Comcast, Rivals Leaning on Video on Demand

As for where the money is in VOD, some information has begun to trickle in. Insight Communications (ICCI Quote), one of the smaller publicly traded cable operators, said in its first-quarter earnings call that it reaped $3 in per-subscriber revenues in the first quarter. Interestingly, about 26% of the buys for pay-per-view VOD at Insight are for adult movies, according to the company -- programming that has a higher margin than other VOD offerings.

Pay-per-view VOD -- a single program, usually a movie, bought for a one-time fee -- is only part of the VOD story. Operators are also experimenting with subscription VOD -- a rotating menu of programming available on an unlimited basis for a monthly fee. They're also offering hundreds or thousands of hours of free VOD, mostly to familiarize cable customers with the concept of VOD and get them comfortable with ordering it.

Dishing It Out

Comcast, however, says that boosting pay-per-view isn't where the real money is in VOD. "The economic value is derived from subscriber growth," Andy Addis, Comcast's vice president of video marketing and new products, told Wall Street analysts in a May presentation. "It's much less important to us that we drive incremental pay-per-view buys of $4 here, $4 there." What's more interesting to the company is driving subscribers who generate $15 a month in digital service revenue, or basic subscribers who generate an average of $60 a month. "When you look at it and account for economics that way, it's a very powerful play," said Addis.

VOD appears to be an effective customer-retention tool, Addis told analysts. In a study of more than 5,700 new digital services subscribers in Philadelphia -- Comcast's hometown, where it launched VOD on a grand scale last year -- the company found that after four months, 86% of customers who had never used VOD in any form remained as Comcast subscribers. But 96% of people who had used VOD at least once remained. "Clearly, with On Demand, it's about driving usage," said Addis, using Comcast's name for VOD and related services. "Usage equals value. Value equals loyal customers that are more likely to stick around."