Thursday, February 02, 2006

Video on Demand...Home Truths?

First off, download technologies / streaming technologies are a little off the mark (at present) when it comes to understanding consumer patterns in video and in Internet usage generally. It goes against the grain to have expiration dates set on video downloads (sky’s seven day limit for example) or indeed to have them delivered in any format other than moveable, transferable, ‘copiable’ MP4’s or some such format. As networks get faster, as downloads speeds increase, and as hard drives increase in capacity, it will become easier to share content. We are not far from the Terabyte standard issue home computer; PVR’s and HD Recorders are beginning to proliferate. The capability for storage, high quality reproduction and fast transfer is just about upon us. Just as MP3’s needed broadband access speeds to facilitate mass ‘piracy’, so too the networking, storage and playback technologies as they progress will facilitate similar levels of access to ‘video’. At a very simple level, the flow of audio visual packets to a monitor or display device can be intercepted at several points along the lines of current technologies. My TV aerial goes into my VCR, as does my Sky Box, the VCR goes into the HD Recorder, and that goes into the TV. This ecosystem cannot be radically disturbed by the introduction of online video on demand (the hardware manufacturers would go crazy!) and therefore the potential for copying is exacerbated. The technologies deployed to avoid this are like pushing rope – it won’t work. The history of the record industry is exactly the same, and will be followed by the movie industry.

Second, it is not necessary to provide video on demand exactly ‘on demand’, with all the network load issues that that represents. The night that Brokeback Mountain is released, no doubt many many users will all want to watch it at 8pm. However, no-one does this right now, and it’s not a burden. You pick a DVD up on your way home from work – at 6 or 7 – and settle in after making the popcorn, having the dinner, whatever. Similarly, if you’re ordering an online video, you can take your time to browse the titles on offer, order it while sitting at your desk in the office, and know that it will be available for you later on when you get home. If the process of watching the movie also involves the purchase of the movie (i.e. you need to have the popcorn ready before the purchasing point) then the dynamic shifts, and if the Simpsons is on TV then you may as well watch that. On demand may find itself in a different competitive category if it shifts the purchasing dynamic too aggressively. Therefore the delay is actually a good thing, not just for network economists, but for the behavioural analysts too!

The guys in Hollywood, and in the big telcos need to understand net economics, technology economics, and a little bit of behavioural science while they think this one through. Is this merely a reaction to potential piracy, or a legitimate strategy that the studios need to make? It should be the latter, but perhaps the former is a little ahead.