• by June 26, 2001

Video-on-demand (VOD) has long been seen as the "killer application" for interactive TV, but expensive set-top box requirements and stratospheric costs per stream have delayed its long-awaited rollout.

This year, equipment costs, plant upgrades, and digital set-top box penetration have finally begun to achieve the critical mass required for commercial deployment. Based on this, the Yankee Group believes that VOD will generate revenues of more than $65 million by year-end 2001, and will reach $1.98 billion by year-end 2005.

The Yankee Group Report, "Video-on-Demand: How Soon Is Now?" notes that despite limited content availability (resulting from the major studios' reluctance to release new titles) and challenging bandwidth requirements for VOD, cable operators are moving forward with wide deployments of the much anticipated--and much delayed--VOD service.

"A host of services have been bundled under the term 'interactive TV,' and this has resulted in a lack of clarity regarding both the deployment and the practicality of interactive TV," said Adi Kishore, analyst with the Yankee Group's Media & Entertainment Strategies Planning Service. "Now we are beginning to see a focus on individual iTV services by MSOs, and a decision to selectively deploy those that offer a clear revenue stream, reduce subscriber churn, and are difficult or impossible for satellite operators to match. Video-on-demand best fulfills these criteria, and will be rapidly deployed by cable operators over the next two years," Kishore said.

Some of the key findings included within the Report are:

- Cable operators will drive the deployment of VOD.

- VOD will not be widely deployed in the short term by telcos.

- VOD will be deployed despite bandwidth constraints, although this may result in occasional denials of VOD service.

- Initial content limitations will not restrict rollouts of service but will affect buy rates.

- Over time, content choices will grow from primarily movies on demand to a broader slate of programming.