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Is There ROI in VOD?
Posted Aug 12, 2003 Print Version     Page 1of 1
  

With the stock market seesawing back and forth from bull to bear on a daily basis, it's difficult to evaluate realistically the potential of certain niches of the digital video market, but anyone interested in the future must at least try. If the raw numbers rolling out of Wall Street are at best inconclusive, the good news is there are several indicators one can look at.

Take the Video On Demand (VOD) market, for example. Does it have any potential? Is it growing at all? Is anyone actually making any money by offering VOD services and technologies?

Well, Concurrent Computer Corporation says that it is making money on VOD. In fact, Concurrent's VOD division is outperforming its long-established (35-years old) Real-Time Division. The Duluth, Georgia-based company recently released its quarterly financial statement in which it reported its fourth consecutive year of growth in Video-On-Demand revenue from its XSTREME Division. The division aggregated $48 million in fiscal year 2002 compared to $23.8 million in fiscal year 2001, an increase of 101%. VOD revenue in the fourth quarter of fiscal 2002 increased to $17.4 million from $6.2 million in the fourth quarter of fiscal 2001, an increase of 182%.

While these profits are not huge, they will surely give hope to others who are pursuing the VOD market.

And the future for Concurrent Computer looks even brighter than the past. Even with the recent delay of a couple of expected new VOD market deployments, Concurrent anticipates five to six new VOD market deployments supporting revenue from sales of its VOD systems in the range of $13 to $14 million in the fiscal first quarter.

"There are a number of positive indicators which bode well for on-demand services," says Steve Necessary, president of Concurrent's XSTREME Division. "The documented accounts of movie-oriented VOD and subscription VOD (SVOD) resulting in reduction of subscriber churn, increased premium channel subscriptions, and overall higher customer satisfaction are very encouraging to Concurrent, and, indeed, the overall industry."

Concurrent's XSTREME Division provides digital VOD systems to the broadband industry. This market includes broadband VOD and rich streaming media applications such as corporate training, education, hospitality, and digital video-to-the-home. Concurrent's technology provides a flexible, comprehensive solution for HFC, DSL, and IP-based networks. The company's powerful and scalable VOD systems are based on open standards and are integrated with all the leading broadband technologies.

Concurrent's earnings from operations for all of fiscal 2002 were $3.7 million compared to a loss from operations of $5.6 million in fiscal 2001. Net earnings for fiscal year 2002 were $4.4 million compared to net losses of $6.2 million for fiscal year 2001. The company's gross margin on sales also grew to 49.9% in fiscal 2002. This increase is largely due to the lower product costs associated with the MediaHawk Model 3000 Video Server, according to a company press release.

"We are extremely pleased with our financial performance," says Jack Bryant, Concurrent president and CEO. "We have managed to deliver profitable growth under very demanding market circumstances."

Bryant continues, "As of the end of our fourth quarter, Concurrent had 39 system-wide deployments completed or in process with six of the top eight multiple-system cable operators in North America. These cable operators have purchased video stream capacity of 196,000 streams for their base of 10.4 million basic subscribers of which 3.1 million are digital subscribers."

Why VOD? Why Now?

So why is VOD suddenly hot? It's because the cable companies are finally catching on, says Concurrent vice president of product development Joe Parola.

"VOD is a key differentiator for cable companies, especially with their archrivals the satellite guys," says Parola. "VOD allows cable companies to round out their services and provide a complete digital video package."

The satellite services are not offering VOD, Parola explains. Instead they are offering TiVo-like personal video recorder (PVR) features. Essentially, that means that you have to decide ahead of time what movie or program you want to watch and schedule it to be downloaded to your set-top box during off-peaks hours—say late at night, for example. These PVR systems have inherent limitations that make them far inferior to a true on-demand system, says Parola.

VOD will really take off when consumers start experiencing it, Parola predicts. "Video-on-Demand gives you what you want when you want it, not when some programmer wants to put it on," he says. "When you have VOD, your whole view of TV starts changing." Parola says he told his daughter that when he was a kid he could only get three channels, and she laughed. "Likewise, in the near future, kids will laugh at us when we tell them about TV before VOD," says Parola.

Right now, the consumer segment (read: movies on demand) dominates the Video On Demand market, but that segment will get saturated quickly, says Parola. Then, providers like Concurrent will start more actively pursuing the other niches. Take "business TV," for example. Parola calls it a "nascent market," and says, "We're not seeing a lot of action there, except in some medical areas."

Of course, the ultimate advantage of VOD is its ability to deliver real-time two-way interactivity. VOD could capitalize on interactivity to provide entertainment experiences beyond linear movie viewing. But right now, that idea is fairly embryonic. Concurrent is not yet taking advantage of two-way interactivity, but Parola is confident its time will come. Eventually, he believes, it may even be huge. "There may be some kid in a garage somewhere who is dreaming up some interactive digital video application we've never thought of," Parola says.
—Mark Fritz

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