Video On Demand

Sangki Rhim (Editor: Stacy Walter)


Having experienced the long history of video and television, people have reached the point at which they expect to watch what they want, at the best time they desire. It seems to be audiences’ basic needs or ultimate goals to choose their favorite programs and design their own timetables, instead of sitting down and asking ‘what’s on the TV?’ Video on demand (VOD) is a concept that enables this need to be met. Simply put, it is a technology that makes available at-home television programs stored outside the home (Baldwin et al 1995).


Video on demand is a good example which reflects a crucial issue - the convergence between broadcast and telecommunication. All kinds of data, including text, voice, graphics and moving images are converged in the form of digital data and transmitted on a demand basis. Conventional broadcasting stations are now changing into the storage that contains a huge capacity of digital database so a variety of programs can be transmitted to subscribers, responding to their needs. Also, video on demand is accomplished through the convergence of two traditionally big and different industries - broadcasting and film, publishing company (information provider) and telephone or cable industry (network operator) that now can serve interactive digital broadcasting on an integrated broadband system (IBS) or a full service network (FSN) (Baldwin et al. 1995).


Inter-activity is the other significant characteristic of the new communication way that best matches the concept of VOD. Individuals seek information or television programs, then information supplier respond to that. It could be possible that individuals create the contents of program according to their tastes.



Ideally, in order that individual homes are delivered TV programs on a demand basis, a broadcasting station should work like a personal computer at home, which could be accessed at the user’s convenient time nation-wide or world-wide. So, it should function as a video juke box.


First of all, TV programs will be changed into the digitized format and stored in the hard disk of the computer in a broadcasting station. The problem is the fact that video data requires huge amount of storage capacity, even when compressed. And, it costs a lot to equip such a high capacity of server (Baldwin et al 1995). Secondly, a new switching technology is required to send the desired program by a particular route to the subscriber. Unlike traditional circuit switched network (point-to-point), a program should be accessed by multiple user simultaneously (packet switching), then changed back to analog video signal again, which is very costly (Baldwin et al 1995). Asynchronous Transfer Mode (ATM) is the most likely technology for video switching and it promises to answer user bandwidth need.


Most concern for the quality of VOD service is pursuing best data transmission speed over the IBN and its traffic solution. Replacing the standard coaxial wire with fiber optic network is the best known key to solving the problem. For example, some major manufacturers, like Sony Corp, are developing the set-top box for digital converting and interactive functioning, based on computer giant Microsoft architecture, preparing digital transmitting network (Reuters 1995). However, telephone and network companies such as Pacific Bell, Southern New England Telephone, Ameritech, and others have chosen hybrid fiber coaxial (HFC) network, for mostly economical reasons. HFC not only support emerging digital services, but also deliver power to analogue services and devices without expensive set tops or overlay network. Moreover, it can be easily and inexpensively expanded, when fully interactive services do develop (Cadogan 1996).



Traditionally, broadcasting was free of charge in its content. The ideology of broadcasting is changing from the public service into a more targeted one toward segmented audience. It imposes values for the content to the subscribers even more than conventional telecommunication system, charging them on a usage basis.


This could be called narrow casting, and it has been created along the technical change the ways of program delivery: cable television, pay-per-view, near video on demand and finally video on demand over the full service network. On the current network, pay-per-view and near VOD enable audiences to watch programs on demand (Baldwin et al 1995).


Although PPV accounts for only small revenue – just one film per year - it continues with the hope that technical advances will soon permit video on demand for cable, fueled by wireless technology like direct TV. On the other hand, the VOD market is highly constrained by the costs of upgrading networks, which have not generated enough revenue to justify their existences. On the Internet, for instance, its enormous growth rate might fall when users have to pay for the upgraded network access (Garnham 1996).


As a competitor with home video rental store and over-air broadcasting, VOD market is not likely to be a cost-effective market. The video rental market where individual homes consume one video per week remains valuable in its revenue. VOD market, which might take a bite of rental business, will face initial investment costs and tremendous development costs that will be devoted to set up the huge amount of storage capacity, create new network system and so on. After that, huge marketing costs to convince people follows (Baldwin et al 1995). Even if whole traditional home video markets were to migrate totally to VOD area, these would be entirely marginal in comparison with traditional broadcasting revenues. Also, much of the generated revenues would be needed to pay rights.


To decide the economic values of video on demand market, it is important to take into account the relationship between a program provider and a network operator. The programmer wholesales a program service to the operator to retail. The price will be set according to the presumed popularity of the video program, time of day of use, and time elapse since the original release. The profit generated by the item is decided by the costs of its promotion, which both parties are responsible for, as long as the programmer supplies the item that generates revenues for the network operator (Baldwin et al 1995). It is another burden for the operator in charge of supporting FSN. Moreover, only a fraction of revenue from the program would go to network operators, with most continuing to go to the right’s holder of the content (Garnham 1996). As a result, several Baby Bells, notably Bell Atlantic and Pacific Telesis, made humbling retreats from grandiose plans to build high-speed interactive TV systems when cost projections ballooned, and they realized their technology was already obsolescent (Kupfer 1997).



Video is just one of a number of broadband applications that a full service network can support. All kinds of characteristics in the entertainment, news and public affairs will be available on demand.


Films can now be made on a greater range of subject matter, targeted for diverse audience groups, because they are not necessarily viewed on a large screen. PPV and theater audiences are different. Likewise, there may also be differences between the video store market and PPV or VOD buyers, permitting the making of films with greater diversity and creativity. The viewer may be able to receive news according to personal interests, sometimes selecting camera angle for the ‘virtual news rooms’ (Baldwin et al 1995). Another example which illustrates this is that some hotel guest rooms provide the Internet technology via pay-per-view services, allowing guests to plug laptop computers into the net (Worcester 1997).



Video on demand is being developed under two hypotheses. One is that people enthusiastically want to participate in the inter-activity with a television. The other is that people are inherent information seekers.


VOD could be considered a good example of a service which reflects a new communication pattern more segmented toward each individual. It is related to activities like seeking information of one’s own choices, navigating in the World Wide Web. More educated people and younger generations are more energetic in searching into information database, and possibly prefer interactive television viewing. VOD is driven by the conception that activities such as choosing from a large body of programming offered at a wide range of prices, responding to the program or testing themselves with others, and sometimes creating the program on one’s wishes is rewarding to people (Baldwin et al 1995).


However, it is obvious that people are required of extra efforts for this interactive viewing. Since the television programs are now perceived just like any other commodity or service in the marketplace, viewers have to weigh expected satisfaction against price. Even though the viewer will be aided by new previews or convenient navigation systems which provide a full description of menu, they still work on potentially selecting satisfying programs out of vastly expanded choices. Do people really want to be engaged in such activities after a hard day working? We may prefer to spend leisure time in more passive occupation, caught up in the hands of the master television producers. Maybe we do not like being attentive to the program, just because we have chosen it and committed to the cost (Baldwin et al 1995).


If compared with video rental, it is assumed that people want to use interactive TV to save time - to pay bills quickly, get financial information, and save trips to video store. But, if we need to save time so much, as Nieslon surveyed, why are we spending average of almost four hours TV watching in the first place (Schwartz 1995)? One research argues that it is nonsense that coming VOD will negatively impact movie theater market. People would not stay at home with their face stuck in a tube (Meyers 1995).



Through long debates about regulations on communication industry, Telecommunication Reform Act of 1996 opened all communication services to competition. The barriers among telephony, cable, broadcasting and computer industry have been removed. As a result, the telephone companies’ entry into video distribution became possible. Earlier, Bell Atlantic had won against the ban on ownership of video content (Baldwin et al 1995). However, phone companies still would not be permitted to buy cable companies in the same market (Helm 1996).


Policy makers of this believe that deregulation among those industries would generate competition which would lead to advanced telematics infrastructure and better services as well as lower consumer prices. Unfortunately, the public interests threatened by the unexpected monopoly and higher prices for FSN uses that would be brought in the short run. Some critics fear that increased media concentration could eventually reduce diversity in radio and television (Helm 1996).


The first nominee for that monopoly is a telephone company. In the early stage of developing FSN, telephone companies such as the Baby Bells attempted to buy up existing CATV companies to extend the monopoly of local telephone services, lobbying legislators and governors (Noll 1994). Telephone companies hope to offer more than 100 channels of programming, including premium services such as HBO, pay-per-view movies and events, as well as VOD (AP 1995). Moreover, the threat of direct satellite services has prompted the cable industry, their competitor, to focus more on digital deployments and less on telephony services, giving telephone company more breathing room (Levine 1997). MCI recently increased the price of one of its high-capacity circuits, just to discourage companies from leasing them (Kupfer 1997).


There is a need for public policy intervention to prevent this monopoly – ultimately, to encourage universal access, which is the ideology of telecommunication. Seeking to obtain the best possible conditions for the users in terms of quality, choice and value of money should be undertaken by regulators. It includes the constraining of market power of dominant operators where their activities are anti-competitive, and the creation of financial incentives for new entries (Gillespie and Cornford 1996). The financing of public interest information includes direct subsidies to users; indirect budget allocations to public agencies or service providers; or offering subsidy to reach the region where the providing advanced telecommunications services are relatively high (Dutton et al 1996).



The optimistic vision related to impact of video on demand is that it will increase information and entertainment diversity and will enhance individual choice and freedom (Negroponte 1995). On the other hand, the pessimistic vision stresses the danger of monopoly, social isolation and fragmentation (Garnham 1996).


As seen in price discrimination model, customer classes can be separated by pricing across the modes of distribution and within the video-on-demand mode. All consumers eventually have access to the programs, although some consumers have to wait until they can afford to view (Baldwin et al 1995). Likewise, once the program becomes a commodity charged at market prices, inequalities across socio-economic groups occur, creating widening divisions between the ‘information-rich’ and ‘information poor’ (Dutton et al 1996), which could result in immense social and economic problems.


The future of VOD industry does not seem to be extremely bright in the economic realm. Installation of such expensive full service networks, on which VOD would be perfectly working, can be deferred when the market is ready to pay for them. Otherwise, consumer will be making monthly cash contribution for future services, which might take a long period causing consumer sacrifices (Baldwin et al 1995). According to a recent report, telephone companies have been dragging their heels on entering the video market, because markets tests have not shown that customers will support a range of products and services (Levine 1997). Therefore, it is safe to say that, in the foreseeable future, video on demand with FSN will not replace conventional broadcasting media. Rather, it will take durable time until it will adopted to the communication industry.



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