THE NEXT WAVE: ACTIVITY BASED VOD, Article for CTAM Magazine 2002

1. Striking Oil in the Vast Wasteland
THE NEXT WAVE: ACTIVITY BASED VOD
In all the buzz surrounding Video on Demand, with scores of executives and
mounds of data predicting certainty of success, questioning the value proposition
borders on heresy. But with hundreds of channels and thousands of programs
already available, offering more programs over VOD is like trying to sell sand in a
sandstorm. Movies-on-Demand seems like an obvious winner, but is ‘order, pause
& rewind’ enough to inspire viewers to spend more money on Cable TV?
F irst-run feature movies represent
the anchor service for VOD, but
just how many premium movies
can viewers watch each month?
Frankly, some of these titles seem silly
(“History of Squirrel-Feeders”, “Creative
Comb-Overs”?). Can this stuff really
generate excitement amongst cable
subscribers? The answer is a resounding
Luckily, people engage in activities and “Yes”; and the evidence is solid.
interests that extend beyond watching
movies: activities that they are People are downright fanatical about
passionate about, and spend far more their interests and activities, as supported
money on each month than on Cable TV. by the rise of specialty publications:
BY C.J. CORNELL
VOD offers operators a way to tap While people spent $8.4 billion going to
President, CEO
Chaos Media Networks subscribers’ enormous appetite for the movies in 2001, they spent over $10
special interests, where consumers spend billion in specialty magazines alone.
more than $50 Billion annually on media Family, Health, Regional Interest,
products and services. Lifestyle, Travel and Children’s genres
all are in the top ten fastest growth
Just like tapping in to the larger, deeper segments for specialty magazines
oil reserves under the ground, extra work (Magazine Publishers of America).
is required. The terrain is vast; the Niche content generates the highest
opportunity is huge. But you have to CPM in the print, TV and cable
know where to dig, and how to dig, industries. While over $12 billion is
before you can strike oil. spent annually by advertisers on Cable
TV, ad revenues for consumer specialty
HOW DEEP IS THE WELL? magazines approach $18 billion per year,
Before you put in the extra work, how do and special interest book sales exceed
you know the demand is really out there? $42 billion annually (Publishers
How do you know consumers will pay Information Bureau).
for special interest VOD programming?
Fair questions, particularly after But what about video? The bad news is
previewing content that has absolutely that most enthusiasts don’t rent video to
no appeal to your own personal tastes. fuel their interests. The good news is
CTAM MAGAZINE •SUMMER 2002

2. that they buy specialty video in droves. viewer, and then modifying the video
And they typically spend $19 to $ 99 per experience based on this dialog.
video. While aggregate numbers for the
specialty video market are not tracked As a personalized service, VOD product
(by nature it is a fragmented and diverse no longer competes with other visual
market, comprised of thousands of alternatives such as VHS or pay per
categories), initial investigation points to view; the perceived value is much
a market that far exceeds feature VHS higher. For instance – a VOD service,
sales. When you include sales from offering a personalized SAT prep course
educational and related media – the does not compete with a $29 VHS
annual market exceeds $40 Billion. product, instead it competes with the
$499 classroom course.
And the pie gets even bigger. Consumers
devote a certain specific amount of Specialty VOD services need to be
disposable income each month to targeted and available to viewers.
entertainment: movies, television, and Unlike Hollywood movies, which often
VHS rentals. The challenge for operators have millions of dollars marketing
and programmers has been capturing a behind each individual title, special
piece of this fixed-pie. Unlike interest titles have little or no marketing
entertainment, specialty VOD allows prior to their appearance on a VOD
access to a new pie where people spend system. So the challenge with specialty
money on activities other than watching VOD is in providing a programming
TV – often more than $75 per month per mix, along with promotional techniques
category. Digital cable with VOD that draw subscribers to the VOD
functionality is an ideal medium to ‘channel’, and inspires them to watch, to
capture special interest revenues; it just order and to pay. How? While the
requires a little extra work and a answer will change as viewers get used
different approach. to the idea of such choice and control
over programming, the initial approach
ACTIVITY–BASED VOD: is to provide breadth – not depth - of
TRANSFORMING VOD INTO titles, more barker/promotional clips, and
SERVICES provide increasing levels of
Even for movies-on-demand, the most functionality. Next, is to manage the
unique features of impulse purchase, breadth of titles to keep the channel
rewind, etc., focus on a fundamental type surfers browsing. As the service
of activity: Control. While VOD is expands, you must use techniques unique
perfectly suited for fulfilling special to VOD to draw in the dabblers, the
interests, the operative phrase might experts, the closet-geniuses, and the
better be termed “special activities” – Monday-morning starters. All are highly
where VOD can help a subscriber do engaged audiences looking for
something that is important to them. In something to occupy their time and their
short, to create new revenue sources – minds, and are willing to pay for the
VOD must transform into a service. experience.
What makes a VOD service? The right
content combined with the right
technology, allowing the video
experience to guide and help the viewer
learn, improve or perform a task. Video
must be delivered with software
intelligence allowing a dialog with the

3. ACTIVITY BASED VOD IS DIFFERENT
Advantages Disadvantages
VOD • Large market size per title • Little or no advertising opportunities
• Well-known distribution chain • Upper limit cap on pricing: $2.95 - $3.95
Movies • Movies have history of success on TV (PPV, VHS) • Net profit margin low for operator
& Features • No need for “programming” or technology • Competes with pay-per-view, movie rentals
advancements beyond basic VOD. • Release windows and availability delicate and risky
Activity Based, • Higher margins and profits for operators. • Greater viewer education needed
• Content and production costs lower. • Extra marketing promotion required
Special Interest • Intensely loyal and interested audiences. • Extra value-added functionality usually required.
VOD • Numerous advertising opportunities • Perceived competition from other media e.g. Internet
• Broader range of subscriber products & services • More local storage required – titles need to be available
• Viewing less likely during peak hours. for longer windows.
• Appropriate audience for e-commerce / product sales.
• Content less time sensitive – needs to be refreshed less.
RULES AND LESSONS: FOR
ACTIVITY-BASED VOD Here are the top lessons and new rules
Chaos Media Networks has been that are driving us towards the future:
focusing on non-movie, or “activity-
based” Video on Demand for 2 years. In 1. Beauty Is In The Eye Of The
developing and deploying VOD Beholder
products, combining interactive VOD By very definition special interest video
technology with special content licensing only appeals to folks who have a passion
and on-air programming, we’ve learned for that category. One man’s junk is
some important lessons, seen many another man’s treasure. The value is in
surprises and unexpected results. the subject matter and how well it
addresses the interest of the audience –
First, we were unprepared for the not in the production quality. Judging
enthusiasm and energy subscribers special interest video by the same
exhibited when given a taste for activity- standards as “The Sopranos” or
based VOD. We were surprised at the “Crouching Tiger” misinterprets the
level of interest in what we thought was target audience. VHS quality is
somewhat obscure special interest appropriate as long as the program
programming (e.g. “Managing your provides unique information or
Diabetes”). In fact, early when we were functionality, and in fact can be very
merely testing programming, subscribers entertaining (e.g. “America’s Funniest
starting calling to find out how they Home Videos” and types of reality
could order the shows on VHS. Since programming). Many enthusiasts are
we had yet to display any logos, cynical of slick productions; they feel
interstitials or other branding or that too much style hides a lack of
promotion, most subscribers had to place substance.
4 or 5 phone calls to find us. It was
sheer passion about the programs that
motivated them.
CTAM MAGAZINE •SUMMER 2002

4. titles with the broadest interests on the
top menu? Or – since people might find
2. Replace An Off-Screen Activity these titles anyway, do you feature the
A French-language video – which is rarest or most unique titles? It boils
generally tedious and can be borrowed down to programming. It’s different
free-of-charge from the local public than network programming – so either
library – has little extra value offered get an expert or become one.
over VOD. A French lesson, however,
where the cable TV program actually 4. Exclusive Content Is Important;
teaches the subscriber how to speak the Exclusive Experience Is More
language at their own pace and interest Important
level, does indeed have extra value Intuition tells us exclusive content makes
because it competes with a tutor, a class for higher value. The reality is -
or other off-screen alternative. exclusive experience is what people pay
for. Subscribers can see feature movies
in the theater, rent from Blockbuster, see
it on Pay-Per-View, or wait for the
movie to be available on premium or
free channels. VOD’s exclusive value
comes from the ability to immediately
order and control the movie. For non-
movie content, this exclusive experience
extends to personalized programming,
and other interactive, custom and non-
linear video experiences. In other
words: On other media, it’s just a
program; on VOD it’s a unique service.
5. Beware Of False Profits:
Streaming Content
Seemingly low-hanging fruit, streaming
content has tempted many. Companies
who specialize in streaming content for
VOD has the inherent capability to the Internet rarely understand the unique
change the program experience for each issues surrounding VOD-over-cable:
viewer – thus providing a targeted and Delicate MPEG2 encoding, thin-clients,
value-added experience. pitcher-catcher delivery, metadata asset
management, billing systems, non-linear
3. Content Is King, But programming - are all foreign to the
Programming Is Emperor experience of web-streaming content
Subject matter is important to the special companies. Many web-streamers simply
interest audience – but just as important put the buzzwords “VOD/SVOD”,
is the mix of titles, and the context in “Digital Set-top box” on their websites
which they are offered. It’s much more in a feeble attempt to position
than just about aggregating content and themselves for cable programming. The
making the titles available on menus. business model and license rights to the
Since there is limited real estate (both in content generally do not translate well to
storage and in menus) – delicate cable. One day, maybe; but not today.
attention, intelligence and experience
must be paid to exactly which titles are
presented to the viewer. Do you put the

5. 6. Advertising Is OK wake up every day yearning to pay for a
For those of us who have special dance lesson. But if available and
interests and buy magazines – half the promoted the right way over VOD – a
appeal is the advertisements. The subscriber realizes that he or she can
reasons are almost academic: As a golf take a dance lesson in the privacy of
enthusiast, I am always looking for the their own home for $6.95 (a one hour
latest equipment, books, destinations etc. lesson from the local Fred Astaire is in
Ads are just another way I get that the $89 range).
information. And of course buying a
product directly or indirectly is more 8. Guides Are Irrelevant
likely because the source (magazine, Sacrilege, but hear me out. Beyond
video etc.) has established its credibility movies, people don’t search for titles.
with me. Same for specialty VOD, They either look for “something to do”
which also can offer me opportunities to or are enticed to explore an activity they
examine and purchase the product. Oh, might not ordinarily partake. With
and by the way, many VOD subscribers specialty genres – there are simply just
will buy the VHS version of the video too many pieces of content and often the
too. Go figure. titles are vague or misleading. Scrolling
through titles and categories are
impractical.
Viewers need to be attracted to the
programs, or the service must be offered
as a solution to a problem – requiring
unique promotion and on-screen
guidance. Instead of categories, Chaos
on-screen menus and audio/video queues
allow the viewer to ask: “How do I …
get in shape?” or ask a returning
extreme-sports enthusiast “Want to
Scream ‘n Extreme?”
9. Strive To Personalize
At the heart of special interest is
“personalization”. VOD can use its
unique functionality, along with digital
set-top technology, to interact with the
viewer and modify the video experience
7. Your Best Audience May Not
real time. Are we talking about
Know It Yet
Interactive Television? In a sense, yes,
Take a poll, circa 1985: “How many
except the focus is on the TV program
people want to watch autopsy
experience – not graphics. Programs
programs?” The success of these
interact with the viewer, seamlessly and
programs would have been hard to
immediately tailor the video program,
predict, and it took HBO and Discovery
providing a personal VOD experience.
to put their respective forensic programs
VOD over digital cable can offer
on air to attract an audience who
subscribers video programs that
otherwise would have denied interest.
automatically become personalized as
Specialty VOD is the same way, except
they watch – and different every time
people pay to watch. Example: Few
they watch.
CTAM MAGAZINE •SUMMER 2002

6. functionality. How? Chaos provides
10. Make Me A Star ready-answers using video via the VOD
User submitted video: The future of interface (“How do I … change my oil”,
VOD. If you think eBay or chatting on “Help me … train my puppy”) and
the web inspires fervent loyalty – just subscribers know to come back any time
wait until we add the ability for viewers they have a problem. The experience is
to submit video clips recorded using different every time they return.
their home digital video cameras. But
how is this television? Consider “Dating
Chaos” – a program being developed for TAPPING THE WELLS
Chaos Media Networks: Conceptually By adding extra technology to special
it’s a combination between “Blind Date” interest content, VOD can provide
and the old “Dating Game”, where VOD personalized, interactive, premium
viewers watch entertaining dating services that don’t compete with other
programming and then interact with channels. Operators and Networks can
different video clips of attractive provide new categories of services only
potential dates, asking them off-beat and possible with digital cable television.
provocative questions. If you cannot
extrapolate the revenue potential from How do you get started? Operators are
this, then just consider the adults-only already on the right path – deploying
version… SVOD movies and features. The key is
to demonstrate the other potential
11. Make Me Come Back services VOD can offer - now, or else
VOD services are not necessarily subscribers will be conditioned to
impulse-buys. Viewers need to browse, perceive VOD as a glorified pay-per-
preview and come back once they are view channel. Whet their appetite,
ready (“I don’t want it now, but I need to intrigue viewers with a taste for the
know it will be available when I do want functionality, content and services, and
it.”) Example: Traffic School via get them started. This is about creating a
interactive VOD is not an impulse-buy. new mindset about cable television. It’s
I need to be aware that it is available about encouraging a new behavior, and
over VOD for the day when I need to inspiring a new kind of loyalty. The
take the course. But when I am ready – I terrain is vast. Put your stake in the
will pay $89 to avoid spending a ground now. The riches are just below
Saturday in a musty classroom. the surface.
VOD can inspire tremendous loyalty not
only by providing unique content, but
also by leveraging digital cable’s unique
Chaos Media Networks is a Video-on-Demand technology and programming company - with thousands of hours of exclusive
special interest, entertaining and interactive VOD and SVOD products. Through its VOD authoring language, Chaos enables
the creation of personalized, interactive VOD programs that can be delivered over thin-client digital set top boxes, using
Chaos exclusive delivery software. Nearly 1 million subscribers can view Chaos programming today. For more information
contact CJ Cornell at cj@chaosmediaventures.com or visit www.chaosmedianetworks.com

7. A DAY IN THE LIFE – ACTIVITY BASED VOD
More than Movies – Tapping VOD’s new Revenue Streams
Scenario 1: Sunday Driver
It’s Sunday afternoon, and John comes home frustrated. This is the last time he is going to embarrass himself
on the golf course. He considers ways to find out what is wrong and how to improve. Lessons? Videos?
Books? Instead, he turns on his television and is drawn to a program on Golf. As he watches, he is prompted
use his remote control to answer fun quiz questions and quickly finds himself immersed in a television program
lesson that seems to be talking just to him – focusing on his particular problem and giving him specific
pointers. He is told to report back after his next game so he and the program continue on and work on
improvements. All the while John has seen a “Big Bertha” driver that seems just perfect for his level of play,
and a home-training aid – both which he ordered during his lesson. Cost of the lesson? $6.95 – much, much
less than a home video, book or golf tutor – and only possible with digital cable and VOD.
Scenario 2: Network Nirvana
Al just spent the day networking his family’s computers. Now, the printer and the children are no longer on speaking terms,
yet the entire planet can see his disk drive. Nothing seems to work. The online documentation just made this grown man cry.
So he sits back and escapes to the TV. Here, he finds his remote control allows him to ask the TV a question “What’s wrong
with my home network?” with a touch of his remote, a short 2 min program shows him exactly what is wrong – for free.
Meanwhile he also gets the idea that he might soon buy this cool wireless networking card instead of using cable, because he
saw it during this little show.
Scenario 3: Family Fun
Election day is coming and Diane’s three children start asking questions “was Kennedy a president? I thought she was an
MTV host”, “that man is nice – he promises to help old people and can we vote for him?” Mom realizes that her kids should
know more about the process and also learn more a little about politics. She turns on the TV to play a game: Using their
remote controls, the kids watch a guided montage of older and recent campaign ads, and news clips – and have to match
names with faces, issues with proper news clips, etc. The show changes direction, allows them to go back and review the
Kennedy-Nixon debate and compare it to Ford-Carter and Carter-Reagan. Annie, the middle daughter, wins by answering
most of her questions, and gets to choose her own free “Olsen Twins” video next Saturday. She is happy. And mom is
happy spending quality time with her children while teaching them some important lessons.
All these scenarios are only possible with VOD, combining technology, content and
programming. All cost less to produce and represent more potential revenue from per-use fees,
advertising and product placements than movies.
CTAM MAGAZINE •SUMMER 2002