Has OTT's Growth Prompted Comcast to (Finally) Enable Viable VOD Advertising?
Bill Niemeyer, Senior Analyst
May 6, 2011
Last week, Comcast launched an expansion of its cable VOD service, adding over 20 primetime TV series from ABC and FOX. This makes Comcast the first Pay TV operator to offer current primetime shows free on demand from all four of the broadcast majors. By my count, Comcast VOD now features 51 broadcast network series (ABC - 6, CBS - 13, FOX - 15, NBC - 20).
In itself, this service expansion is not necessarily that dramatic. For several years now, Comcast’s VOD service has featured a selection of primetime series from ABC, CBS, and NBC, and this is an extension of that offering. That said, what’s most interesting is the possible "why" of this announcement, and what it might mean for cable's ability to use VOD to compete with OTT services such as Netflix and Hulu.
The "why" is alluded to in a Multichannel News article on the announcement. Marcien Jenckes, Comcast's SVP and GM of Video Services, is interviewed by Todd Spangler who reports "Comcast is testing dynamic VOD ad insertion—in Richmond, Va., and Jacksonville, Fla., systems—and expects to roll out the capability to its entire footprint in 2011, Jenckes said."
The rollout of dynamic ad insertion (along with improved measurement) is a significant advance for the viability of cable VOD as an ad-supported TV platform. And while the cable industry has a long history of making public assertions of rollouts of advanced TV advertising capabilities that take a very long time to happen (or don't happen at all), the indications I can gather say Comcast's VOD ad insertion rollout is real and underway now.
Thus the "why"—it seems a reasonable assumption that ABC and FOX have agreed to launch more primetime shows in VOD based on Comcast promises that VOD ad insertion and measurement will be in-field within the year.
So far, VOD has been hamstrung as a monetizeable advertising platform due specifically to the lack of ad insertion and measurement. For years, advertisers and networks have made it very clear to cable operators that they need these capabilities to participate actively in VOD. Nonetheless, the MSOs have continued to delay deploying ad insertion and measurement, despite vendors being ready and eager to supply the technology. This means cable VOD has been without much of the programming that dominates American TV viewing—top-rated current broadcast and cable network TV series.
The lack of these shows has constrained the growth of cable VOD at the same time OTT vendors like Netflix and Hulu have entered the on-demand video market and experienced dramatic growth.
At least in the case of Comcast, growth in average VOD usage per VOD accessible household has actually stalled out, running flat for the past four years. This is not to single out Comcast; it's just that it has been the most forthcoming with public releases of metrics on VOD usage.
Comcast VOD service is now available to its 20 million digital cable subscribers and, according to Comcast, averages 350 million VOD views per month. This means the average Comcast VOD-capable household averages 17.5 views per month. Compare this to past periodic Comcast VOD metrics in press releases, earnings calls, and executive conference presentations, and it shows Comcast's views per VOD capable household grew until mid-2007 and then stopped growing, holding in the 18-20 views per month range since.
During the past four years, while Comcast's per household VOD usage has stopped growing, significant growth has occurred for premium on-demand video enabled by Internet video delivery and OTT models.
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Hulu's CEO Jason Kilar estimated in a recent blog post that the company would generate $500 million in revenue in 2011 (up from 2010's $263 million—an easy assumption to make is that almost all of these revenues are from advertising). Considering that cable VOD ad revenues in total are likely in the $100-$200 million range, Hulu's $500 million in on-demand video advertising revenue has probably gotten the attention of TV and cable executives who see ad sales as a zero-sum game.
Deploying dynamic ad insertion and effective measurement is a key step for MSOs in getting cable VOD "back in the game" to compete for consumer usage and advertiser revenues. Of course, the issue of the poor search and discovery afforded by cable STB program guides—barely updated since the advent of digital cable—needs attention (operator-deployed PC, smart TV, and iPad apps can provide a near-term workaround for some of an operator's subscriber base).
The fact that Comcast is finally strengthening VOD as an ad-supported TV platform is one more indication that OTT models are having a real impact on the business of TV. No doubt other cable operators will follow Comcast’s move, and in turn OTT providers will be impacted. A better portfolio of ad supported TV shows on cable VOD provides stronger competition for consumer and advertiser dollars, reinforces the already strong network/operator carriage relationship, and likely raises the costs for on-demand TV content deals, as well.
Towards open disclosure - Bill Niemeyer was a past employee of BlackArrow and owns stock in the company. BlackArrow is a vendor of advanced video advertising technologies, including for VOD. Comcast is an investor in BlackArrow and has an announced deployment of BlackArrow VOD advertising technologies in Jacksonville, FL.
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