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Insight Analysis: Do We Demand ‘On Demand’?

Insight Analysis: Do We Demand ‘On Demand’?

According to Screen Digest, 26 million housefolds worldwide will be using video on demand (VoD) services by 2005 with the US, unsurprisingly, leading the pack. eMarketer says that there will be 58.2 million interactive TV (iTV) households in the US by this time, this represents over 50% of US Tv households.

By 2005, Screen Digest forecasts that the UK will have 1.2 million users, becoming the second largest market in the world outside the US. However, as the dominant platform for VoD services is predicted to be cable so current issues regarding the future shape of the UK digital cable industry could potentially hamper the growth of VoD services in the UK.

At the end of last year, 90% of all VoD services were provided via cable as cable providers are better equipped to offer superior and wider services to consumers. Satellite operators are more restricted, technically, and are therefore pushing personal video recorder (PVR) services as an alternative.

Video On Demand Forecast Comparisons (households) 
  2001  2002  2003  2004  2005  2006 
UK             1.2 million    
Europe                8.5 million 
US 2.4 million  6 million        23 million    
Global             26 million    
  1.3 million           33 million    
Sources: 
Frost & Sullivan, 2001 
Screen Digest, 2001 
Cahners In-Stat/MDR, 2001 
Wall Street Journal Industry Forecasts, 2002 

Revenue forecasts for VoD vary quite considerably with estimates ranging from $278 million to over $3 billion in 2005.

Comparative US Video On Demand Revenue Estimates ($ million) 
  2001 2002 2003 2004 2005
Kagan World Media 120 490 1040 1950 3010
Yankee Group 70 420 970 1430 1980
Cahners In-Stat 86       1750
Jupiter Media Metrix 16 34 61 113 278
* North America only ** Movies only
Source: eMarketer, 14 March 2002 (all forecasts from 2001)

A survey by Accenture found that the consumer segments most interested in iTV services were willing to pay a $1.50-$3.00 premium over video store rentals for VOD. Jupiter found that 28% of US online consumers are interested in buying VOD-type services from their satellite or cable company.

According to a recent Wall Street Journal article “If there’s one spark that could set off a bonanza for the cable industry, it’s probably video on demand”. The appeal for cable operators to gain advantage over their satellite competitors is thought to be a significant driver in the growth of VoD. According to the WSJ, the cable industry is pushing to increase its number of VOD subscribers in North America from 2.4 million in 2001 to 6 million this year and 23 million in 2005.

Recently Microsoft said that it would now focus on delivering software for simpler “broadcast” services, such as video on demand. In response, video rental company Blockbuster said that it plans to test a subscription service allowing consumers to rent all they can watch for a fixed monthly fee.

This is, to date, the most direct response to the threat posed by VoD services from cable and satellite providers suggesting that demand for VoD services is set to grow dramatically over the next few years.

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