So, I was having a conversation with a friend of mine a while back. I had called her for some insight into the mind of cable operators and how they think about CE (consumer electronics) in the home. The conversation digressed, as it usually does, into the fringe area of how consumers use CE to access and consume content. Her argument was that it is expensive for a cable operator to continually provide set-top boxes with hard disk space in the form of a digital video recorder (DVR) to customers. She thought that as customers' needs grow, so does the size and capacity of the set-top box itself, as does the need to expend more in capital upgrades, and so on and so on. Point taken.
Then I remembered a conversation I had had a while back with another cable executive who had said one of the most provocative statements I've heard--well, at least about technology. We were talking about video-on-demand (VoD) and whether or not it was a "failure" in the eyes of the industry. Being who I am, I kept saying, "show me the money!" and he kept saying he would ... in time. Hmmm. Go on, I said. Well, he said, how about we look at it this way: VoD is a necessity right now. The industry has spent the money. The content is being aggregated and new channels are being launched on the platform. It's a bit late to stop now. But why would the industry want to stop? DVRs are hotter than hell. They cost a lot. What are in my best interests as an operator over time? Get my customers weaned off the DVR and use my VoD infrastructure to support personal and all "linear" programming. Hmmmm. So Mystro proved it could be done technologically--the poor sods just couldn't make the licensing work (Cablevision, by the way, is about to test the legality of caching content at the head end for later consumer use). That, he said, should be the goal of cable--to move from the physical platform to the virtual platform, to be able to better manage the network. And then it hit me. He was right--but not for the reasons he expressed.
Now, fast-forward back to my conversation with my girlfriend. Here, I say, is my thesis: DVR is the stepping stone to VoD. Why? Because of the consumer, silly! Create something tangible, something that they can see and feel and it becomes real to them. Once customers understand and are proficient at time-shifting content, it will be easier to transition them to a virtual, on-demand world. DVR is an emotionally satisfying experience not only because it allows people to watch television on-demand through their own control. Part of that experience is also that they can "connect" with the product--they see the box, they see the lights, they feel the remote in their hands. Over time, when the content migrates from the physical to the ether of the head-end, consumers will still press the same buttons, they will still see the same menu, they will still see all their programs--it just won't be housed on an archaic hardware device. And by then they won't really care. Because they will have been taught, gently, how to watch television in an entirely different way. Now that, my friends, is consumer-friendly.
Which begs the question--why are we so focused on the DVR? Shouldn't we be focusing the majority of our efforts on understanding how to monetize and familiarize marketers with VoD in preparation for the inevitable transition? Shouldn't the cable industry be going out of its way to share usage data and build interfaces for creating metrics that will become the lingua franca of VoD CPM? MAGNA Global, an IPG Media company, has estimated that by the end of 2006, there will be approximately 18 million DVR households versus 30 million VoD households. By 2010, those numbers will be 34 million versus 65 million--in favor of VoD households. So I ask you, why have we been clamoring over the impact of DVR? Shouldn't we be celebrating the possibilities that VoD offers brands? More importantly, have I just drunk too much of my own Kool-Aid? You tell me.
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However, in today's marketing community discussions, VoD and DVR's are different, and even if the platforms merge at a technical level, we need today's lessons from both platforms.
VoD is about channel proliferation, about micro-audiences, about millions of programming choices instead of 'merely' hundreds. About pushing marketing material as stand-alone content! (Before someone reminds me, yes, I know infomercials existed well before VoD and I do watch the ads in the Super Bowl). There is so much content that the concept of a linear channel doesn't compute. Think YouTube.
Today, DVR's are about our control, as consumers, over content. Including advertising. Even once we learn to manage and measure across a proliferation of channels, we will still have to contend increased consumer control. We will need to know how to get our message through, past the ad skip / fast forward and through all the mental filters, to make an impression on our audience. If we skip these lessons, there will not be enough impact left to measure.
I find your comments about weening consumers on to and then off of the box intriguing. I always felt it was a control issue for the cable companies, but this perspective puts a different spin on it. Like the internet, can the consumer make the shift without a box to see and feel? Maybe.
I've been through the telecom, Bell System, world and now the cable world as a marketeer recently assisting cable companies across the US. In both worlds these companies have difficulty and resist releasing new technologies that evolve and disrupt their status quo. It usually takes someone else to disrupt their world (e.g. TiVo, MCI, satellite, etc.) before they feel the pain and jump on board. I think that VoD replacing DVR is a ways off because the cable operators are reluctant to provide full content via VoD. Consumers want to DVR whatever show they want and then watch it whenever they want (time shift and space shift their viewing). This creates an advertising dilemma for the cable guys.
I'm not convinced that the telco guys are going to cause that paradigm shift either as they try to enter the video market. Most likely the real shift will come out of the internet world, by a small start-up who later gets gobbled up by one of these big guys who they proceeds to slow the process down just enough to protect their current revenue legacy.
Questions to answer are 1. Storage of the huge amount of programming content (likely will need to be a shared distributed architecture (think Napster)? 2. How to collect revenues (will consumers want a pay per view format; other options)? 3. How to provide advertising to selected viewer demographics and programs (streaming, between programs, included within, etc.)) 4. How to promote new programming if most programming is time shifted?
I welcome the shift, but I'm not going to hold my breath that long. The cable and telco markets need to learn how to shift their own paradigms.
P. Stephen Lamont CEO, Iviewit Technologies, Inc.
Your columns are like a breath of fresh air - please keep them coming!