VOD is now available to nearly 19 million homes--or about 75 percent of the U.S. digital cable universe, Forrester's Josh Bernoff notes in his report on the various ad models for VOD. While movie buys and usage of subscription content such as HBO On-Demand are increasing, the model is languishing to some degree, largely because of the reluctance of cable operators to pay for quality programming.

Comcast, the nation's number one MSO, refuses to pay directly for FVOD content. For the most part, other operators feel the same way, Bernoff said.

"With cable bills at an all-time high and satellite picking off price-conscious subscribers, cable is sticking to its story: 'We paid for this content on linear channels, and we won't pay extra for on-demand rights,'" he said.

Selling advertising is therefore the obvious solution to this problem. As Bernoff notes, for advertisers, ads in on-demand programs could win back some of the viewers lost when digital video recorder users skip commercials. For networks, these programs could increase audiences by capturing viewers who missed programs at their original airing time. And if ads encourage the producers of popular programs to place them in free on-demand areas, consumers--and cable operators--will also get what they want.

Still, Bernoff said that despite the best efforts of the advertising industry, marketers have yet to get excited about VOD.

"[VOD] experiments have brought in less than $15 million in ad revenues so far," Bernoff said. "Why? Because there's no viable model yet for on-demand advertising."

The main hurdle to overcome is measurement, Bernoff said. Once a viable system of metrics can be instituted, "advertising on demand" will help gain approval from marketers to support VOD.

As for the types of models advertisers and cable operators should look to, Bernoff cites TiVo's Showcases--which allow viewers to opt-in and watch long-form spots from advertisers--and Google, which sponsors "pay by the click."

"TiVo showcases benefit from links in spots," Bernoff said. "TiVo's 3 million subscribers can view its long-form ad showcases--which are a lot like Cox's FreeZone videos. But TiVo doesn't sell its showcases just hoping that viewers will trip over them. Instead, it drives viewers to the long-form ads, using links from its main menu and from traditional TV spots. Ads for the movie "The Interpreter," for example, contain invisible "triggers" that pop up an icon on TiVo screens during an ordinary commercial. Viewers who are interested in the movie can jump into the showcase and learn more."

So the key idea is that TiVo Showcases are worth far more "when you drive traffic to them."

As for Google's pay-by-the-click sponsorship model, if you search for "Seasonal allergies"--and GlaxoSmithKline is happy to pay a dime, or maybe a dollar, to direct you to "ibreathe.com"-- you can learn about Flonase, Bernoff noted, by way of example.

"Paying by the click has turned search advertising into a billion-dollar business that accounts for nearly as much revenue as online banner and display ads," he said. "In the same way, we believe advertisers will pay far more for each viewer who clicks through to its video showcase. Voluntary audience interactions are worth far more than impressions."

Bernoff advises advertisers to invest in advertising on-demand format as soon as Comcast and Time Warner Cable make it available, which he expects to happen within the next 18 months.

As for viewing habits, for people with digital video recorders, all video is video-on-demand, as a new survey from Newton, Mass. Tech analyst Lyra Research finds that DVR users watch more VOD programs than non-DVR users, and these findings held true for both free and paid VOD.

While it seems a bit surprising considering the general assumption that DVR and VOD technologies are competing for viewers' usage, this is not so, said Steve Hoffenberg, Lyra's director of electronic media research.

"We had anticipated that the DVR users would particularly watch less free VOD than the non-DVR users because DVR users can readily time-shift and control their TV shows without using VOD," Hoffenberg said. "Our findings may be because VOD offered content that was not available via broadcast or because the DVR users are more experienced than non-DVR users with time-shifting, and more comfortable operating menu-driven systems for selecting programs. This will be an important topic area to clarify in future DTV View research."

Right now, however, VOD and DVR usage is fairly low, Hoffenberg noted, adding that the study looked at 350 cable-TV VOD users across the country. Also, for VOD, the program offerings are limited, and the technology doesn't inspire much consumer enthusiasm, at least according to some of the respondents, he said. As one survey respondent commented, "VOD is still a work in progress."