Video-on-demand households continue to generate monthly
buy-rates of 300 percent to 400 percent after one year or more of having VOD access,
according to cable operators conducting limited deployments of Diva Systems Corp.'s
"On Demand TV" service.
And while current film releases typically account for
two-thirds of a la carte VOD orders, adult programs -- with their higher retail prices and
generous revenue splits to cable operators -- deliver an estimated 40 percent or more of
net VOD revenue to operators.
Monthly buy-rates have remained in the 300 percent to 400
percent range for Lenfest Communications Inc.'s Suburban Cable, director of interactive
services Reed Rodman said.
A VOD pioneer, Suburban hooked up its first Diva customer
in September 1997, and it now counts 500 to 600 homes in Delaware County, Pa., equipped
with proprietary Diva set-top boxes.
More than 400 Diva homes in the Gwinnett County, Ga.,
system operated by R&A Management LLC (formerly Rifkin & Associates Inc.) are
producing buy-rates of "300 percent to 350 percent, maybe 400 percent some months,
maybe north of 400 percent some months," R&A senior vice president Pete Smith
said. The first Diva customers there began placing orders in July 1998.
In Chambers Communications Corp.'s Edmonds, Wash., system,
buy-rates exceed 400 percent "right now, but it's because of the newness of the
product and the technical capabilities that it brings into the house," Chambers vice
president of cable operations Bob Towe said. The system launched VOD in December 1998, and
roughly 100 households now have Diva boxes.
STICKER SHOCK SETS IN
"There's definitely a novelty factor in the first
couple of months," typically yielding 400 percent-plus buy rates, Diva vice president
Eric Roza explained. Thereafter, buy-rates drop off a bit, due partly to sticker shock
among some initial users.
"Some people get their first bill and say,
'Wow,'" Roza said. Buy-rates then stabilize at 300 percent to 400 percent.
Movies in the pay-per-view window are averaging 60 percent
to 65 percent of individual VOD orders at Suburban; adult programs 15 percent to 20
percent; library films 10 percent to15 percent; and kids' and special-interest product
combined 3 percent to 5 percent, Rodman said.
Smith reported a similar breakout by category for a recent
month in Gwinnett County: 68 percent new releases, 14 percent adult, 12 percent library, 4
percent children's and 2 percent special interest, the latter of which includes content
from PBS, ESPN, Discovery Networks U.S., Home Box Office, New City Releasing and National
Geographic Television.
Retail pricing per a la carte order by Diva affiliates is
$3.95 or $3.99 for current releases, $6.99 to $8.99 for adult fare, $1.99 to $2.99 for
most library titles and $0.99 to $1.99 for kids' programs.
With higher-priced adult product generally outselling
lower-priced library and children's titles -- and current movies outselling them all --
gross revenue per VOD order averages $4 to $4.25, according to Diva and its affiliates.
Multiplying conservative averages of $4 gross spending per
VOD order by three orders per VOD-capable home, per month (a 300 percent buy-rate), yields
$12 in gross spending per VOD home, per month.
This implies that cable operators are netting at least
$4.20 to $5.40 per VOD home, per month, assuming an estimated 35 percent to 45 percent cut
of gross after paying content providers (including adult programmers) and service
providers (such as Diva).
In a cable system where adult accounts for 15 percent to 20
percent of VOD orders, the category might represent 25 percent to 35 percent of gross
revenue because of its higher retail price per order.
ADULT COULD ADD UP TO 40 PERCENT
Further, adult movies could deliver 40 percent or more of
net VOD revenue to operators, given the fact that adult programmers typically receive just
20 percent to 25 percent of gross, versus the 50 percent split required by Hollywood
studios for VOD orders of current and archive films.
While current releases and adult are VOD's main drivers,
library and children's titles play important roles in maximizing buy rates.
"Every month, we see some buys for Casablanca, American
Graffiti, Butch Cassidy and the Sundance Kid," Smith said. "I applaud
the Diva folks for their understanding of consumers' buying mentality and their ability to
translate that into what films we need on the server. That's the trick behind getting your
buy-rates for VOD up to the maximum level."
More than 20 percent of Diva households have ordered Willy
Wonka and the Chocolate Factory, Roza said. "Lord knows how many times that
[film] has been on TV. The horror stuff -- The Shining and The Exorcist --
does well, too."
Although the kids' category comprises less than 5 percent
of individual VOD orders, it's performing well when packaged as a $9.95-per-month
subscription service, featuring unlimited viewing of several children's titles, Diva
affiliates reported.
Diva is starting to offer selected events, as well. Diva
households ordering a $20 Backstreet Boys concert earlier this year used the system's
pause, rewind and fast-forward functions an average of nine times per viewing, Roza said.
"That blows away the usage we see during a typical
movie, so clearly, everything good about VOD is even more important the more you spend on
something," he added.
BLOCKBUSTER, BEWARE
The VCR functionality makes VOD a video-store-rental
killer, Smith said. "Based on market research that's been done by Diva and others,
people with access to VOD rent substantially fewer videos. It drops to around 10 percent
of what they were renting before," he added.
"The feedback from the subscribers who take this
product has been absolutely phenomenal -- above expectations," Towe said. "With
VOD, we're able to bring something that is truly unique to cable TV to the consumer."
The 300 percent to 400 percent monthly buy-rates are
"fairly amazing," Rodman said, considering the limited marketing the system has
done because Diva is available in only a portion of Delaware County.
"We've done some direct mail, a little bit of
telemarketing and a lot of on-air [promotions] to just those nodes that can get VOD,"
Rodman said. "We're curious when we can release the marketing hounds to see if that
generates higher penetration and higher buy-rates, and my feeling is that it will in both
cases."
Since introducing Diva's proprietary box in 1997, Suburban
has begun rolling out General Instrument Corp.'s "DCT-2000" digital set-tops to
its digital-cable customers, according to vice president of network services Joe DiJulio.
"Right now, we're in a holding pattern [with the Diva
rollout] until we can completely port the Diva technology onto the deployed DCT-2000
boxes," DiJulio said. "Once a customer gets the new digital box, he or she will
also get access to order movies through Diva. It's going to put Diva in a lot more
households."
"Our VOD service is totally ported onto, and totally
runs on, the [GI] 'DCT-1000,' 'DCT-1200' and DCT-2000 boxes," Diva executive vice
president Ray McDevitt said.
Two cable systems -- Chambers in Novato, Calif., and
Insight Communications Co. in Rockford, Ill. -- plan to launch VOD in June using Diva
ported onto the DCT-2000.
Similar to Delaware County, the Diva experience in Gwinnett
County is "not what you'd call a full rollout," Smith said. "Some Diva
homes have two boxes because we have an advanced-analog offering using the
Scientific-Atlanta [Inc.] '8610X' box."
TWO BOXES NOT SO BAD
"We don't like the two-box solution, but it's not as
cumbersome as some people might think," Smith said. "Our longer-term goal is to
implement digital, and Diva would be a part of that."
S-A and Diva announced a pact May 12 to integrate Diva's On
Demand TV solution with S-A's "Explorer 2000" set-top and interactive digital
network through S-A's "CreativEdge" developers' program.
"We'll be up and running [on the S-A box] before the
end of this year," McDevitt said. "It's frankly easy to do a demo right now
showing that our servers run on the S-A box, but it's not real in the sense that we're
talking about achieving an integrated solution that includes everything associated with
VOD, including billing."
