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The Premium Movie Channel Paradigm Could Soon Face


Extinction

by: Terry Mitchell

The article sent shockwaves throughout Wall Street, as the


stock prices for both TiVo and Netflix shot up. Last
September, a Newsweek article reported that TiVo and
Netflix might be getting together to produce a true form of
video-on-demand (VOD). Last week, a Netflix official fueled
this speculation by dropping hints about a potential joint
venture. TiVo, the original and premier provider of digital
video recorders (DVRs) in the U.S., would eventually provide
instantaneous online access to the entire DVD library
(currently more than 35,000 films) of Netflix, the nation’s
number one mail order video rental service. This would be
accomplished via a broadband internet connection to
specially equipped TiVo DVRs. This development could also
spell the beginning of the end for premium movie services
like HBO, Showtime, and Starz.

First, let’s put all of this into perspective with a little history of
the premium services. Home Box Office (HBO) was the first
premium service, debuting in 1975. It was one of the first
channels beamed from a satellite and carried by cable
operators across the country. As its popularity grew in the
late 1970’s, several other premium services like Showtime,
Cinemax, The Movie Channel, as well as some lesser known
premium services came into existence. The industry started
consolidating in the early 1980’s as HBO bought Cinemax,
Showtime bought The Movie Channel, and those lesser know
services went belly-up. In the early 1990’s, the Starz-Encore
networks debuted to compete with the HBO and Showtime
networks.

During the mid-1990’s, as satellite services such as Directv


and Dish Network debuted, the premium services began
offering “multiplexed” channels, i.e., multiple channels of
HBO, Showtime, Cinemax, The Movie Channel, and Starz-
Encore for the price of one. Unfortunately, the number of
movie choices didn’t increase. Those services just began to
air their same libraries of movies at different times on their
various multiplexed channels. There are hundreds of movies
at local video stores that have never played (and will never
play) on the premium channels while there are a
comparatively small number of others that have played on
these channels thousands of times. That has always been
the major weakness of the premium services. Multiplexing did
not fix this problem.

Several market tests of VOD were conducted during the


1980’s and the early 1990’s but, because the technology was
rather primitive, it did not catch on with consumers. By the
late 1990’s, it finally seemed ready and lots of promises were
made about the brave new world of VOD. The cable
companies were talking about veritable online video stores,
which were going to put Blockbuster, et al, out of business.
Unfortunately, the reality of VOD has never lived up to its
hype. The stuff the cable companies are currently passing off
as VOD is nothing more than a glorified version of pay-per-
view or a DVR. For the most part, their VOD offerings aren’t
any different from the stuff currently playing on the premium
channels and/or on pay-per-view. This is what I call “faux
VOD.” How lame!

Fortunately, led by the apparent impending TiVo-Netflix


undertaking, the landscape is about to change and a new era
of genuine VOD is about to be ushered in. PC-based
broadband VOD services like Cinemanow
(www.cinemanow.com) and Movielink (www.movielink.com)
have been up and running for several years and are about to
broaden their offerings. In addition, SBC Communications
and EchoStar Communications have already announced that
they are teaming up to provide an online-to-TV VOD service
this year, while several similar phone company-satellite
operator projects are still in the negotiations stage.

Also, Internet Protocol Television (IPTV) platforms, offering


hundreds of television channels via a broadband internet
connection to a TV set-top box, will be coming online this
year. One of the major features of these services will be
advanced VOD technology. Microsoft has developed its own
version of IPTV technology. See Microsoft’s website
(www.microsolft.com/tv) for details. The nation’s two largest
phone companies, Verizon and SBC, plan to utilize
Microsoft’s technology in the rollout of their respective IPTV
platforms later this year.

Not to be outdone, several smaller companies also plan to


compete in the broadband-to-TV market. Akimbo Systems
(www.akimbo.com) debuted its service last fall and is
currently in the process of expanding. Similar ventures such
as DAVETV (www.dave.tv), TimeShift TV,
(www.timeshiftv.com), and VCinema (www.vcinema.com)
plan to enter the market later this year. All of these
companies plan to offer almost unlimited amounts of movies,
TV shows, sports, specialty programming, and international
programs via a set-top box interface between a broadband
connection and a TV set. This programming will be culled
from the vast internet universe and made available for TV
viewing. For a more detailed description of these services,
see my related article entitled, “The Coming Television
Revolution.”

If nothing else, all of these developments should compel


cable companies to offer a much more competitive form of
VOD. Comcast, one of the leading cable providers and a
partner with Sony in its recent purchase of the MGM movie
library, is now in the process of rolling out its advanced VOD
platform. The other cable companies are sure to be following
suit real soon.

Meanwhile, the premium services have still been slogging


along. The premium channel paradigm has long outlived its
original usefulness and has only been able to hang around
because of the lack of a good VOD system thus far. The only
thing really going for the premiums right now is their award-
winning original programming; including series’ like “The
Sopranos”, “Dead Like Me”, and “Six Feet Under.” Perhaps
the premium services could morph into original-programming-
only services in order to survive. However, they’d have to
seriously increase the number of series’ (and the number of
episodes of each) they produce. Perhaps they could also
carry longer and/or alternative versions of programs already
aired on broadcast television and basic cable. In addition,
they would have to find a way to lower their subscription
rates. I’m not sure all of that would be feasible. One thing I do
know for sure is that people would not continue to subscribe
to the premium channels for their movie content once they
could conveniently pull up virtually any movie or TV show
they wanted, any time they wanted.

About The Author

Terry Mitchell is a software engineer, freelance writer, and


trivia buff from Hopewell, VA. He also serves as a political
columnist for American Daily and operates his own website -
http://www.commenterry.com - on which he posts
commentaries on various subjects such as politics,
technology, religion, health and well-being, personal finance,
and sports. His commentaries offer a unique point of view
that is not often found in mainstream media.

terrymitchell@verizon.net
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