more successful than advertising, which we are already seeing with Hulu and Joost talking about a fee-based service. 

Ad-based content has been quite successful for Hulu, but remember that they reach less than 1% of the total broadcast audience, and insert less than one-quarter of the ad time compared to a regular broadcast (in fact, they’ve promised to only show 4-5 ads for an hour show). Even though they can charge a respectable amount for each ad, the total amount of revenue is much lower than traditional broadcast. The overall pot is substantially smaller. This points the way to fee-based revenue models.

 Q. Are there any significant differences between cable, satellite and IPTV platforms that might favour one over another in monetising VoD? 

A. We strongly feel that all operators are headed towards a hybrid network of some description and IP-based technologies are the common thread, which creates an interactive, two-way environment. 

IPTV providers should therefore have an advantage because their networks are intrinsically based on IP-based networks. The case can also be made for the cable operators that own both the broadband and TV pipes into a subscriber’s home, which provide more control over quality of experience. Satellite operators on the other hand need to have a broadband partner to offer the connectivity to take full advantage of a rich VoD service. 

Q. Can on-demand content available on the Web be brought to the living-room TV set in such a way as to complement payTV operators’ VoD offerings rather than bypass them?

A. The Holy Grail seems to be the capability to offer OTT content into the living room – to take center stage for family entertainment. The Verimatrix view is that traditional operators are well positioned to achieve this goal. They clearly already have the premier position on the living room TV and are now experimenting with how to take their TV services beyond the living room and capture viewer’s attention on other devices – PC, mobile, etc. 

Other approaches we’ve seen are to truly blend the TV and Web experiences together. Operators can choose to make this happen on the main TV (such as calling up an actor’s Twitter feed while watching his program) or bring in other devices to provide interactivity (it is become more normal for viewers to watch TV while working on their connected laptop). The market is so wide open at this point that there’s no 100% right answer.