NETFLIX AND TIVO'S VIDEO-ON-DEMAND SERVICE

It's interesting to read about video-on-demand's continuing progress and promises, which has been ocurring for over a decade. Warners Bros. will be going through a VOD trial with Netflix:

Warner Bros. has agreed to license some films to Netflix as part of a test run of the Internet company's upcoming movie-download service, according to sources familiar with the plan.

The agreement lends strength to speculation that Netflix and TiVo plan to jointly introduce a video-on-demand (VOD) service in the coming year.

These deals are of personal interest since my first startup was a video-on-demand company utilizing a set-top box with a harddrive over cable or satellite systems. When Jimmy, Peter, and I were starting the company back in 1998, Tivo and Replay were just launching their services... sometime in 1999 if I remember correctly. It was a fun time starting a company from ground zero, pitching our idea to investors, developing the prototype, closing deals, traveling around the U.S.... not getting paid for a while, putting in our money or our parents money, signing up for lots of credit cards, getting rejected by lots of investors, eating rice and spam or hotdogs everyday... okay, it wasn't that fun. Maybe more exciting, but nothing I would change about those times... I was joking about the spam and hotdogs. I ate decently.

Anyway, I was actually reading over our old business last week in preparation for some of my interviews, so I might as well post up some of it:

Our Company
ViewPlus, Inc. is a unique video-on-demand (VOD) service company. We are a seed-stage venture with a patent-pending video-on-demand technology and strategy that distinguishes us from the rest of the field. While most of our competitors are focused pointcast (one-to-one) systems, our service utilizes a multicast (one-to-many) system that is more efficient and economical for our cable and direct broadcast satellite (DBS) partners. Our cost-effective, flexible video-on-demand solution will immediately generate new revenue streams and increase the service appeal for their customers. Additionally, our patent-pending video ordering process and correlating broadband movie portal, with web-based video ordering, will greatly enhance the convenience for our customers and separate us from our competition.
...
Many companies are striving to deliver one convenient package of voice, video, and data to businesses and households. Video-on-demand is one technology within this parcel of interactive services that many companies believe will be a killer app for the future. There are several issues facing our potential partners and competitors:
• Bandwidth availability and allocation.
• Heavy reliance on infrastructure (two-way plants, growth of DSL ).
• High head-end and terminal costs.
• No current video-on-demand solution for DBS operators.
• Slow return on investment for cable operators and video-on-demand providers.

Some cable executives hope that video-on-demand will be the "DBS killer." Current DBS systems do not have two-way capabilities and face bandwidth issues similar to cable companies in providing a point-to-point service. Many cable companies with infrastructure upgrades believe video-on-demand and other two-way interactive services will provide the competitive advantage over DBS services. So DBS companies, such as DirecTV and EchoStar, have no direct counter-measure in sight until they deploy high-powered Ka-band satellites.

For the cable industry, a gap exists until true VOD services will be available to the mass market. For ATM or MPEG Transport based VOD services, widespread infrastructure investment and upgrades are necessary. Industry analysts believe these VOD systems will not become a prevailing reality for at least five years in the U.S. DSL technologies, which are being promoted by telephone carriers, are already being outpaced by cable modem providers. The cable industry is fully confident DSL services and copper wires are not suitable to carry high-quality video. Furthermore, almost every company is focusing on the advent of digital television or other services. Even as cable giants, such as AT&T and Comcast, push for digital service offerings, the reality is approximately 95% of cable systems are still analog-based . All these developments are marred by upgrade costs, competing standards, and movie studios concerned about copyright issues. Given these obstacles, it seems that offering an economically feasible and executable VOD service may not be possible in the immediate future.

Our Solution
ViewPlus was forged to take advantage of these market conditions to provide cable and direct broadcast satellite companies with a cost-effective and scalable video-on-demand solution for their customers. Our flexible patent-pending system can utilize existing hybrid-coaxial cable and satellite broadcast networks which will yield a rapid return-on-investment.

Our solution is a limited version of true VOD. Video orders will go through a short delay before they are fulfilled (an average of 5 minutes for 80% of the requests and no longer than 30 minutes for the remainder). Unlike pay-per-view and near-video-on-demand systems, our solution provides viewers with improved convenience and access to a library of hundreds of movies.

The leading VOD solutions base their technical design on the following premise: subscribers' movie orders and times will greatly varying for each household. In order to support this assumption, a pointcast system seems to be the ideal choice. However, implementing a pointcast system not only requires costly infrastructure upgrades, but the usage of high-end delivery and receiving equipment. Furthermore, market research shows that subscriber video orders do not varying infinitely but actually converge on the top twenty movies, and subscribing times and patterns can be anticipated. Based on these findings, ViewPlus presents a better VOD solution.

We believe ViewPlus offers cable and DBS operators a compelling value proposition to provide our service to their customers. Our competitors utilize pointcast technology (ATM or MPEG Transport), which sends one data stream for each video order. Not only does this solution consume bandwidth, but limits the revenue potential for each stream. Recently, PaineWebber analyst Christopher Dixon stated it would not make sense for AT&T to offer video-on-demand because of the bandwidth a two-hour movie would occupy. He believed companies would provide services that produce the highest return, which is currently voice traffic. For example, under AT&T’s current model it charges 10 cents per minute, so for equivalent network use it would have to charge $12 for a two-hour video stream.

Our major competitors state their system's cost is $350 per video stream with a server supporting 2,000 video streams. They assume for cable operators:
• One system covers 100,000 households with a 20% digital penetration rate, which equates to 20,000 households.
• 10% concurrent usage rate, which results in 2,000 video streams.
• 500 household node with 10% concurrent use rate, which is fifty users at any given moment for each node.
• For fifty users, true video-on-demand solutions are using five 6MHz channels to deliver fifty 3Mbps MPEG2 video streams.
• A 6MHz channel has a transfer rate around 30Mbps , which means 10 simultaneous users can be serviced with one channel .

In examining these assumptions, our competitors face various dilemmas, such as system capacity and subscriber bottlenecks, which can be solved through additional equipment and infrastructure upgrades by cable operators. As the buyrate and number of concurrent users increase, so does the cost for the system operators. In other words, these systems have a fix cost associated with each video stream delivered, while our cost per video stream drops as more consumers use it.