The See-Saw Fortunes of VOD

A very interesting article by Kate Bulkley (originally published in Broadcast) about the prospects for video-on-demand in the UK. Some good thoughts which are valid well outside the confines of British TV…

Is it time for a serious rethink about video-on-demand in the UK?

There are some winners at the moment, for sure, although not always for the most obvious reasons, and there are some services that are struggling to make their mark.

One thing is clear: online video is growing fast and the success of the iPad will only accelerate that, but as a business proposition, it is still sorting itself out.

BBC iPlayer continues to grow, with a stunning 116 million requests overall in February. But its only requirement is to be accessible and easy to use – not exactly a business model.

For commercial broadcasters, VoD is a more complex equation and there is not yet a consensus about how best to design an online video offering. They need to do it to extend their brands beyond TV and to put a dent in online piracy, but free video online can also take viewers away from linear by trading TV ad dollars for digital pennies.

Even Hulu, the US online video site backed by three of its biggest commercial broadcasters, could soon dump its ad-supported model and become a subscription service. Sky’s chief operating officer Mike Darcy recently criticised the UK terrestrials for “leaping like lemmings” to make online content available for free.

One of the companies currently suffering in this space is SeeSaw. Built on the technical platform assets of the ill-fated Project Kangaroo, SeeSaw’s owner Arqiva paid a reported £8m for it and has since pumped a further estimated £23m into the business. Yet its CEO has just been let go and Arqiva is shopping the service to potential buyers because it will require a lot more funds to get to any kind of scale.

What the SeeSaw sale process underlines is how difficult it is to make it as a standalone business without the power of cross-promotion from a TV channel or some other business model to build the brand and drive traffic. SeeSaw has also struggled to differentiate its offer from the sites of its suppliers, including Channel 4, and has no programmes at all from ITV, which is still sorting out its online offer. When all this is taken into account, any sale price for SeeSaw will likely be only a fraction of what has been invested to date.

And looking to the dominant commercial force in online VoD for lessons doesn’t help. Apple’s iTunes leads the pack, clocking up a 64.5% share of online movie and video purchases in the US in 2010, according to HIS Screen Digest. But Apple makes a negative margin on the content it sells – the iTunes store is more important as a sales tool for its iPods, iPads and Macs than as a standalone profit centre. The VoD sales are just a way of adding more traffic for potential purchasers of its devices.

Online video streaming services like Netflix in the US and Lovefilm in the UK are building their businesses on the back of their subscription postal DVD businesses, but can they transfer that from premium movie content to more standard TV shows?

ITV boss Adam Crozier admitted recently that its online business is “sub-scale”, and he’s right. There is a lot to be won and lost and the battle is only just beginning. Perhaps the biggest challenge is that, even now, no one is sure of the tactics that might help them win.

Read more articles by Kate Bulkley here

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