• by Brian Wieser , January 3, 2006

In the past quarter, on-demand content finally cemented itself as a meaningful part of the media economy. The torrent of news regarding the availability of significant quantities of legal, grade-A, on-demand content for consumers was nothing short of stunning, given the preceding years of delays. In short, the dam finally burst.

Although issues about rights (how much talent gets paid) and refinements to business models (fees-per-view/download versus full advertising-supported free content) will linger, we believe the advent of on-demand television consumption is at last here to stay.

As of the end of the third quarter of 2005, we estimate that 66 million homes, or 57.6 percent of the total u.s. population, had Internet access. Of this group, 68.7 percent, or 45.3 million people, had broadband access. This compares with the availability of video-on-demand in 23.4 million households and digital video recorders in 9.6 million households. With an addressable population this large, in relative and absolute terms, the availability of premium content has been long overdue.

The impact on conventional media of more pc-based consumption of TV content is difficult to assess, but if past experience with new technologies -- VCRs, DVDs, and DVRs -- is any guide, we would expect that total media consumption will increase. More specifically, we expect to see greater media consumption for several reasons:

>> Consumers will be better able to watch TV in mobile environments, via video-enabled iPods and other portable devices -- realms in which TV content was never easily or legally accessible.

>> Content will be more conveniently accessed. For example, some will use the pc to watch content they would otherwise have missed during a program's original broadcast.

>> Consumers who were more difficult to reach will become more accessible as they shift their mix of online activities or simply add to them. For example, students without a TV who use a pc as their primary entertainment device were, until recently, limited to viewing illegal content downloads or DVDs.

>> Multitasking increases as consumers become more able to consume different media in different combinations (for example, video may play in the background on a pc while a consumer works on e-mail or shops online), and many of the online content introductions will themselves comprise multiple forms of media. Content may be integrated with instant messenger services, blogging functions, and other interactive activities.

Importantly, opportunities to reach consumers through targeted advertising will only increase as a result of these initiatives. We believe the following announcements related to pc-based video consumption were of particular significance to our thesis:

>> The announcement that created much of the momentum this quarter was the news that ABC would offer "Desperate Housewives" and "Lost" for download to a pc or to Apple's video iPod for a fee of $1.99 per episode. (The momentum accelerated, with NBC, USA, Sci-Fi, and other networks making similar announcements.)

>> Other network broadcast content also went online, including UPN's "Everybody Hates Chris" through Google and "Threshhold" through CBS's home page.

>> AOL announced the first quarter '06 launch of In2tv, with content from Warner Bros. Domestic Cable, featuring on-demand streams of oldies such as "Welcome Back Kotter" and "Growing Pains." The same content will also be available in a "DVD quality" format through a peer-to-peer-based service called Hi-Q.

>> NBC/Universal announced a legal P2P-based download service called "Peer Impact," run by Wurld Media. Though conventional TV isn't yet offered, the move represents a notable effort to bring highly desirable content to consumers through bandwidth-efficient, cost-effective P2P technologies. Separately, NBCU's cable network Trio is being relaunched as a broadband-only property beginning this month. Trio introduced free streaming video of "NBC Nightly News" via msnbc.com late last year.

>>MTV Networks launched two new broadband online "channels," MotherLoad and MTVU Über.

>> Comcast began providing two hockey games per week through its broadband portal, The Fan, at no charge to Comcast's high-speed Internet subscribers.

Great strides were made in providing VOD content that could be easily accessed through a set-top box in TV's traditional "lean-back" environment. We believe conventional media will be impacted by cannibalization and by the increased availability of niche-oriented programming.

Cannibalization will be offset by the increased number of viewers attracted to programs through on-demand sampling (because they are occasionally or always unavailable during a program's linear broadcast time), and by those viewers who increase viewing if they gain flexibility as to when they watch a program. Although linear TV will undoubtedly be affected by consumption of on-demand content in place of linear television, we expect increased viewership overall as a result. We would further expect these effects to vary by program and by genre.

More niche-oriented programming can be offered through VOD than through linear TV, as virtually an unlimited amount of content can be stored on VOD servers (most cable operators now offer several thousands of hours of content). By appealing to viewers' unique interests, defined by activities, demographics, or geography, TV can increase its relevance to consumers.

Drivers of these trends in the space-space include:

>>DirecTV and universal's/Universal's deal to make episodes of several popular network programs, including "Law & Order," available on-demand for subscribers with the latest DirecTV set-top box for a fee of 99 cents per view. Using conventional VOD, Comcast and CBS agreed to offer "CSI" and other hit programs to virtually all digital cable subscribers who live in selected CBS markets, also for 99 cents per view.

>> Time Warner Cable's "Start-Over" service, using network DVR technology, is a free service that will be available for specific universal/Universal programs, MTV Networks, HBO, Fox News, and CNN. Local NBC and Warner Brothers affiliates will also participate.

>> Several new nationally oriented only-only "channels" launched this quarter on Comcast, including The Players Network, RipeTV, eebee and DoD.

>> Local based-based properties continue to debut. Recent launches include Time Out New York (on Time Warner Cable), Patriots on Demand (on Comcast in Boston), and high school football on demand (in Dallas on Comcast).

These announcements represent media fragmentation trends to the greatest possible extent. They may initially seem threatening to existing advertising models by virtue of their niche orientation, but we believe that providing content consumers crave -- on-demand, portable, niche-oriented -- means that programming increases its relevance. Because virtually all of the on-demand initiatives described above are designed to support advertising, marketers can only gain from the wide range of opportunities to reach consumers in these highly engaged, consumer-friendly environments.

Brian Wieser is a vice president and director of industry analysis at Interpublic Group of Cos.' Magna Global USA. (Brian.Wieser@magnaglobal.com)