Selling video-on-demand services to consumers remains a thorny proposition, but the outlook is going to look rosier in two years. That was the message of Monday's TV On-Demand Summit, sponsored by Independent Research Group. The event, held at the Grand Hyatt Hotel in midtown Manhattan, brought together leading players in the evolving video-on-demand business. IRG is the securities brokerage unit of TheStreet.com Inc. ( TSCM), publisher of this Web site. A noontime panel focused on cable giant Comcast's ( CMCSA) experience in video-on-demand. Comcast's remarks carry a great deal of weight, both because the company is the No. 1 U.S. cable system operator and because Comcast has been the most aggressive advocate of the technology. A subsequent discussion explored video-on-demand's advertising promise. Video-on-demand -- a service that enables viewers to select video from a centralized library of programming they can watch whenever they choose -- has been a hot button because Wall Street sees a goldmine for big media companies. Cable/satellite operators and their telco rivals have been hard-pressed in recent years to keep growing and expanding their profit margins. Fans say VOD will allow them to tap into a huge, lucrative market now ill-served by video store chains and the like. Participants in Monday's noontime panel see plenty of opportunity, and soon. Steve Heeb, Comcast's vice president for product and business development, told an audience of IRG clients that "'06 is where the fun is going to come in" for video-on-demand providers. "This is no longer a science project," added Comcast's Mark Hess. "This is now the way people are watching television."
Speakers from Comcast, Time Warner ( TWX) and other industry players added later Monday that targeted advertising holds great promise for VOD companies. SeaChange ( SEAC) executive James Kelso says the technological robustness of video-on-demand should help advertisers target demographics in a way TV has never before allowed. Kelso says that while most people associate digital video recorders like those offered by TiVo ( TIVO) with skipping ads, video-on-demand could help cable operators take ad revenue from magazines and other channels. Bob Benya of Time Warner Cable said the video-on-demand ad business could be especially appealing for entertainment companies and others with a message to deliver. He says the medium's great advantage is that it creates great capacity for direct marketing -- a business that dwarfs the conventional advertising business. Benya suggested Apple's ( AAPL) recent i-Pod ad featuring U2 as an example of a 30-second ad that could be used as a come-on for a longer advertisement -- in this case, a three-minute U2 video in support of the iPod. But the technique may not work for all products, he warned. "It's not going to be ... a two-minute infomercial on Cheez Whiz," he said. In the meantime, Heeb and several other industry heavyweights laid out the hurdles standing in the way of mass adoption of video-on-demand programming. VOD technology suppliers Motorola ( MOT), Concurrent ( CCUR) and SeaChange pointed to the challenges of rival technologies and multiple vendors.
For now, "integration is the key difficulty," said Concurrent chief Gary Trimm. He and SeaChange's Yvette Kanouff pointed to the many variations on video-on-demand set-top boxes, as well as various releases of video-on-demand software. Integration problems have hit all technology providers and all potential vendors -- cable operators, satellite broadcasters and telcos. But Motorola's Mark DePietro, a vice president of systems engineering for the company's digital entertainment devices arm, sees bigger problems for outfits that are new to the video game. "A company like Verizon has a lot to learn about running a video business," DePietro said. Concurrent's Trimm added that it's going to be a "big-time" challenge for telcos to offer the same kind of quality as cable and direct satellite broadcast operators. Another problem comes from the cost of the service and the need to upgrade infrastructure. Comcast has made the loudest noise about VOD, seeking to lead the industry through its deployment and also making aggressive deals to add content. Recent examples include the Philadelphia company's participation in Sony's ( SNE) bid for MGM ( MGM), and its recent deal to offer a large menu of video-on-demand content from the National Football League. Kim Kelly of cable startup Arroyo said the Comcast-MGM deal is going to be "just huge" for the VOD business. Yet even at Comcast, video-on-demand execs have had their share of frustration in getting the resources necessary for an ambitious buildout. "The third year we presented it, we finally got the green light," Comcast's Heeb said of his discussions with his bosses. Heeb cited the elaborate balancing act at Comcast, with product introductions, operational efforts and Wall Street's expectations all demanding attention. "Join Comcast and join the root canal," he added, joking about the challenges of the company's budgeting process. Now, however, Comcast is pushing to be the leader in video-on-demand. CEO Brian Roberts told Wall Street earlier this fall that he expects the TV business to change more this decade than it has in 40 years. The stakes are high, as investors have fled the stock of Comcast and rivals like Time Warner this year amid signs the companies are having trouble holding off the inroads of satellite operators EchoStar ( DISH) and DirecTV ( DTV). Early Monday afternoon, Comcast was off a quarter at $29.25.