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Cost Benefit of VOD Services for Telco IPTV

Today's pay-per-view and video-on-demand market has clearly come of age. Kagan Research forecasts revenues for mainstream movies, TV programs and Subscription Video on Demand (S-VOD) fare will grow at a hefty 20 percent compound annual growth rate (CAGR) in the next decade.

PPV-VOD generated nearly $2.4 billion in 2005 U.S. revenues via consumer spending on cable TV, direct-broadcast satellite and embryonic telco video. S-VOD often presents a pool of programming that consumers access via on-demand for a monthly fee, unlike pure VOD and PPV where there's a fee for each program. Sometimes broadband platforms include S-VOD in basic channel subscription packages at no extra cost. S-VOD is also often offered as a free service to premium network digital subscribers.

"With theoretically no technical constraint on simultaneous use, we expect the telcos to offer a vast amount of content via on demand," says Deana Myers, senior analyst at Kagan Research. "So far, telco VOD and S-VOD offerings are similar to cable TV."

With telcos the latecomers lacking economies of mass scale, their deals for linear channel carriage are costly on a per capita basis. Kagan estimates that telcos pay an average of 40 cents per sub per month in instances where broadcast TV stations collect carriage fees, while cable TV systems average 25 cents.

"Telco's costs for program rights are more competitive to cable's in on-demand programming compared to linear channels, so we expect telco video platforms to aggressively compete in the VOD arena," notes Myers. Of course, cable MSOs and telcos both face growing competition in on-demand from over-the-top distribution to mobile devices such as Apple's iTunes, for which TV program video downloads are a big hit.

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