• by January 31, 2002

Internet video-on-demand has been hyped as the coming wave in entertainment once high-speed Internet service is in enough homes, but experts say broadband services now on offer are not ready for prime time.

Video-on-demand providers, such as privately held Intertainer Inc., have had to turn away customers because the broadband in many homes still falls short of the required minimum sustained bandwidth of 500 kilobits per second (Kbps) or more needed to deliver a movie, the companies said.

The emerging services allow consumers to start, pause and resume a film any time they want, typically on a personal computer.

"We basically force people to do a bandwidth test and we probably turn away 50 percent of the people who think they have broadband," said Intertainer Chief Executive Jonathan Taplin.

He and other industry executives met with Washington regulators last week to discuss such issues as consumer confusion regarding broadband services, which include digital subscriber line (DSL) by telephone carriers, cable modem service from pay television operators and satellite providers.

"The FCC is trying to come up with a definition of what broadband is. Today, the only definition they have is advanced service, which is anything above 200 kilobits per second and that's not enough to do video," Taplin said.

"It's as if you picked up a phone and every other time there was no dial tone," Taplin said, referring to the lack of guaranteed bandwidth services needed to stream movies.

The FCC has launched a broad review of the regulatory framework for what regulations, if any, apply to broadband services that span various platforms and technologies.

UNRESOLVED ISSUES, TWO-PERCENT MARKET SHARE

"Many business model issues as well as consumer-side issues must be resolved for Internet video-on-demand to succeed," said PJ McNealy, analyst with GartnerG2, which released a report on video-on-demand services on Wednesday.

GartnerG2 said 10 percent of the 106 million U.S. households have broadband access, but that as of June 2001 only two percent of U.S. Internet-using adults had purchased a digital movie or video download.

McNealy said video-on-demand will remain out of reach for most U.S. households in the near future, including all homes using dial-up Internet service and even the vast majority of broadband households.

GartnerG2 recommends that studios and other interested companies, such as cable and telephone operators, create guaranteed bandwidth agreements or quality-of-service guarantees to ensure a Web stream can be maintained for a two-hour movie.

"Until there is guaranteed bandwidth to the home, delivering movies that must be streamed for two hours will be problematic and consumers are unlikely to tolerate a loss in quality unless there is a big price difference," McNealy said.

Taplin said the broadband capacity to provide such advanced services is there, but that it would take further investments by the industry to tap it.

Intertainer recently expanded its service into the top 35 broadband markets in the country, making it the first widely deployed video-on-demand service featuring Hollywood content.

After turning down 50 percent of potential subscribers, Taplin said the company has attracted about 30,000 registered users to the newly expanded service since October 17.

Intertainer's library features films from major Hollywood studios, networks and music companies. Its content partners include Vivendi Universal's (EAUG) Universal Pictures, AOL Time Warner Inc.'s (AOL) Warner Bros., Dreamworks SKG, Artisan Entertainment and other networks and music companies.

Major Hollywood studios have banded together in two video-on-demand ventures: Movielink and Movies.com. Movielink plans to deliver films to PCs, while Movies.com will be available to consumers via set-top cable boxes and all forms of broadband and Web access.

- Reuters