bartosova, VOD feature

Cover story: VOD
Cable and Satellite Europe July/August 2005
10
ideo on-demand has been on the
‘to do’ list amongst European
operators for a long time. In the US
VOD services have already brought positive
results to cable operators, such as reducing
churn by as much as 20% in the case of
Comcast or helping to strengthen their mar-
ket position in the competitive battle with
satellite operators. In addition, revenue
forecasts look very positive for VOD.
According to Kagan Research, revenues are
expected to be about $1bn (€830m) by the
end of this year and $6bn in 2014 in the US.
At the On Demand TV Summit organised
by Cable and Satellite Europe publisher
Informa Telecoms & Media last month,
operators and system providers agreed that
there is no reason to wait to deploy services
in Europe. Already, both UK MSOs have
launched video on-demand services and
UGC, the biggest European MSO, plans to
launch it in the Netherlands this autumn
with a rapid rollout across its pan-European
cable network to follow. In Italy, Fastweb is
successfully deploying a VOD service via its
fibre and DSL platform.
European rollout
In the UK both MSOs, NTL and Telewest,
launched VOD services six months ago. The
biggest MSO in the country, NTL, initially
launched the service in Glasgow to 75,000
consumers, having added another ten loca-
tions since then. Gidon Katz, director of On-
Demand at NTL, has been satisfied with the
service’s performance so far, announcing
that the rollout will continue progressively
to other locations across the country. Fol-
lowing its most recent rollout, NTL has
375,000 consumers who can access VOD
today. According to the company, it is now
the largest on-demand service provider out-
side the US. “For the most advanced
regions, those where we launched the ser-
vice in January, we now have over 50% of
customers using it [VOD]. The average
usage per customer per month is between
six to eight times. That includes free and
paid content,” says Katz.
“The current product proposition is based
as a movie proposition. The other service we
have is free content for all our customers.
There is also music content. We have a kids
area and adult content provided by Play-
boy,” says Katz. A transactional model
applies to its movie on-demand offers pro-
vided by Filmflex, a joint venture between
Sony, Disney and VOD system supplier On
Demand Group. This is available to con-
sumers on a pay-per-view basis, priced
from £2 ( 2.90) to £3.50 for a 24-hour
rental period. Kids programming and a
music video jukebox service are available
for £0.20 to £0.50 and adult content for £7
per movie. The free content is offered under
NTL’s ‘Pick of the Week’ option, showing a
selection of top shows from a range of
broadcasters such as the BBC from the pre-
vious seven days.
The second UK cable operator, Telewest,
also launched its video-on-demand service
in January with a wider rollout starting last
month. Initially, the service, offering movies
by Filmflex, was available to only a limited
number of 2,100 digital TV customers in
Bristol. From July, Telewest has expanded
the service not only territorially but also
with new, extended packages. In addition to
its movie on-demand offering, which is
based on the same transactional model as
NTL, the new packaging model offers pay-
per-view on-demand, subscription options
and free content on-demand. Similarly to
NTL, Telewest’s free content, Teleport
Replay, includes soaps, comedy and docu-
mentaries that can be access on demand
within seven days of their first broadcast
transmission. The option is available free to
all Telewest’s digital TV subscribers. The
subscription model (SVOD) is offered via
Teleport TV, containing a deeper archive of
programmes from content providers such as
the BBC, Discovery, National Geographic,
Nickelodeon and others. The service will
also include a music library. The SVOD
option is available free to subscribers of
Telewest’s top tier (it has three subscription
tiers) digital subscription. Other customers
V
The business case for video on-demand has been established by US operators, but European cable and telco players have been
cautious. However, with the launch of services by NTL and Telewest, there are now signs that the situation may be changing.
By Daniela Bartosova

Cover story: VOD
11
can get this service for an optional £5
(€7.20) per month or upgrade to the highest
tier for £5 or £10 respectively.
“Operators have a poor history of seeking
to charge people an additional subscription
above their basic subscription tier for the
incremental on-demand services. What we
are trying to do with Teleport Replay and
Teleport TV is make this instant access to
TV-on-demand part of the core TV proposi-
tion,” says Philip Snalune, director of prod-
uct management at Telewest.
How much for free?
There is a general agreement amongst the
leading VOD vendors and service providers
that the best business model for a VOD ser-
vice is a mixture of transactional, subscrip-
tion and free on-demand content. Such a
model has already proved successful
amongst the leading big MSOs in the US.
“The lesson from the US is about free ver-
sus pay content as a tool to educate and to
give some incentives to the subscribers to
use the on-demand platform,” says Nimrod
Ben-Natan, vice-president for solutions
marketing at headend equipment supplier
Harmonic.
“We believe that the secure model is to
offer a tier of free VOD. That should be most
of it, with subscription VOD for your premi-
um services, and the smallest number of
titles would be pay-per view on-demand,”
says Steve McKay, CEO at Entone, an IP
VOD specialist. He points out that the statis-
tics from the US shows that free content
results in an increase in pay-VOD take-up.
But what NTL has so far experienced is
that free content is not necessarily a big dri-
ver for pay content amongst its customers.
“If you break down our VOD customers
today, about a third of them have only free
content, about a third of them have only
pay content, and the other third use both.
You would expect it to be much more for
the free part — you learn from free and then
you go to paid. But actually we have a very
strong near-video-on-demand service
already so they are used to paying for the
content, not to getting it free,” points out
NTL’s Katz.
According to figures from headend and
VOD system supplier Tandberg, in the case
of the US MSO Comcast only 9% of VOD
usage is related to movies, and 11% to adult
content, while 40% each for subscription
and free content. In some cases, the US
MSOs are offering up to 80% of their con-
tent for free to their consumers. “We are
aware that the US MSOs are using free con-
tent intensively. We are providing free con-
tent in part to drive a trial and usage. But
ultimately you want them [consumers] to
buy it either as a subscription or transac-
tional service,” says Katz. NTL is consider-
ing offering movies on a subscription basis
“ideally for £5 a month, but for the current
releases you always offer them transaction-
ally. For TV content the best model is sub-
scription and with adult content I would
stick to just transactional purchases,” says
Katz. The business model in the case of
offering free on-demand content is for NTL
a way to allow people to try the service as
well as adding value to the platform by
reducing the churn rate.
Best platform
There is a general agreement that the busi-
ness model of a VOD service should not be
different between cable and telco operators.
However, the platforms, both capable of
deploying VOD, have their own advantages
and limitations. “I wouldn’t say one is bet-
ter than the other. In terms of VOD deploy-
ments, depending how the network is archi-
tected, both can be reliable,” says Tim
Dodge, director of VOD marketing for Con-
“VOD seems to be a very simple business. But
in making the business successful, from an
operational point of view there is lots of integra-
tion involved.” – Tom Rosenstein, Seachange

Cover story: VOD
12
current, a VOD system supplier. Ervin Lei-
bovici, CEO at Bitband, an IP VOD special-
ist, says that the cable platform is more
advanced in terms of actual deployments,
but telcos are now finally focusing on VOD.
He believes that in a couple of years telcos
are going to have a much higher number of
subscribers overall than cable.
“Cable operators have a very tough time
with telcos improving their network infra-
structure through DSL and fibre. Fibre-to-
the-home is an absolutely viable competitor
to the cable offering. Over time I think the
capacity of both cable and fibre and tele-
com networks are going to end up to some
degree to rely on the same technology. If
you look at companies like UGC they have
both cable and DSL infrastructures,” points
out Terri Richardson, vice-president for
product management at C-Cor, the cable
technology and VOD system supplier.
Ben-Natan says things are complicated
by some legacy issues. For cable operators,
once they have upgraded the network it is
easier to deliver a large scale VOD rollout,
with having no limitations in terms of num-
ber of simultaneous streams per home. “At
the same time the network itself is not
natively switched like a DSL network,” says
Ben-Natan. He points out, however, that the
problem with DSL is the last mile issue. “For
telcos there is basically no difference in the
way that you do IP services. They have to
balance between the costs of the transport
in their infrastructure and the costs of the
servers,” says Ben-Natan.
In terms of business models for the ser-
vice for each type of delivery platform,
there is no likelihood of a significant differ-
ence in packaging and selling the service. “I
think that the business model is going to be
driven by the service providers. You can
talk about [different] business models
between satellite and cable. But between
cable and DSL I don’t see a significant dif-
ference in terms of pure VOD,” says Dodge.
Centralised v distributed
One major point of debate regarding the
actual deployment of VOD is about the best
architecture. The decision about which
architecture is best suited to stream VOD
content does not necessarily depend on the
legacy platform, but more on other issues
such as the bandwidth, geographical loca-
tion, amount of content, type of content
and the costs. “It can be centralised and it
can be distributed; both are OK. It depends
on how much bandwidth they have and
other restrictions they have on the net-
work,” says Adrian Bell, cable and VOD
business manager in Europe at Tandberg.
Richardson points out that the choice of
delivery architecture depends on legacy net-
work infrastructure. As to whether the video
server infrastructure should be distributed
or centralised, there are arguments for both,
as well as for a hybrid model. “It is really
the issue of legacy as well as economics; it
is so specific to each operator,” says
Richardson.
“A distributed architecture gives you lots
of flexibility managing content – the issue
is the transport costs versus the cost of the
centralised network, because if everything is
in the central location it has to be trans-
ported to the edge,” says Dodge.
McKay believes that IP networks can take
advantage of a distributed architecture. “It
[distributed architecture] makes sense if you
have a switched network. Almost all telcos
are actually deploying a distributed archi-
tecture, because it really allows you to do
things — like instead of having uniform
content available for every user you can
actually optimise the content you have
more demographically,” says McKay. On the
other hand, a centralised architecture pro-
vides advantages of savings on storage
costs and opex. “You need to manage only
one storage [facility] in a centralised loca-
tion. For cable operators it is better to have
a centralised architecture,” says Ben-Natan.
Cable operator NTL has in fact built its
VOD system using a distributed architecture.
NTL’s argument is that it makes more sense
to distribute content closer to the edge
because, for the moment, it is cheaper than
centralised storage. “But right now, when
we are dealing with mainstream mass mar-
ket content, there is no need to have a cen-
tralised architecture,” says Katz. However,
he points out that the situation might
change over time either because of chang-
ing costs of storage and transport or, in the
case of more content being made available,
where particularly niche content could be
allocated to a central location.
VOD system supplier Seachange says that
operators will never be able to deploy video
streaming if they stick to the one network
architecture. “One of the things you need in
the video streaming system is the ability to
manage the number of dispersed systems,”
says Tom Rosenstein, director of strategic
alliances at Seachange. “You need to look at
what the video library, archives look like -
how many users are expecting to access
[them]. The way our system is developed is
that we can support a centralised or distrib-
uted environment,” he says.
Seachange server: Seachange argues the case
for a single supplier for VOD installations.

Cover story: VOD
14
Same vendors such as Seachange and
Entone created a propagation software
component, which actually observes the
content usage and then allocates it either to
centralised or distributed locations. “Our
software solution observes the actual con-
sumption and then it intelligently removes
the assets to the optimal location based on
what consumers are actually watching. Not
only you can move between distributed and
centralised servers, can you also move
between different types of storage within
the same server,” says McKay.
Bitband sees video on-demand as an
evolving service and so the architecture
needs to evolve with it. “You start small,
cenralised in one location and then you
evolve your service with many more sub-
scribers in a very distributed way across
your infrastructure. Therefore, you’ve got to
evolve a centralised capability as well as
distributed during the life cycle of the ser-
vice,” says Leibovici. He holds strong views
on the benefits of this hybrid architecture.
“Hybrid is definitely the architecture for IP,
there is no other way,” says Leibovici. “The
point at which you have to switch over
from centralised to hybrid is much further
along among cable operators in term of
number of subscribers. Whereby in IP, after
getting 2,000 subscribers you want to go to
hybrid model, in cable you can wait much
longer,” he points out.
Scalability
The most appropriate architecture is one of
the key elements that make the system scal-
able. NTL and Telewest have chosen a sin-
gle supplier to deliver a proven solution.
“We are not precious here. We are very
happy to copy the system than already
works in the US,” says NTL’s Katz.
NTL’s system integrator, Seachange, says
that to ensure that a VOD system is scalable
you have to take a modular approach. “The
software running a VOD service has to
allow [...] for new, incremental services and
applications. This allows operators to con-
tinue innovating using new technologies
and services to further increase revenues
and lower costs,” points out Rosenstein.
“When you have a platform that enables a
range of opportunities, you have to plan for
hands-off management. Automated soft-
ware can collapse the complexities that can
get in the way of running multiple on-
demand businesses efficiently and prof-
itably, from content acquisition right down
to subscriber homes,” he says.
Harmonic’s Ben-Natan points out that the
Leading VOD system specialists agree that the main technological advances that have helped
them to deploy and maintain VOD services more efficiently and economically have been the dra-
matic decrease in costs of transport, software and hardware components; the decrease in the
costs of streams and the increase in bandwidth capacity. These innovations apply to both cable
and DSL VOD platforms.
“The whole concept of Gigabit Ethernet and delivering video-over IP was really not a main-
stream one three or four years ago. These technology innovations helped in reducing the costs,
and improved the scalability,” says Nimrod Ben-Natan, vice-president for solutions marketing at
Harmonic.
“Streams were very expensive. Companies such as Entone and others know to extract more
steams from a piece of hardware. You can now stream an extraordinary number of streams
from a single server. For example we can stream 100,000 streams out of one server. Ten years
ago it was 20,” says Steve McKay, CEO at Entone.
The other current major advance is around bandwidth efficiency. “I think that the biggest thing
in the market is to move towards advanced codecs. That is also one of the reasons why the
Europeans will dramatically increase VOD offerings over the next year,” says Tom Rosenstein,
director of strategic alliances at Seachange “Advanced codecs such as H264 allow you cur-
rently to offer the same quality of picture with half of the bandwidth and half of the storage
capacity. People who have developed the technology think that in the next three years it is going
to be one-quarter of the bandwidth,” says Rosenstein. “H264 is available today in labs. I think
that by the end of the year it will be a much more practical solution. We vendors right now are
pushing to deploy it at the end of the year,” he says.
“We will see, especially in the telecom industry, an aggressive move towards advanced video
coding. We will see it more in 2006 rather than in 2005,” says McKay. Ben-Natan of Harmon-
ic believes that, for DSL operators, it makes sense to wait for advanced codecs before deploy-
ing as they do not have enough bandwidth, especially for the last mile.
However, Gidon Katz, director of on demand at UK MSO NTL, says that NTL has no inten-
tion to go away from MPEG-2. “Our VOD system is using MPEG-2. We have 1.4m set-top
boxes with MPEG-2. It would be a huge investment to migrate to MPEG-4. There is no ambi-
tion to do it for VOD right now,” says Katz. Telewest, the other UK MSO, has also no plans to
migrate to MPEG-2.
“What you can say about compression technologies is that MPEG-2 is still a very important
protocol,” says Tim Dodge, director of VOD marketing for Concurrent. “The thing to remem-
ber is that if you look at the sort of wealth of tools and technology and content that is available
today the bulk of it is in the MPEG-2 format whether it is advertisements, programmes, movies
on-demand. It is going to take some time to transition to embrace these new codecs,” says Terri
Richardson, vice-president for product management at C-Cor.
Technology improvements for VOD deployment
Entone’s Streamliner. Entone has been able to
make use of off-the-shelf hardware.

Cover story: VOD
16
important foundation of a scalable system is
to organise the storage and the streaming in
such a way that the system integrator can
create a library of content and scale the
number of streaming servers based on the
number of users that the operator has. “The
number of titles and number of users are
not necessarily scaling in the same ratio. In
the past you had to match them because of
some technology limitations. Today, most of
the vendors have managed to decouple
storage from streaming,” says Ben-Natan.
Entone’s McKay believes that in order to
scale video-on-demand the prerequisite is
to have a flexible architecture, “that allows
you to either operate centrally or in a dis-
tributed way to support streaming of assets.
Then you have to have the intelligence in
the system to optimise asset allocation,” he
says. McKay believes that in order to make
a VOD system scalable, it should be built on
an open architecture, because it then reaps
the benefits of the newest technology inno-
vations in the field.
“With an open system, an operator can
launch new applications on its platform
without asking the incumbent vendor for
permission to integrate,” agrees Reggie
Bradford, president of Tandberg.
System integration
One of the important lessons that VOD ven-
dors have learnt from the US deployments is
the importance of integrating the system.
“VOD seems to be a very simple business.
But in making the business successful, from
an operational point of view there is lots of
integration involved such as integration
with the billing systems, [and] with the
clients’ set-top-boxes, ensuring that the net-
work infrastructure is fast enough to deliv-
er the service to the consumer in a very sat-
isfying way,” says Rosenstein.
“The lesson that we have learnt is that
you cannot underestimate the amount of
system integration [needed] in each new
set-top box to support each new interactive
TV or software application,” says Richard-
son from C-Cor. “It is still relatively early in
terms of the overall seamlessness of the
applications in the sense of the end-to-end
value chain and from the perspective of
ingesting content from the media archives
to the video servers and then automating
the distribution process through an open
network,” she point out. “Our efforts are
now to improve the seamless integration
and automation of tasks related to content
management and distribution,” says
Richardson.
The lesson that the UK MSO operator
Telewest has learnt in deploying the service
is also about the importance of service inte-
gration. “Many of the technology questions
have been solved but clearly the most com-
plex piece of a VOD deployment is around
integration with your subscriber manage-
ment system, [and] all the work around the
software that drives the content manage-
ment, the provisioning and billing and
authentifications of costumers,” says
Snalune from Telewest.
Integration of billing systems
The crucial part of a system integration is
the integration with the billing system. “For
most of operators it is a question of inte-
gration of the back office platform to the
legacy systems that are already there,” says
Richardson. Tandberg’s Bell also agrees that
integration of the billing system is key.
“Basically, the back office system acts as the
middleware or control system of VOD. Our
Openstream platform will give space to
[operators’] billing systems. We would use
the Openstream product to interface with
their existing billing system and allow the
cable operators to carry out a real time
billing check of customers,” says Bell.
Rosenstein says that Seachange has been
tying VOD into a wide range of legacy sub-
scriber billing systems. “Yet again, stan-
dards are the key, in this case letting VOD
systems tap into existing IT infrastructure —
databases, XML, and so on,” he says.
Entone’s CEO says that, to ensure billing
system functionality for VOD transactions,
the operator has to install the business
management system that sits between the
servers and the billing systems in order to
make sure these transactions are captured.
“If you are doing subscription on demand
you need to be able to have flexibility to
bill for different types of services. Obvi-
ously the telephone companies have
always had transactional capability in the
billing system,” says McKay. He believes
that this is one of the areas where phone
companies are ahead of cable operators.
However Telewest’s Snalune says that his
company has a well-developed and consis-
tent billing system across its individual
franchise areas. “I do not think it is much
about billing system. It is more about what
kind of applications you need to build in
order to give yourself the most flexible
option for deploying a VOD service. We
have the flexibility to do pay-per-view and
to do subscription services,” says Snalune.
Harmonic points out that many operators
are going through the process of upgrading
the billing capability they have. “Billing
systems for cable in the past were not real-
ly based on a transaction basis. It was more
on a subscription basis. Now they are
charging on a per-transaction basis, which
is painful,” points out Ben-Natan.
“We integrated it [transactional billing] to
our existing billing system. It wasn’t easy
but we managed to do it. Our billing system
is still not everything we would like it to be;
we are still lacking some core functionally I
would like to have,” admits Katz from NTL.
Improving the billing system functionali-
ty is one of the challenges in ensuring that
VOD services bring additional revenues to
operators. However, it seems that, thanks to
the technological innovations that have
made systems cheaper to deploy and more
efficient to maintain, and the experience of
VOD providers in the US, there is no reason
for cable and telco operators to wait any
longer to deploy services. ■
NTL has now rolled out VOD to 375,000 of its
subscribers.

bartosova, VOD feature

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