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Charter and Diva bring VOD to L.A.

Streaming vid biz's success depends on content

Like a latter day Captain Ahab circling the big catch, the folks that are determined to launch video-on-demand as the next big thing for American consumers have been warily eyeing the Los Angeles TV market for some five years now. And now with successful tests in smaller markets in Georgia, Illinois, Pennsylvania and Indiana, execs at Paul Allen’s cable conglom Charter Communications are making their move on the entertainment capital of the world.

In a tiered phase-in for its 638,000 L.A. County subscribers, Charter plans to offer VOD’s two-way interactive capabilities first to its 22,000 Pasadena digital cable subscribers before Halloween. VOD technology — which allows for libraries of programming to be streamed into homes on demand and then paused, rewound and played on TV in a VCR-like experience — has advanced to the stage that company honchos are confident that they’ll live long and prosper in L.A.

Where an early 1990s Time Warner roll-out in Orlando, Fla., ended up in the drink after losing money hand over fist, industry observers think this time VOD will stay high and dry.

“The economics are much more favorable than they were,” says Craig Leddy, senior veep of market analysis at Gotham-based Myers Report.

Among other things, the cost of streaming movies and other content into consumers’ homes is a tenth of what it was six years ago, Leddy estimates. As in the computer market, processing and transmission is faster and cheaper than it has ever been.

Charter’s VOD technology provider, Diva Systems, promises data rates that should give the company’s well-heeled Pasadena customers DVD-quality service when they order up their first films.

“The technology is a slam dunk,” says Richard Doherty, a high-tech consultant at the Envisioneering Group. “It’s ready for primetime.”

Adds Diva prexy and CEO David Zucker: “We’re not nervous about the roll-out (in Los Angeles). The customer feedback in our other markets has been phenomenal.” Nonetheless, the stakes are getting higher.

Failure in Los Angeles — home to the heads of the biggest content-creation factory in the world — is bad news. Any skepticism on the part of the suits that control the destiny of premium properties could be a problem.

Without content — especially big hit movies with favorable release dates — VOD could easily go the way of the laser disc, DIVX or mini-CD. “An efficient delivery of service will be meaningless if there’s little (that) consumers want,” says Leddy.

For Charter Communications, Diva is also its content provider. With agreements with, among others, Warner Bros., Sony Pictures, Universal Studios, Disney and Artisan Entertainment, Diva offers about 400 titles. At the moment, these titles are available simultaneously with pay-per-view windows that are always after the release dates for video rental chains such as Blockbuster and Hollywood Video.

With the studios sharing in the $11 billion bounty that video renting generates in the U.S., no one is expecting the majors to extend the same release window to VOD operators for some time.

“No one wants to piss off Blockbuster right now,” says one industry observer.

But there are advantages to VOD. The cable industry, rocked back on its heels in the past few years by the success of digital satellite services, finally seems to have a product and service to make even the most disgruntled cable customers glad they’re still wired for sound and picture. Because of bandwidth limitations, digital sat services still only deliver near-VOD service, which plays movies for customers on a set schedule not one determined by the consumer.

$25 billion projected

Either through monthly VOD subscriptions or pay-per-play fees, the Myers Report estimates that interactive TV (which includes VOD, e-commerce and other enhanced-TV capabilities) could generate annual revenues of $25 billion industrywide by 2005.

“VOD is going to be one of the killer apps of digital cable,” says Zucker. “It’s a high revenue service.” And it won’t kill off the videostore business, he hastens to add — at least not in the short term.

Zucker says a company study of the households in a Philadelphia VOD test revealed that while videostore visits per month went down in VOD households, they didn’t stop altogether. In fact, the aggregate of VOD buys and video rentals represented a 12%-15% increase in movie-viewing purchases.

Blockbuster enters fray

While no one can definitively say what level of success VOD will have five years down the line, Blockbuster is hedging its bets. Earlier this year, the vid giant announced that it was partnering with Enron Corp. on a VOD initiative of its own. Without access to the cable industry’s digital broadband backbone, Blockbuster’s service will be streamed into homes via telephone digital subscriber lines.

Though DSLs are capable of maximum data rates of 1.5 megabits a second (well below the 3.7 megabits promised by Diva), Blockbuster promises DVD-like quality for its subscribers when it ramps up later this year.

The latest versions of video players from Real Player and Microsoft claim to be able to deliver DVD-quality pictures at data rates of as little as 500 kilobits per second.

“That’s a slight exaggeration,” says Doherty. “But at one megabit (per) second, the video quality is extremely good.”

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