More than two years after parting ways with SoftNet Systems Inc. — the company behind former cable-directed Internet access provider ISP Channel — Ian Aaron is leading pay-per-view programming distributor TVN Entertainment Corp. to the higher ground of video-on-demand's landscape. In a series of deals this year, the TVN president and CEO has established the privately held company as a prime source for original VOD content. The company co-created Union: The Boardriding Channel, an extreme-sports VOD service in association with clothing and accessories manufacturer Quicksilver. TVN also established its Presents division to assist in the development of event programming for VOD through independent suppliers, and reached a national distribution deal with Chaos Media Ventures, producers of content with an interactive, choose-your-own-direction approach. In the meantime, TVN is keeping an eye on its business that distributes pay-per-view, on-demand and direct-response programming to more than 600 cable systems nationwide, reaching over 60 million households. Multichannel News senior editor Simon Applebaum recently caught up with Aaron for some insight on where VOD is going, and on TVN's 2003 game plan.
MCN: Has VOD reached a key inflection point this year?
Aaron:
You know, it's reached not only a key inflection point, but it's also helped to prioritize the MSOs. MSOs were working on numerous enhanced applications, but realized that the closest at hand and [most] achievable is VOD. So clearly the operators, relating to protecting their distribution and providing a differentiated service from [direct-broadcast satellite], are driving VOD. The issue has been how you create a comprehensive service to make on-demand TV compelling. Two years ago, it was about 30 to 40 movies per month, some adult and children's entertainment. Now we're allowing the cable operators to deliver over 1,000 hours of new programming per month through the automated platform we have.
Everything Liberty Livewire, now Ascent Media Group, has been talking about, we've been setting up and doing for three years. When you talk about the 9 to 10 million VOD subs, a large portion of them are getting content through our platform.
MCN: Does subscription VOD help retain digital cable subscribers? Does it cannibalize pay viewing?
Aaron: There's been high consumer acceptance for SVOD, and there's no doubt that people gravitate toward an all-you-can-eat mentality. We distribute [Home Box Office], Showtime and Starz on Demand to our affiliates. All I can tell you is that SVOD helps to reduce churn. We don't get buy rate information on that product. So what we can say is what we hear from the cable operators.
MCN: Free video-on-demand wasn't on the radar screen at the start of 2002. How do you size it up?
Aaron: We are the predominant distributor of free VOD. Many cable operators already with agreements with the basic networks have created on-demand packages in a free mode. We deliver over 30 of those basic and emerging networks. This is the precursor for how cable operators will compete in the PVR world. We did 700 hours of that product last month alone. For Food Network, if Iron Chef
is sitting on a video server, you don't have to program your [personal video recorder] to watch it. We're doing some trials on real-time encoding right now. In the next six months, we'll have about 1,500 to 2,000 hours of cable network product to distribute via free VOD.
MCN: How soon will advertising adapt to a free VOD world?
Aaron: We've developed software to have them jump in today. Adonis, an application we've used for five years, allows us to do bundling of VOD content with advertising and work on the server. It's stream-sequencing. If you're HGTV and if you're doing a promotion with Home Depot, we can package within certain zip codes the Home Depot ad with that content. You may do a Lowe's home improvement store in other areas.
MCN: What effect will TiVo Inc. and other personal video recorder services have on VOD?
Aaron: What you will see here, and why cable is in a unique position, is that Moore's Law keeps moving to the MSOs' benefit. Stream costs are coming down dramatically, and now we're seeing storage costs come down. Two years ago, people were talking about a VOD server with 600 to 800 hours. Servers now have 1,500 to 2,000 hours, and new ones on the market have capacity upwards of 3,000 hours.
MCN: How have the problems with Adelphia Communications Corp. and Charter Communications Inc., as well as the Comcast Corp.-AT&T Broadband merger situation, affected TVN rollouts?
Aaron: All of this has played into what we do and the benefit of what we do. Many MSOs have focused on the core services they need to provide. Charter just accelerated their VOD launches to four of their systems. We're seeing the same exact need from the new Adelphia management team to aggressively launch digital and VOD.
MCN: What's the status of your deal with Chaos Media Networks, the VOD service with interactive elements?
Aaron: We'll see trials with Chaos happening in the first quarter of 2003. It's early to see how MSOs or subscribers will view this product. There's a tremendous possibility for product outside entertainment to work in VOD, such as education and distance learning.
For MSOs, the priority is crawl, walk, run, starting with movies. You'll see more packages of these niche-type products emerging in 2003. Chaos has to cut their deals with the MSOs. Once they do that, we'll be ready to deploy.
MCN: Your top priority for 2003 is …
Aaron: My mantra here has gone from acquisition to execution. Now that we have a critical mass of subscribers deployed for PPV or VOD, it's about helping cable operators launch VOD as quickly as possible, with a reliable technical platform and reliable programming packages. Unlike other players in the market, we own all our distribution, including a 200-channel digital broadcast facility.
We'll also focus on delivering new VOD programming areas. Also, the world has come together between on-demand and advertising. We have a direct-response network—TVN Direct—that reaches 54 million homes. Now we're seeing the value of that network as major sponsors start learning how to cope with an on-demand world. So we'll work on exploiting that value in an on-demand world.
