Valley firms getting in on VOD Trend.

Video on demand has been the proverbial "next big thing" for well over a decade now. Finally, after such a lengthy gestation period, the technology is poised to finally break through to mainstream culture in the next year or two and several Valley companies have positioned themselves well to capitalize on this burgeoning market.

Often confused with pay-per-view, traditional video on demand offers consumers the ability to watch a movie beamed from a cable company's uplink center at any time of the day or night. The consumer could then watch the movie at their discretion, fast-forwarding or rewinding at their leisure. In contrast, pay-per-view involves movies and special events being distributed via satellite at pre-set times, without the luxury of stopping and restarting the film.

TVN Entertainment is an avatar for the changing nature of video on demand technology. Founded in the late 1980s, the Burbank-based company originally focused on pay-per-view television, but about five years ago began making the switch to video on demand offerings. It currently offers a wide slate of programming ranging from World Wrestling Entertainment programs, to recent Hollywood blockbusters, to professional boxing matches. The 65-employee company manages, encrypts, and delivers the content to cable companies such as Adelphia, Comcast and Charter. The company expects approximately $50 million in revenues in 2005, an increase of 20 percent from the previous year, thanks in part to the growing video on demand market. These figures put TVN at or near the top of all video on demand companies. Since the beginning of the year, the company has been furiously making deals with content providers, inking pacts with World Wrestling Entertainment Inc., Discovery Communications Inc., and Rainbow Programming Holdings LLC.

"We're seeing more and more content coming available in VOD. We're currently working with every cable company and with every telephone company. We have deals with 70 content partners including all the major Hollywood studios," Doug Sylvester, TVN's chief operating officer, said. "We work with any network that has VOD offerings including the premium cable networks. We've also begun working with a whole group of new content companies that have specialized programs that are targeted to consumers."

Gerry Kaufhold, principle analyst for InStat, a market research firm based in Scottsdale, Ariz., is bullish on both TVN's and VOD's prospects in the coming years.

"TVN is a key player in the industry; they provide the distribution for a lot of the Hollywood companies. They are more than just a go-between from the studios to the cable companies. In this business, it's more about the relationships between the studios, the cable service providers and the distributors," Kaufhold said. "It's not something that you can just jump into and do cheaply. The studios have to trust you. There's room for only a limited amount of players. TVN is in a very secure position because eventually, everything is going to be on demand."

Increasing market share

As the cable companies have faced stiff competition from satellite television providers, they have found VOD as another way in which they can gain an increased market share. Since cable companies broadcast programming from a massive network, they have an almost limitless capability to offer video on demand. However, satellite providers rely on smaller disk servers that severely hamper the amount of programming that they can provide.

TVN is not the only local company to profit off of the emerging video on demand market. Adult film company Vivid Video, located in the Cahuenga Pass near Universal City, has also recently been increasing its VOD revenues. While Vivid CEO Steven Hirsch claims that only about five percent of the company's sales come from VOD, he maintains that the technology is only in its infancy and growing fast.

"It's still a very small part of our revenues but it's growing all the time. There are two different parts of our VOD business. We offer VOD over the Internet through companies like CinemaNow and then there is VOD television, in which we partner with the cable companies and Playboy TV," Hirsch said. "We see both of them growing and we will probably double our VOD revenues this year over last year. I see VOD, whether it's on TV or on the computer, as ultimately being a main focus of our business." Video on demand's growth has not been limited to the Internet and cable television business; cell phone video on demand programs have also begun to take hold. While the technology is not as widespread as cable video on demand services, Sherman Oaks-based GoTV Networks (formerly VStar) is confident that wireless cellular customers are a viable growth market for video on demand.

Like TVN, GoTV has switched its business model to exploit the expanding VOD market. Founded in 1997. GoTV, originally provided animated content for people with low-bandwidth Internet connections. Since transitioning to cell phone video on demand at the turn of the decade, GoTV has seen the move yield dividends. The company currently offers video on demand specially tailored for cell phone users on the go. Instead of watching complete programs with commercials, GoTV focuses on providing content in quick two minute bursts of information. The company typically offers sports, news and entertainment programming culled from palmers such as Variety magazine, The Associated Press, ABC News, and the Weather Channel. The company offers seven different types of services ranging in price from $3.95 to $5 a month. Most recently, GoTV received $15 million in venture capital funding from Bessemer Venture Partners and Charles River Ventures.

"The cell phone VOD industry is exploding and the revenue companies are taking in is going to explode. People want these products on their cell phones," GoTV President and Chief Operating Officer Steve Fowler said. "We differentiate ourselves from everybody else because we take information and specifically make and custom format it for a wireless device. We give the busy mobile person things to entertain them. People aren't about to watch an hour and a half movie on a cell phone. However, they will watch two or three minutes of news, sports or entertainment and that's what we give them."

Tom Adams, the president and senior analyst for Adams Media Research , believes the cell phone VOD industry has great potential.

"Video on demand for cell phone users is an interesting idea. There aren't any major cell VOD companies that have jumped out to dominate the industry," Adams said. "But it definitely has potential. There are a million things you might want to look at on the go. The bandwidth available is atrocious right now, but that will slowly improve. It's a real growth area."