Movies-On-Demand Will Threaten Pay-Per-View Services.

Jupiter Media Metrix reports that the bulk of revenues for the US video-on-demand (VOD) market will come from the pay-per-view (PPV) audience instead of from the video rental or box office audiences. According to Jupiter’s first-ever VOD forecast, the VOD market for movies will grow to $641.9 million by 2006. To capitalize on the potential of this market, Jupiter analysts advise studios to work directly with cable and satellite operators as well as with potential content distributors such as iNDemand, Starz Encore and Intertainer.

“The industry heralded VOD as the entertainment technology that would unseat the VCR from the home and obliterate the video rental market – that’s unrealistic,” said Lydia Loizides, Jupiter senior analyst. “The greatest value lies in shifting the pay-per-view audience to VOD and generating incremental revenues. Studios, operators, cable networks and the rental market must prepare to counter the effects, both positive and negative, of VOD on their businesses. Failure to do this will result in another blow to the advancement of interactive television.”

Additional highlights and forward-looking analysis from the new Jupiter Research report, entitled iTV and Video on Demand: Appraising the Value of Movies on an Interactive Platform, include the following:

According to a recent Jupiter Consumer Survey, 28 percent of US online consumers are interested in buying VOD-type services from their satellite or cable company. However, while consumers may have expressed demand for additional services, the findings indicate that fulfillment of that desire remains modest.

While 45 percent of total online users rent a video at least once a month, only six percent order a pay-per-view movie or event in the same time period. Jupiter analysts believe that although pay-per-view will be most closely aligned with VOD in consumers’ minds for the near term, VOD’s ease of use coupled with deployment of services, pricing and marketing will lead to greater usage over the long term.

Compared with premium cable, VCRs enjoy a three-to-one penetration advantage over advanced cable products. When Jupiter asked consumers whether or not they expected to purchase or upgrade their cable product, only nine percent said that they were likely to do so over the next year. Eight percent said that they would upgrade or buy a new VCR and 16 percent said the same of a DVD player. This moderate rate of upgrading existing entertainment technologies in the home is another driver of Jupiter’s conservative view for the growth of VOD.

Jupiter analysts have found that in contrast to television, the PC will not be a hub for VOD services and content. When asked about movie-related activities online, only 11 percent of consumers said that they were interested in viewing movies online. Thirty-one percent of consumers said that the Internet was too slow to allow them to watch video. Jupiter analysts assert that direct-to-consumer VOD strategies that focus on delivering movies to a PC are destined to fizzle out before they begin.

Jupiter analysts have identified seven key factors that have a direct impact on the growth of the VOD market: infrastructure, asset ownership, licensing, pricing, marketing, industry influencers and consumers’ demand.

“There is opportunity for content owners to create a new, incremental VOD channel around the pay-per-view and rental window while off-loading the customer-acquisition and capital-investment costs onto the operator. Studios should directly cut deals with operators and other distribution partners, such as HBO and Blockbuster, and become their own distributors. Operators must prepare to handle the impact that VOD will have on customer service – from call-center increases due to service outages to billing, purchases and maintenance,” Loizides said.

For more information at http://www.jmm.com