Video on demand vital to survival of telcos

18 May 2007

The cash flow and survival of telecoms companies’ content businesses will hinge upon the existence and performance of video on demand (VoD) services, analyst firm Ovum has predicted.

The company predicts that VoD revenues will reach US$12.7bn worldwide by 2011, making it one of the fastest growing digital content services.

Starting from a base of US$2.7bn in 2007, Ovum said it expects to see more telcos around the globe launching on-demand programmes and moving them into the mainstream content distribution market.

“VoD is not a revenue generator at the moment but a ‘must have’ vision of the future in terms of both cash flow and telcos’ content business survival,” said Aleksandra Bosnjak, content and media analyst at Ovum.

“From a content provider’s perspective, telcos and ISPs will be the new contributors to content distribution and film finance, especially over the long-term as the service improves and reaches a more significant scale and enhances its on-demand functionalities,” explained Bosnjak.

Ovum’s forecasts show that over the short term, VoD is not a revenue generator but a vision of the future.

Telcos are facing competition from all kinds of players – from old pay TV media to new digital distribution entrants – and the pressures of network convergence. This, coupled with challenges around content acquisition costs and finding the winning VoD business model formula, will mean that it is not a source of cash for the moment.

“We argue that over the next five years 50pc of telcos’ costs will come from content acquisition and marketing-related activities,” said Bosnjak.

“In their quest for an innovative content strategy some telcos will experiment with various forms of content finance, such as financial backing via minimum guarantees, or go even deeper into the actual co-productions or co-ventures.

“In fact, we predicted this move back in February 2006 when we ran into telcos at the Berlin Film Festival. And we already see it happening with France Telecom and a baby IPTV operator Croatia Telekom Max TV service, which is producing its own short-format shows and by using its own in-house production talent and facilities,” Bosnjak said.

By John Kennedy