The Missed Opportunity In Cable VOD

TV Remote Control

U.S. consumers are increasing the amount of time they spend on internet video-on-demand services like Netflix (NSDQ: NFLX), and cable companies and their partners are frantically trying to get in on that action with TV Everywhere. But a new report by research firm The Diffusion Group says they’re missing out on a $6 billion opportunity that’s right under their nose — cable VOD.

TDG reports that cable subscribers viewed 3.6 billion hours of VOD in 2010, which was only 2.4 percent of all programming consumed by the approximately 50 million VOD-capable homes in the U.S. Simply put, at a time when consumers are actively sampling on-demand programming streamed via the internet, they aren’t exploring the VOD options that exist on the cable services embedded in their living rooms.

VOD usage for subscription cable networks like HBO is actually quite high, the report claims, with shows like Entourage getting nearly a quarter of their viewership on subscription VOD platforms. The problem is with free-to-consumer, ad-supported VOD. Despite the fact that U.S. viewers watch ad-supported cable and broadcast TV — i.e. networks like ABC (NYSE: DIS), TNT, Bravo, ESPN, etc. — 91 percent of the time that their in front of the tube, only a tiny fraction of that viewing is done on VOD.

Further, according to TDG, annual revenue from ad-supported VOD only averages about $150 million right now — a figure the research company believes could be around $6 billion annually. So what does the business need in order to grow to that level? TDG says technological improvements in the way ads are delivered on these services are the key.

Simply put, big broadcast and cable networks aren’t making their best and freshest programming available to cable VOD platforms, and the programming that is available on these platforms isn’t promoted enough, because there aren’t effective systems in place for monetization. There needs to be a better way to handle placement and count impressions for ads running in on-demand programming across myriad cable service providers.

“The primary reason for this shortcoming is that today’s VOD offers a very poor advertising platform and an inadequate program guide,” TDG states. “Consequently, ad-supported content providers cannot make money and thus do their best to keep high-value content (and their viewers) away from VOD.”

Notably, two weeks ago, Canoe, a research and development consortium established in 2008 by the major cable service providers, dramatically re-organized and shifted its focus. Created to research and develop a system of advanced cable set-top boxes that would enable highly targeted interactive advertising that could exist across cable systems, Canoe will now focus on developing so-called “dynamic ad insertion” for the cable VOD business.

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