Comcast, Rivals Leaning on Video on Demand

What's the demand for video on demand? Cable investors are starting to get a better picture.

Over the past few years, cable TV system operators such as Comcast (CMCSA) and Cox (COX) have spent billions upgrading their networks to be able to offer advanced video services, including high-speed Internet connections and dozens of additional video channels.

Now, after years of grindingly slow development, video on demand -- one of the harder-to-sell advanced services -- is beginning to show progress. Comcast, the nation's largest operator of cable systems, says it's getting promising results from its rollout of VOD, which permits cable customers to choose programming from a menu, start watching it whenever they choose and control it with VCR-like commands such as pause, fast forward and rewind. VOD, says Comcast, appears to be remarkably effective in attracting and retaining customers.

So with the cable earnings season starting up this week -- Time Warner Cable parent AOL Time Warner (AOL) reports Wednesday, and Cox and Comcast come the following week -- investors will likely be hearing more news about VOD, which Comcast, for one, hopes to have in 80% of customers' households by the end of next year.

Showing the Money

Two major questions regarding VOD loom for the industry. One is, where is the money in VOD? Operators have a good sense of how much cash flow they can generate from offering high-speed, or broadband, Internet service. But it's much less certain how much business they'll generate in the long run from offering movies, television and other programs via VOD.

A second, related question is how effective VOD will be in defending cable operators' turf against incursions by direct broadcast satellite services. Cable companies point to VOD as a service that DBS operators such as Hughes Electronics' (GMH) DirecTV simply can't offer. But DBS operators say that the digital-video-recorder technology they offer along with satellite service, though not directly comparable to VOD, enriches the satellite viewing experience to a similar degree, if not a greater one, than the extent to which VOD improves cable.