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Video on demand: PPV and ads drive telecoms' revenue

Even as carriers battle over-the-top video players, the industry's own video-on-demand services have been doing well and are getting better.

Even as telecoms battle over-the-top (OTT) video players like Netflix, Hulu and Amazon, the industry's own video-on-demand (VoD) services have been doing well and are getting better, benefiting from both consumers wary of expensive nights out and increasingly busy lifestyles that require the on-demand leisure VoD provides.

"Video on demand is increasing in popularity," said Mike Jude, an analyst with Frost & Sullivan. "Our projections have it growing practically exponentially over time."

And with it, a sharp uptick in  related video-on-demand revenues. Even free VoD options will provide a healthy income stream: Frost & Sullivan predicts VoD ad revenues will rise from $12 million in 2007 to $542 million in 2012.

Better than broadcast for busy consumers

Jude said one of the largest drivers of VoD consumption is lifestyle changes.

According to the Bureau of Labor Statistics, the average married working professional has only 1.5 hours of leisure time a day, leaving little patience to wade through commercials or set aside a regular time slot for a favorite program.

"If you think about a typical movie, that's more than an hour and a half," Jude said.

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"Video on demand ... lets you sign up to see a movie, stop it and pick it up again when you have more time."

And while telecoms and cable companies have expressed growing concern that OTT content providers like Hulu and Netflix are getting a "free ride" on their networks, Jude said these telecoms have plenty of advantages that will allow them to earn a healthy VoD return regardless of the OTT freeloaders.

Chief among their advantages is their default position as content provider: Consumers simply have to use the same remote they are familiar with to tap into a variety of pay per view (PPV) and free on-demand content.

Carriers also have the advantage of both a built-in brand already associated with content and, perhaps even more important, an easy billing mechanism already in place that does not require customers to pass out credit cards each time they buy.

Keep it simple or pay the price

Carriers should do everything in their power to keep that advantage by making a purchase and play as seamless as possible.

"There's this sort of availability thing going on. If VoD is available, people may use it," Jude said. "If you make it complex to use, the less likely they are to use it." While services like Netflix or Hulu often offer a wider variety at a lower price, for example, these services require an extra set-top box or some rather severe workarounds to play on a home television unit -- a serious handicap.

Make a clunky user interface with a byzantine menu system, however, and Netflix starts to look a whole lot better.

Jude highlighted AT&T's U-Verse offering as an example of VoD done right.

"People are finding their U-Verse bills are going way up because they're doing it, their kids are doing it, and they're losing track of consumption," he said. "It makes downloading trivial."

Today, PPV VoD makes up most of the VoD revenues, but only a fraction of the actual program views. Jude said he expected that to remain true for the foreseeable future, but as advertising technology improves, particularly advertisers' ability to insert ads into content on the fly, VoD advertising revenue will steadily increase.

Three screens to the wind

Once that frontier is conquered, carriers might also take a stab at up-selling on-demand services beyond the fancy HD TVs their consumers have. Just as VoD lets consumers pause and play content at will, carriers are beginning to let consumers start, stop and share content between mediums, starting the latest episode of The Office, for example, on their home TV, switching to a mobile phone as they take the taxi to the airport, and then finishing up the episode on their Wi-Fi connected laptop.

That vision is not yet a reality, according to Tom MacIsaac, CEO of Extend Media, which works on such products. But it will be in the next 12 to 24 months.

"The customer wants to be able to consume content on any device, and they want to be able to consume it under any business model they choose," MacIsaac said. "Download it or stream it, buy it or advertising support ."

At the end of the day, he predicted, all those models and more will succeed as long as the carrier and content makers get paid.

Thoughts on this story? Suggestions for story ideas? Contact article author Michael Morisy via e-mail or follow him on Twitter.

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