VOD’s Growing Pains

When it
comes to video-on-demand (VOD), cable operators, networks and advertisers are a
lot like eager summer tourists on a road trip: They know where they want to be
but can’t agree on how to get there.

Most TV
executives agree that watching favorite primetime shows whenever you want will
be a reality within the next few years—or sooner. According to a recent study
by the Leichtman Research Group, the portion of

U.S. digital-cable households that
have used VOD grew from 25% in 2004 to 60% in 2006. And a study by
PricewaterhouseCoopers (PwC) reveals that, although VOD represents a fraction
of end-user spending on television distribution, the segment is by far the
fastest-growing.

Viewers
will spend $2.1 billion on VOD services in 2007, a 23% rise from 2006. PwC
projects such spending will double by 2011, to $4.2 billion, a compound annual
growth rate of 19.5%. No other service element available today will grow as
fast. But cable operators and advertisers are still trying to figure out the
right advertising model, as networks begin to experiment with putting popular
programming on VOD. There’s no big rush from programmers because the
audiences—and fees—are still so small. Cable operators find themselves in need
of more television programming to feed a hungry audience.

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