European Cable Operators, Telcos
Eye Video-on-Demand

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By Alan Breznick

Alan Breznick, a veteran business journalist, is editor of Television A.M. and Cable Datacom News.

It looks like this will be the year when video-on-demand (VOD) will finally make its long-awaited debut on European cable systems.

Several years after their MSO counterparts in the U.S. and Canada launched VOD in their first experimental markets, several European cable operators are quietly gearing up to conduct market trials and plot pilot deployments of on-demand services in England, Austria, and possibly elsewhere in 2004 and early 2005. Industry officials expect to see such leading European MSOs as UPC, NTL Inc. and Telewest Communications at least tinker with VOD over the next year as they expand their portfolio of new digital video services.

"They're all keeping the video-on-demand suppliers busy," says Del Kunert, vice president of international business for Concurrent Computer Corp., one of Europe's three leading video server and software providers. "We expect to realize some VOD revenue in 2004."

The renewed focus on VOD comes after some lengthy, frustrating delays, caused by a slumping European economy, regulatory hassles, lack of programming and, most importantly, crushing MSO debt. After spending large sums to upgrade their plant, UPC, NTL and Telewest - three of the four biggest European cable operators - all put their expansion plans on hold the past couple of years while they carried out painful reorganizations to cut costs, slash debt and generally put their financial houses back in order.

"The cable industry has not been into heavy capital investments for the last 18 months to two years," says Susan Elkington, executive vice president of arrivo on demand, the on-demand services unit of UGC Europe's chellomedia division that's putting together content packages for UPC (also a UGC Europe division) and other cable operators and phone companies. "Now it's shifting back into gear."

The cable industry's shift into gear also comes after several aggressive telephone companies have upgraded their lines and started offering their own on-demand services using DSL technology. In the two most widely cited examples, FastWeb is now providing VOD service in Milan, Rome and other Italian cities while Telefonica is rolling out VOD in Madrid, Barcelona, and at least one other Spanish city. More phone companies are expected to follow their lead.

"In Europe, the telcos are much more active," Kunert says. "They have emerged with triple-play packages (of voice, video and data) that are a significant threat. It's nowhere like it is in Europe."

Lastly, the new cable push into the fledgling European VOD market comes as DVD player sales, which have lagged behind U.S. DVD sales, are taking off across the continent. In its most recent report on VOD and DVDs in the European market last year, Forrester Research projected that consumer penetration of DVD players will soar from 19 percent at the end of 2002 to 53 percent in 2005.

As a result, European cable operators, many of whom already have expanded into the telephony and high-speed data markets, have been seeking to shore up their core video businesses. As part of this effort, they've been starting to roll out such new video products as basic digital cable, digital tiers, additional premium channels, near video-on-demand (NVOD), impulse pay-per-view (PPV), and interactive TV, among other things.

For example, UPC, by far the largest MSO in Europe with 10.4 million homes passed and more than seven million customers, has been launching digital video services throughout its footprint as it upgrades its plant to two-way, 860-MHz hybrid fiber-coax capacity. As of the end of 2003, the company's most recent reporting period, UPC had signed up more than 139,000 digital cable subscribers in five countries - the Netherlands, Austria, France, Norway and Sweden.

Now European MSOs are getting ready to introduce true VOD. Although few, if any, cable operators are discussing their business plans much publicly yet, VOD vendors and other industry executives expect to see a flurry of product launches over the next year or two.

"There is absolutely activity happening," says Yvette Gordon, corporate vice president of strategy at SeaChange. "It's a great time. People are getting it."

Industry officials say UPC will likely be the first out of the gate later this year.

"I think UPC is further along than anybody," says Ken Pike, general manager of Europe, the Middle East and Africa for nCube. "They've been doing (technical) tests and trials for a couple of years."

NTL and Telewest seem to be the European MSOs most ready to go next, either at the end of this year or more likely sometime next year. Industry officials say NTL is working on a small trial with SeaChange International, the third main video server and software provider, in Scotland. NTL and Telewest executives could not be reached for comment.

Industry officials are optimistic about VOD's prospects in Europe because they say the stars have finally aligned for the business. The European economy is rebounding. Cable operators have slashed their debt and boosted their capital budgets again. More than 3 million of Europe's 40 million or so cable subscribers have signed up for digital service. Motorola, Pace and Thomson are making digital set-tops equipped for VOD. arrivo on demand, On Demand Group, and other European companies are producing and aggregating digital content. And technology costs have fallen dramatically.

"I hope that between now and the end of the year, we'll be able to talk about actual launches," SeaChange's Gordon says. "It's inevitable. It's going to happen."

Pike says nCube engineers now estimate that it will cost cable operators around $250 per video stream to deliver VOD services to their digital subscribers. Assuming that on-demand customers buy an average of one and a half titles a month at $3 to $4 a pop, he says, "a very realistic business case for VOD calls for payback in less than 18 months."

To be sure, some major hurdles remain for both cable and phone providers. Consider the costs of the technologies to deliver VOD. Despite the progress achieved over the last couple of years, those costs are still high, particularly for the phone companies. Industry experts say the further development of MPEG-4 set-top boxes will make a big difference.

Or take the issue of compelling programming, such as hit movies. In Europe, the average Hollywood film is not available for PPV release until six months after it hits the video stores, as opposed to an average of just 50 days in the U.S. "We need reductions in those (release) windows," says Peter Haggart, senior vice president of programming and marketing for arrivo on demand.

Largely as a result, Forrester predicts that VOD won't really be ready for prime time for another year. In its report, the research and consulting group projects that European providers will struggle to get "blockbuster content" from Hollywood until they can make VOD available to a critical mass of at least 2 million homes.

But, unlike the U.S. market, major Hollywood movies may not be as essential to VOD's success in Europe. Industry officials note that European TV viewers also show a strong appetite for other entertainment fare, including locally produced movies, documentaries, nature specials, kids' shows, music programs, dramas, comedies and adult programs.

"I think everyone's looking at movies," Gordon says. "But I think it's going to end up being niche programming in Europe, not movies."

In another key difference, VOD experts note that European couch potatoes are different from their American counterparts in other ways too. Notably, for instance, European TV viewers simply watch much less TV than U.S. viewers.

"A truism is that the consumption of entertainment across all mediums tends to be greater in the U.S.," Haggart says. He figures that the U.K. market probably comes closest to matching the U.S. market, followed by the Norwegian and Swedish markets.

One more catch for such multinational MSOs as UPC is that Europe, unlike the U.S., is a market with many different dominant cultures and languages. So the VOD programming that works in, say, the Netherlands may not go over in Austria. And even those movies and TV programs that can cross national and cultural borders must be translated into multiple languages.

Despite such problems and differences, the experts believe that VOD's promising early performance in the U.S. and Canada still bodes well for the service's prospects in Europe. They argue that VOD will prove to be a far superior product to NVOD across the continent, just as it has already proven to be in North America.

"There's no reason that growth should be any less than what's happened in the States," Kunert says. "There's no reason to expect that won't be the case in Europe. If anything, video-on-demand should be a bigger deal internationally than in the U.S."