Dropping costs to make Video on Demand reality, soon

Video On Demand setup and operating costs are still high, but they are dropping, which may lead to a steady growth in the technology, according to a report by research company Point Topic.

“Operators should expect losses because they would have a large capital expenditure on equipment such as video servers, video encoders, set-top boxes, plus things like subscriber management systems and digital rights management,” said John Bosnell from Point Topic.

Bosnell explained that there are also substantial operating costs in launching and marketing a new service. These costs include negotiating content rights with many owners or a content aggregator, and this is an involved process, especially for operators traditionally associated with telephone and Internet as opposed to TV and entertainment.

“Recouping these costs would mean a period of loss for the VOD operation. However, the point is that costs are coming down now, which makes the period of loss shorter.”

Point Topic estimates that there are currently at least 230,000 DSL and fibre subscribers worldwide with access to true VOD, and there will be over 1 million within 12 months.

Video On Demand enables subscribers to choose from a library of recorded films and TV programming, and watch them immediately on their TV set, usually via a set-top box. Most versions allow the user to pause, rewind or fast-forward. The customer pays a small fee to watch each program, and has access for a limited time, often 24 hours.

The Point Topic report found that because VOD is still in its early stages, quality and range of service are still difficulties faced by providers.

In theory, 1.5Mbps is good enough for VHS-quality video. In practice, the report says, this bandwidth can give poor quality results. Buffering is sometimes used to prevent interruption in the film due to jitter or latency in transmission.

Until very recently, providers have had to use mainly older titles, as content providers have been reluctant to make their products available and Hollywood studios have been taking a cautious approach towards a new medium which may threaten their control over distribution channels.

As the medium and the technology have evolved, though, so have the aggregators - who can form agreements with multiple studios and content providers, and bring this video content to meet a large number of end-users.

The difficulties of providing quality and range come in addition to what have been large initial setup costs, large operating costs and a relatively low end-user revenue.

“The first generation of VOD services failed to overcome these barriers. Most if not all of them have lost money heavily and as a result have either closed down or are shrinking rather than growing their user base,” states the report.

“Now the situation is changing. Initial capital costs have fallen sharply. Content providers are becoming more willing to make their products available. The most successful pioneers are achieving good and increasing revenue per unit. It looks as if video on demand may be starting on a stable growth path at last.”

Canberra-based TransACT is so far the only company in Australia to offer VOD, and has been doing so for three years. It has 16,000 broadband subscribers, 12,000 of which have VOD access.

TransACT’s VOD service comes as part of the pay TV package. Users pay a $20 monthly fee and $2.95 to $5.95 per title, which goes on a monthly bill.

Currently, TransACT has 200 to 300 titles available at any one time, but expect this to expand when it signs up with a new content provider. TransACT claims this will happen in the next two to three months and should enable it to have 70 to 90 per cent of its content as new release material.

TransACT’s content development manager, Ben Kinealy, agrees that VOD has been expensive to set up in the early days due to lack of knowledge, lack of specialist hardware and software, and the difficulties of getting current content.

But, he said, VOD is growing in popularity in Australia and as it does it will become cheaper and have newer and more diverse content.

“When we first started offering VOD, we could only get content that was six months old, now it is three months behind, and that will become even less until eventually we can have up to the minute releases as they do in America.”

“New release is what the public are wanting,” said Kinealy, who would like to eventually develop the library as well.

“You need to educate your audience, but first you need to get their interest,” he said.

Kinealy is optimistic about the growth of VOD, and said TransACT plans to extend its coverage with the roll-out of the network. At the moment TransACT use VDSL over ATM, and plans to use ADSL as well, in the future.

Optus trialled the technology in 2002, and found it to be very successful, but was unable to give details about future plans.

How VOD works

Unlike conventional broadcast TV, viewers can request content.

When the user selects the VOD service, usually from an on-screen Electronic Program Guide, the On Demand Application (ODA) client program starts. This program is generally stored on the hard drive of the set-top box (STB).

The ODA then presents the customer with an electronic program guide that can be navigated around and sorted by genre, title, actor, director or any other category defined by the service provider.

Each title will have additional information, for example pricing, or images, which the customer can look at before deciding to purchase. When the customer decides to buy, the ODA communicates a setup request to the VOD system.

VOD providers can regulate access to titles by ratings and pin numbers. Different members of a household can have different pin numbers, allowing them access to movies with a particular rating.

The session setup request tells the VOD server that a particular video file must be streamed to a specific STB that is connected to a particular hub, connector and video card in the distribution network, whether cable, Ethernet or DSL.

The video server controller uses an algorithm such as dynamic channel allocation (DCA) to create a unique video session, by identifying a complete path through the network, and allocating bandwidth to the session. The controller then assigns an MPEG program number to the video stream, and instructs the video server to start streaming the video.

The video server finds the required file, usually stored on a low-cost high-capacity disk farm. It sends a session setup confirmation message to the client ODA, which tells the STB what tuning settings it needs. The streaming can then begin and the user can watch the video.

This whole process happens in a matter of seconds.

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