Striking Oil in the Vast Wasteland

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THE NEXT WAVE: ACTIVITY BASED VOD, Article for CTAM Magazine 2002

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Striking Oil in the Vast Wasteland

  1. 1. Striking Oil in the Vast Wasteland THE NEXT WAVE: ACTIVITY BASED VOD In all the buzz surrounding Video on Demand, with scores of executives and mounds of data predicting certainty of success, questioning the value proposition borders on heresy. But with hundreds of channels and thousands of programs already available, offering more programs over VOD is like trying to sell sand in a sandstorm. Movies-on-Demand seems like an obvious winner, but is ‘order, pause & rewind’ enough to inspire viewers to spend more money on Cable TV? F irst-run feature movies represent the anchor service for VOD, but just how many premium movies can viewers watch each month? Frankly, some of these titles seem silly (“History of Squirrel-Feeders”, “Creative Comb-Overs”?). Can this stuff really generate excitement amongst cable subscribers? The answer is a resounding Luckily, people engage in activities and “Yes”; and the evidence is solid. interests that extend beyond watching movies: activities that they are People are downright fanatical about passionate about, and spend far more their interests and activities, as supported money on each month than on Cable TV. by the rise of specialty publications:BY C.J. CORNELL VOD offers operators a way to tap While people spent $8.4 billion going toPresident, CEOChaos Media Networks subscribers’ enormous appetite for the movies in 2001, they spent over $10 special interests, where consumers spend billion in specialty magazines alone. more than $50 Billion annually on media Family, Health, Regional Interest, products and services. Lifestyle, Travel and Children’s genres all are in the top ten fastest growth Just like tapping in to the larger, deeper segments for specialty magazines oil reserves under the ground, extra work (Magazine Publishers of America). is required. The terrain is vast; the Niche content generates the highest opportunity is huge. But you have to CPM in the print, TV and cable know where to dig, and how to dig, industries. While over $12 billion is before you can strike oil. spent annually by advertisers on Cable TV, ad revenues for consumer specialty HOW DEEP IS THE WELL? magazines approach $18 billion per year, Before you put in the extra work, how do and special interest book sales exceed you know the demand is really out there? $42 billion annually (Publishers How do you know consumers will pay Information Bureau). for special interest VOD programming? Fair questions, particularly after But what about video? The bad news is previewing content that has absolutely that most enthusiasts don’t rent video to no appeal to your own personal tastes. fuel their interests. The good news is CTAM MAGAZINE •SUMMER 2002
  2. 2. that they buy specialty video in droves. viewer, and then modifying the videoAnd they typically spend $19 to $ 99 per experience based on this dialog.video. While aggregate numbers for thespecialty video market are not tracked As a personalized service, VOD product(by nature it is a fragmented and diverse no longer competes with other visualmarket, comprised of thousands of alternatives such as VHS or pay percategories), initial investigation points to view; the perceived value is mucha market that far exceeds feature VHS higher. For instance – a VOD service,sales. When you include sales from offering a personalized SAT prep courseeducational and related media – the does not compete with a $29 VHSannual market exceeds $40 Billion. product, instead it competes with the $499 classroom course.And the pie gets even bigger. Consumersdevote a certain specific amount of Specialty VOD services need to bedisposable income each month to targeted and available to viewers.entertainment: movies, television, and Unlike Hollywood movies, which oftenVHS rentals. The challenge for operators have millions of dollars marketingand programmers has been capturing a behind each individual title, specialpiece of this fixed-pie. Unlike interest titles have little or no marketingentertainment, specialty VOD allows prior to their appearance on a VODaccess to a new pie where people spend system. So the challenge with specialtymoney on activities other than watching VOD is in providing a programmingTV – often more than $75 per month per mix, along with promotional techniquescategory. Digital cable with VOD that draw subscribers to the VODfunctionality is an ideal medium to ‘channel’, and inspires them to watch, tocapture special interest revenues; it just order and to pay. How? While therequires a little extra work and a answer will change as viewers get useddifferent approach. to the idea of such choice and control over programming, the initial approachACTIVITY–BASED VOD: is to provide breadth – not depth - ofTRANSFORMING VOD INTO titles, more barker/promotional clips, andSERVICES provide increasing levels ofEven for movies-on-demand, the most functionality. Next, is to manage theunique features of impulse purchase, breadth of titles to keep the channelrewind, etc., focus on a fundamental type surfers browsing. As the serviceof activity: Control. While VOD is expands, you must use techniques uniqueperfectly suited for fulfilling special to VOD to draw in the dabblers, theinterests, the operative phrase might experts, the closet-geniuses, and thebetter be termed “special activities” – Monday-morning starters. All are highlywhere VOD can help a subscriber do engaged audiences looking forsomething that is important to them. In something to occupy their time and theirshort, to create new revenue sources – minds, and are willing to pay for theVOD must transform into a service. experience.What makes a VOD service? The rightcontent combined with the righttechnology, allowing the videoexperience to guide and help the viewerlearn, improve or perform a task. Videomust be delivered with softwareintelligence allowing a dialog with the
  3. 3. ACTIVITY BASED VOD IS DIFFERENT Advantages Disadvantages VOD • Large market size per title • Little or no advertising opportunities • Well-known distribution chain • Upper limit cap on pricing: $2.95 - $3.95 Movies • Movies have history of success on TV (PPV, VHS) • Net profit margin low for operator & Features • No need for “programming” or technology • Competes with pay-per-view, movie rentals advancements beyond basic VOD. • Release windows and availability delicate and risky Activity Based, • Higher margins and profits for operators. • Greater viewer education needed • Content and production costs lower. • Extra marketing promotion requiredSpecial Interest • Intensely loyal and interested audiences. • Extra value-added functionality usually required. VOD • Numerous advertising opportunities • Perceived competition from other media e.g. Internet • Broader range of subscriber products & services • More local storage required – titles need to be available • Viewing less likely during peak hours. for longer windows. • Appropriate audience for e-commerce / product sales. • Content less time sensitive – needs to be refreshed less. RULES AND LESSONS: FOR ACTIVITY-BASED VOD Here are the top lessons and new rules Chaos Media Networks has been that are driving us towards the future: focusing on non-movie, or “activity- based” Video on Demand for 2 years. In 1. Beauty Is In The Eye Of The developing and deploying VOD Beholder products, combining interactive VOD By very definition special interest video technology with special content licensing only appeals to folks who have a passion and on-air programming, we’ve learned for that category. One man’s junk is some important lessons, seen many another man’s treasure. The value is in surprises and unexpected results. the subject matter and how well it addresses the interest of the audience – First, we were unprepared for the not in the production quality. Judging enthusiasm and energy subscribers special interest video by the same exhibited when given a taste for activity- standards as “The Sopranos” or based VOD. We were surprised at the “Crouching Tiger” misinterprets the level of interest in what we thought was target audience. VHS quality is somewhat obscure special interest appropriate as long as the program programming (e.g. “Managing your provides unique information or Diabetes”). In fact, early when we were functionality, and in fact can be very merely testing programming, subscribers entertaining (e.g. “America’s Funniest starting calling to find out how they Home Videos” and types of reality could order the shows on VHS. Since programming). Many enthusiasts are we had yet to display any logos, cynical of slick productions; they feel interstitials or other branding or that too much style hides a lack of promotion, most subscribers had to place substance. 4 or 5 phone calls to find us. It was sheer passion about the programs that motivated them. CTAM MAGAZINE •SUMMER 2002
  4. 4. titles with the broadest interests on the top menu? Or – since people might find2. Replace An Off-Screen Activity these titles anyway, do you feature theA French-language video – which is rarest or most unique titles? It boilsgenerally tedious and can be borrowed down to programming. It’s differentfree-of-charge from the local public than network programming – so eitherlibrary – has little extra value offered get an expert or become one.over VOD. A French lesson, however,where the cable TV program actually 4. Exclusive Content Is Important;teaches the subscriber how to speak the Exclusive Experience Is Morelanguage at their own pace and interest Importantlevel, does indeed have extra value Intuition tells us exclusive content makesbecause it competes with a tutor, a class for higher value. The reality is -or other off-screen alternative. exclusive experience is what people pay for. Subscribers can see feature movies in the theater, rent from Blockbuster, see it on Pay-Per-View, or wait for the movie to be available on premium or free channels. VOD’s exclusive value comes from the ability to immediately order and control the movie. For non- movie content, this exclusive experience extends to personalized programming, and other interactive, custom and non- linear video experiences. In other words: On other media, it’s just a program; on VOD it’s a unique service. 5. Beware Of False Profits: Streaming Content Seemingly low-hanging fruit, streaming content has tempted many. Companies who specialize in streaming content forVOD has the inherent capability to the Internet rarely understand the uniquechange the program experience for each issues surrounding VOD-over-cable:viewer – thus providing a targeted and Delicate MPEG2 encoding, thin-clients,value-added experience. pitcher-catcher delivery, metadata asset management, billing systems, non-linear3. Content Is King, But programming - are all foreign to the Programming Is Emperor experience of web-streaming contentSubject matter is important to the special companies. Many web-streamers simplyinterest audience – but just as important put the buzzwords “VOD/SVOD”,is the mix of titles, and the context in “Digital Set-top box” on their websiteswhich they are offered. It’s much more in a feeble attempt to positionthan just about aggregating content and themselves for cable programming. Themaking the titles available on menus. business model and license rights to theSince there is limited real estate (both in content generally do not translate well tostorage and in menus) – delicate cable. One day, maybe; but not today.attention, intelligence and experiencemust be paid to exactly which titles arepresented to the viewer. Do you put the
  5. 5. 6. Advertising Is OK wake up every day yearning to pay for aFor those of us who have special dance lesson. But if available andinterests and buy magazines – half the promoted the right way over VOD – aappeal is the advertisements. The subscriber realizes that he or she canreasons are almost academic: As a golf take a dance lesson in the privacy ofenthusiast, I am always looking for the their own home for $6.95 (a one hourlatest equipment, books, destinations etc. lesson from the local Fred Astaire is inAds are just another way I get that the $89 range).information. And of course buying aproduct directly or indirectly is more 8. Guides Are Irrelevantlikely because the source (magazine, Sacrilege, but hear me out. Beyondvideo etc.) has established its credibility movies, people don’t search for titles.with me. Same for specialty VOD, They either look for “something to do”which also can offer me opportunities to or are enticed to explore an activity theyexamine and purchase the product. Oh, might not ordinarily partake. Withand by the way, many VOD subscribers specialty genres – there are simply justwill buy the VHS version of the video too many pieces of content and often thetoo. Go figure. titles are vague or misleading. Scrolling through titles and categories are impractical. Viewers need to be attracted to the programs, or the service must be offered as a solution to a problem – requiring unique promotion and on-screen guidance. Instead of categories, Chaos on-screen menus and audio/video queues allow the viewer to ask: “How do I … get in shape?” or ask a returning extreme-sports enthusiast “Want to Scream ‘n Extreme?” 9. Strive To Personalize At the heart of special interest is “personalization”. VOD can use its unique functionality, along with digital set-top technology, to interact with the viewer and modify the video experience7. Your Best Audience May Not real time. Are we talking about Know It Yet Interactive Television? In a sense, yes,Take a poll, circa 1985: “How many except the focus is on the TV programpeople want to watch autopsy experience – not graphics. Programsprograms?” The success of these interact with the viewer, seamlessly andprograms would have been hard to immediately tailor the video program,predict, and it took HBO and Discovery providing a personal VOD experience.to put their respective forensic programs VOD over digital cable can offeron air to attract an audience who subscribers video programs thatotherwise would have denied interest. automatically become personalized asSpecialty VOD is the same way, except they watch – and different every timepeople pay to watch. Example: Few they watch. CTAM MAGAZINE •SUMMER 2002
  6. 6. functionality. How? Chaos provides 10. Make Me A Star ready-answers using video via the VOD User submitted video: The future of interface (“How do I … change my oil”, VOD. If you think eBay or chatting on “Help me … train my puppy”) and the web inspires fervent loyalty – just subscribers know to come back any time wait until we add the ability for viewers they have a problem. The experience is to submit video clips recorded using different every time they return. their home digital video cameras. But how is this television? Consider “Dating Chaos” – a program being developed for TAPPING THE WELLS Chaos Media Networks: Conceptually By adding extra technology to special it’s a combination between “Blind Date” interest content, VOD can provide and the old “Dating Game”, where VOD personalized, interactive, premium viewers watch entertaining dating services that don’t compete with other programming and then interact with channels. Operators and Networks can different video clips of attractive provide new categories of services only potential dates, asking them off-beat and possible with digital cable television. provocative questions. If you cannot extrapolate the revenue potential from How do you get started? Operators are this, then just consider the adults-only already on the right path – deploying version… SVOD movies and features. The key is to demonstrate the other potential 11. Make Me Come Back services VOD can offer - now, or else VOD services are not necessarily subscribers will be conditioned to impulse-buys. Viewers need to browse, perceive VOD as a glorified pay-per- preview and come back once they are view channel. Whet their appetite, ready (“I don’t want it now, but I need to intrigue viewers with a taste for the know it will be available when I do want functionality, content and services, and it.”) Example: Traffic School via get them started. This is about creating a interactive VOD is not an impulse-buy. new mindset about cable television. It’s I need to be aware that it is available about encouraging a new behavior, and over VOD for the day when I need to inspiring a new kind of loyalty. The take the course. But when I am ready – I terrain is vast. Put your stake in the will pay $89 to avoid spending a ground now. The riches are just below Saturday in a musty classroom. the surface. VOD can inspire tremendous loyalty not only by providing unique content, but also by leveraging digital cable’s uniqueChaos Media Networks is a Video-on-Demand technology and programming company - with thousands of hours of exclusivespecial interest, entertaining and interactive VOD and SVOD products. Through its VOD authoring language, Chaos enablesthe creation of personalized, interactive VOD programs that can be delivered over thin-client digital set top boxes, usingChaos exclusive delivery software. Nearly 1 million subscribers can view Chaos programming today. For more informationcontact CJ Cornell at cj@chaosmediaventures.com or visit www.chaosmedianetworks.com
  7. 7. A DAY IN THE LIFE – ACTIVITY BASED VODMore than Movies – Tapping VOD’s new Revenue StreamsScenario 1: Sunday DriverIt’s Sunday afternoon, and John comes home frustrated. This is the last time he is going to embarrass himselfon the golf course. He considers ways to find out what is wrong and how to improve. Lessons? Videos?Books? Instead, he turns on his television and is drawn to a program on Golf. As he watches, he is prompteduse his remote control to answer fun quiz questions and quickly finds himself immersed in a television programlesson that seems to be talking just to him – focusing on his particular problem and giving him specificpointers. He is told to report back after his next game so he and the program continue on and work onimprovements. All the while John has seen a “Big Bertha” driver that seems just perfect for his level of play,and a home-training aid – both which he ordered during his lesson. Cost of the lesson? $6.95 – much, muchless than a home video, book or golf tutor – and only possible with digital cable and VOD.Scenario 2: Network NirvanaAl just spent the day networking his family’s computers. Now, the printer and the children are no longer on speaking terms,yet the entire planet can see his disk drive. Nothing seems to work. The online documentation just made this grown man cry.So he sits back and escapes to the TV. Here, he finds his remote control allows him to ask the TV a question “What’s wrongwith my home network?” with a touch of his remote, a short 2 min program shows him exactly what is wrong – for free.Meanwhile he also gets the idea that he might soon buy this cool wireless networking card instead of using cable, because hesaw it during this little show.Scenario 3: Family FunElection day is coming and Diane’s three children start asking questions “was Kennedy a president? I thought she was anMTV host”, “that man is nice – he promises to help old people and can we vote for him?” Mom realizes that her kids shouldknow more about the process and also learn more a little about politics. She turns on the TV to play a game: Using theirremote controls, the kids watch a guided montage of older and recent campaign ads, and news clips – and have to matchnames with faces, issues with proper news clips, etc. The show changes direction, allows them to go back and review theKennedy-Nixon debate and compare it to Ford-Carter and Carter-Reagan. Annie, the middle daughter, wins by answeringmost of her questions, and gets to choose her own free “Olsen Twins” video next Saturday. She is happy. And mom ishappy spending quality time with her children while teaching them some important lessons. All these scenarios are only possible with VOD, combining technology, content and programming. All cost less to produce and represent more potential revenue from per-use fees, advertising and product placements than movies. CTAM MAGAZINE •SUMMER 2002

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