Stuart Levin of TVN Entertainment on Near-Video-on-Demand, Satellite Distribution, and HDTV's Future (1994)

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0000This interview was conducted May 18, 1994 and presented here to indicate how leaders are, indeed, leaders and ahead of the curve.

Dale Cripps. October 1, 1999

0000Stuart Z. Levin is the founder, President, and Chief Executive Officer of TVN Entertainment Corporation, the first and only multi-channel pay-per-view programming network delivered nationally via satellite. We spoke with him about video-on-demand, satellite distribution, and prospects for a successful launch of HDTV.

0000TVN Entertainment Corporation announced at the NCTA Convention in New Orleans in May that it is now on-air with the first channel programmed with material stored in a digital file server. Using MPEG-2 compression, the Perspective 2000 developed by VELA Research Corporation digitally stores TVN's video and audio, and can be computer programmed to play back TVN's programming material, in any order and on any channel. The channel currently being fed from this server shows previews and show times of TVN's current pay-per-view movies and special events.

Video-on-demand, mostly on technical grounds, but also on the grounds of customer response, has been skewered in numerous recent articles. Is video-on-demand or near demand a viable business?

Clearly, the movie business, in general, is a business, and all of it is basically pay-per-view (the exception being subscription programming and network programming). Whether you rent from Blockbuster, go to a movie theater, rent a headset on an airplane, push a Spectradine button in a hotel, buy a movie from me, or buy a movie pay-per-view over your cable system, it's all pay-per-view.

The video rental business is an enormous ($12 billion a year) pay-per-view business. People rent a tape and bring it home—they paid to view it. What we do is commonly referred to as NVOD, or near-video-on-demand. Basically, we run the same movie on a single channel 24 hours a day. Sometimes we run them on multiple channels to get more plays in the two hour time slot. If we have a big movie like The Fugitive, we might play it in two (or even three) theaters because we have cable video stores. So, in a given prime time slot, you might literally have an 8:30, a 9:30 and a 10:00 starting in the same room. That's what we call near-video-on-demand. The more convenience you supply the consumer, the higher the buy-rate goes.

How do you quantify that? Is it a steep curve or just a curve?

Our buy rates are ten to twelve times that of the cable industry for a single-channel program pay-per-view service. There is an incremental percentage based on the number of plays you give to a product. True-video-on-demand has very little extra value compared to near-video-on-demand, which is so convenient that it almost replicates true-video-on-demand. This is especially true when considering the cost of providing true-video-on-demand, which would have to be passed on to the consumer. Here's an example. Let's say that I was to take a movie and start it every six minutes during the hour, so that in a sixty minute time frame you had ten starts. That would be near-video-on-demand. From a consumer standpoint, the most he would have to wait for the movie to start is six minutes. That is not a very long or inconvenient wait. It's just enough time to pop the popcorn, and that's the worst case. The economic viability of offering that product, as opposed to true-video-on-demand—where you push a button and the movie starts within seconds—are night and day. The economics don't hold true for true-video-on-demand.

As regards the notion that true-video-on-demand would enable you to digitally store tens of thousands of titles, we know from the home video business and the theatrical business that 80 to 100 titles a year drive both businesses. The hit product is the driver. So, of the $12 billion home video market, $8 billion of it is hit title rental. That is where the whole digital server concept and the need for 50,000 titles gets lost.

Consumers don't necessarily know what they want to watch You have to show them, providing them titles they are aware of. This is the average consumer—I'm not talking about the guy who is on America On-Line or Prodigy or CompuServe who likes to menu through everything in life. The average guy on the street is more than happy that someone figured out that Murphy Brown is on on a Monday night and that he should sit and watch. For him to jump over that next hurdle and decide he really wants to watch Lethal Weapon on Demolition Man or The Fugitive or whatever, he's got to have an easy, simple way to order, and it's got to be conveniently timed for him. That's our business. That's what we do, and we are very successful at it. True-video-on-demand is not really economically viable today, and I'm not sure how viable it will be tomorrow, or even ten years from now. There's a better shot that it will be viable in ten years, because the cost of delivery, storage and memory will decrease, and infrastructure to do it will be much more in place. Clearly, if it is practical and there is no major incremental cost to holding and storing a lot of stuff, it follows that the more stuff you can supply, the more stuff you can sell. Everything has its place, and there is a lot of niche market stuff that you can do. But, in today's world, I think that near-video-on-demand fills the bill for the short to the medium view.

Your business started as a C-band dish business, and now I understand that you are evolving into cable. How is that functioning?

We are really just beginning. We are in some test systems now, and we will be making some announcements at the cable show. We formed a strategic alliance with EDS, who is the preeminent transactional billing company in the world. We developed a product called TheatreVisioN Plus, which is not just the movies, but all of the other services that go with it. It's completely turn-key—order entry, billing, collecting, royalty administration, marketing, data reports, system specific data, promotional barker channels—everything done together as one turn-key service, along with the films. We are just starting to roll that out.

How will the information that you need to fill a customer's order be sent upstream?
They can order the same way that satellite users order—by phone. They just dial 1-800-245-TVN-1 and get whatever is on TVN-1. We handle all of the other services, so the cable operator doesn't have to do anything but provide carriage and collect money.

What about the hotel business?

The hotel business is a different business. Also, the hotels have a different window for product. We have looked at it, and we have a bunch of opportunities in hotels, but right now our primary focus is our main dish business and the cable industry.

Is the dish business growing?

Yes. We are growing at about 20-25,000 a month. We have over 500,000 TVN subscribers now.

We will be an analog to digital bridge. . .

Is a special device supplied?

No. All satellite dishes that have been sold for years have VideoCipher 2 Plus built into it. There are almost 2 million boxes in service, and that standard box is addressable by us, HBO, CNN, Showtime, ESPN, etc.

You have a quarter of that?

We have 28% of the market (in less than three years).

What kind of future do you see for video-on-demand of some kind?

Near-video-on-demand is the most economical way to do multi-channel, multiplex pay-per-view in the short to medium term. There will be various tests of true-video-on-demand, but the economics to go wide with it in the short- to medium-term don't make any sense at all.

On what are you basing your future business growth?

Near-video-on-demand, though we are enhancing it by going digital. We will be an analog to digital bridge, and eventually we will get into true digital with the ability to do true-video-on-demand. Right now, we are going to use digital compression to simply provide more showings in a near-video-on-demand basis, as opposed to putting servers at every headend and all of the other equipment required for true-video-on-demand. Our system will be more than is necessary for most consumers, and it is economically viable.

A lot of theorists have expressed the need for video-on-demand and the need to be able to manipulate the program like a VCR, so that you would be able to rewind it and such. Let's say that we take the same movie and run it on ten channels. When you order TVN-1, you'd get Pelican Brief starting every six minutes, but we would give you all ten showings. So you could go to the bathroom for six minutes and pick it up at exactly the same spot.

Has anyone put pressure on you, wanting to rewind it because they missed what was said?

No, because if he missed what was said he could pick up any one of the later showings and watch the same part over again. That's one way to do it without having to have all of the fancy attendant technology. Remember, you need an enormous amount of technology at the set top and the cable headend in order to do true-video-on-demand with pause an stop. Doing data packet switching and all the other stuff becomes very, very expensive, and most people don't care, anyway. They just want to watch their movie. How many times have you put a cassette into your VCR to watch a movie and put it on pause in the middle of the movie? Probably very rarely, when the phone rings or something. Even then you still have that opportunity, because all you have to do is go to channel one-dot-four and move over to the next six minute thing and pick it up right where you left off, or even a couple of minutes before you left off.

Let's talk about what you are going to do with compression?

I am under non-disclosure, however, I can say that compression is definitely in our future. We are going to be launching the first digitally-served barker channel. We will have a press release going out tomorrow announcing that we have the first digital server that is actually going to go on-line to serve our barker channel.

How important are sports to your business?

We just did a big deal with the NFL. Every single NFL game will be on TVN's transponders this fall. We will sell it for $99 for the whole season; a season ticket, of sorts.

Is there any way to buy it on a per game basis?

No. Our deal is with the NFL, and this is the way the NFL wants to do it for the first year. We think it is a good idea.

What about bars?

Bars will be taking the feeds down from our transponders as well. The NFL has a hold on the program. Basically, this feed is designed for bars and C-band residential dishes only.

Moving on through digital, are you happy with MPEG?

I am happy with MPEG-2.

What about the difficulty of the encoding?

It's getting there.

You were among the first to stand up and talk clearly about your vision for HDTV. Is that vision still in tact?

Yes. Very much so. I am a big believer in HDTV, but in large screen. I want to be able to replicate the theatrical experience in the home.

How do you see HDTV getting inaugurated? Are you going to be able to pioneer it?

We are trying. We have some ideas we are working on, but that's premature.

Are first-window movies important to that plan?

I don't think so.

Is first-window important under any circumstances?

Windows are just a reason to charge more money.

Does that have anything to do with HDTV in your mind?

Not in the early years—not in the home market, anyway.

There are a lot of spectacular little theaters being designed and built to serve markets other than the traditional theater markets. Could you also serve those markets?

Absolutely. We are looking at all of these opportunities. The fact is that I have my alliance with [Barry] Rebo, and the studio product that I buy is, by definition, high-definition. So, all of these pieces are here. I think we are sitting in an interesting place for a couple of different reasons. Our key satellite audience is the high-end, early adopter, and may well be the first guy who will want high-definition.

Thank you, Stu.

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