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In the last few days, details have emerged of two new Video on Demand (VOD) services. YouTube (owned by Google) is said to be negotiating content deals to enable streaming of newly released movies -- about when they are released on DVD -- at a rate of approximately $5 per movie. Apple may or may not launch its highly anticipated iTV product on Wednesday, 9/1. Apple already has a good library of TV shows for sale at $2 and $3. Many speculate that they will allow customers to rent these for $1 per show, and are working to extend content licenses to include premium movies as well.

Pay Per View (PPV) and Video on Demand (VOD) have long been a small but highly profitable service operated by video operators (Cable, Satellite and IPTV providers) and by smaller operators for hotel chains. We define PPV services as those using broadcast technology (i.e., transmitted at a specific point in time) while VOD are typically streamed or progressively downloaded. With more connected video devices available content delivery is open to companies other than cable operators –leading to the increased pace of news in this sector. Amazon and Netflix’s video on demand services already are available on a number of devices, including Samsung Internet connected TV’s, Samsung and Sony Blu-ray players, Roku media servers and TiVo DVRs. Netflix continues to prefer to offer their customers the “simplicity” of all-you-can watch services and does not appear to be interested in adding a pay per performance VOD platform (like Amazon video on demand) to their service.

The pricing on all of these services is expected to remain premium pricing – content owners (HBO, MTV and the like) want to gain additional revenue from non-subscribers who want access to a very limited subset of their library, but would not otherwise subscribe to their services. Selecting any of these services as your primary source of content would be much more expensive than a cable subscription, even if you don’t watch very much TV. This also helps the content owners to keep some of their large customers – cable providers – happy and unthreatened.

One issue with the pay per performance VOD model is the cost/benefit decision must be made by the customer every time they decide to purchase a movie. It’s going to be easy to open your wallet (figuratively) for a $5 rental when you have 10 kids over for a pizza party. But watching the TV alone on a Wednesday you will probably select content included as part of an all-you-can watch subscription package. A hybrid PPV / Subscription business model (i.e., 4 movies a month for $10) may provide a middle group between video-by-mail services (Netflix, Blockbuster) and subscription-based services including Hulu Plus and cable’s premium movie channels (HBO, TMC).

YouTube has a few impediments to success in the movie business; first is that its brand name is synonymous with user generated content in most users’ minds. To overcome this, YouTube should differentiate the YouTube Movie’s brand from YouTube and provide good advertising. The YouTube Interface is also relatively search-focused and may need a better browsing interface to gain significant traction on the TV screen.

When Apple introduces a new iTV product and improves its video-on-demand library, it will need to decide whether to restrict this library to its own devices (remaining true to its “we control the experience” mindset), or whether it is willing to allow its software to run on other devices, such as connected TVs and Blu-ray players. The precedent for this would be the way iTunes runs on the Windows operating system. Today, applications running on the TV platforms are generally distributed by the TV manufacturers. Apple may have to give up a little bit of control and work closely with multiple chipset manufacturers and other hardware OEM’s (as Netflix and YouTube have), which could go against its larger business interests.

Also required for these services to take off beyond technology savvy always-online customers is easy browsing of the appropriate content on a PC. On my Sony Blu-ray player, Netflix watch-now relies on my queue being configured from the PC, which limits spontaneous watching. YouTube relies on top hits (which are user generated content focused) and searching (which is cumbersome on a TV remote control). New products, including slide-out qwerty remotes from TiVo and Vizio, are another approach at solving this problem. All of these sites could develop better ways of presenting content for the TV, including bringing customized recommendations and the benefits of social media to the TV.

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