Internet TV revenue could surge on VOD offerings

Report: Telcos likely to take market share from cable, satellite

By Danny King -- Video Business, 7/2/2008

JULY 2 | Internet-protocol TV service providers such as AT&T and Verizon could see revenue from video-on-demand jump more than tenfold in the next four years. This will come from fiber-optic TV services taking market share from cable and satellite companies, while more people watch VOD and pay-per-view titles.

VOD will account for about 13% of IPTV revenue in 2012, up from 3% last year, as telecommunications companies try to use their on-demand offerings to compete against the more established multichannel system operators, according to research firm Gartner.

Meanwhile, telecommunications companies’ pay-TV market share could triple to 9% during the same time period, SNL Kagan said in May.

Telco companies are likely to capitalize on satellite and cable companies’ inability to get subscribers to use their VOD offerings, Gartner said, citing a survey conducted late last year. Less than a third of worldwide pay-TV customers had purchased either VOD or PPV programming within the previous 12 months, Gartner said.

Amanda Sabia, principal research analyst at Gartner, cited “lack of advertisement of the service” and “lack of instructions of how to go about the request from the provider” as reasons why pay-TV customers ignored PPV and VOD in favor of DVDs.

“They have never tried the service, thus, and are happy with popping in a tape or DVD," Sabia said. "They already know how to pause, rewind and fast forward.”

Whether the VOD jump among telco companies makes a dent in cable companies’ revenue remains to be seen. Verizon’s FiOS, which was started in 2005 and uses Internet protocol for its VOD service, and AT&T’s U-verse, launched the following year, combined for about 1.2 million subscribers at the end of 2007, compared with more than 50 million subscribers combined for cable leader Comcast and satellite leader DirecTV.

Meanwhile, worldwide revenue from IPTV subscriptions may total about $26 billion by 2011, research firm iSuppli said last year. By comparison, U.S. cable leader Comcast had sales of $30.9 billion last year, while 2007 revenue for satellite leader DirecTV was $17.2 billion.

Still, Comcast and DirecTV this year have used VOD to try to lure customers from each other while staving off telco market share, which will increase 8% between 2007 and 2012, according to Sabia.

Comcast in January said it would bolster its on-demand service by providing a high-definition inventory of more than 1,000 show and film choices a month by the end of the year.

Additionally, DirecTV this week rolled out its own on-demand service, which it said will have an inventory of more than 4,000 titles.