VOD Hits its Stride

Rowena James
Video-on-demand has finally emerged in the mainstream market — years behind its implementation in the adult industry. VOD has been around since the 1990s, when a small number of adult companies began branching out into unknown territory with new technology and a new game plan for delivering adult content to their customer base.

Adult VOD was a new and risky business when it first hit the Internet, but it offered great potential and solved two of the biggest expenses experienced by online video retailers: inventory and overseas shipping. Of course, in the beginning, there were no standards for streaming video technology to be used in VOD, so they had to be created, which meant the technology was untested for the purposes of VOD. As one could imagine, that was just one of the many hurdles early VOD providers faced.

Even so, VOD had a persuasive vision behind it, one that not only saved providers from risky overhead costs but also created a model that meant better customer satisfaction. Customers would be able to watch video at small intervals instead of large chunks; smaller portions of films also would allow for more variety in content without needing to pay for any one video in its entirety. The VOD model catered to consumers, saving them money while offering them more choices and giving them only what they wanted and nothing else.

"We started in the VOD market because we thought it was going to be the best way to deliver adult movies to consumers," says Scott Coffman, president of AEBN, one of the early pioneers in adult VOD. "We chose the pay-per-minute model for VOD because we assumed that was how consumers would best like to watch movies on the Internet."

Unlike traditional membership sites where users paid monthly fees even when they didn't visit the site, being able to pay by the minute for exactly what they wanted made VOD appealing to many potential customers.

Despite the hypothetical advantages, the earliest VOD providers faced several problems. VOD, while a potentially lucrative business, has never been easy to start up, especially in its infancy. Early on in the development of the market, the technology was untested for such a venture, and most Internet users were on 56K modems — making quality marginal at best.

Further, the available software was not nearly sophisticated enough for what the VOD providers wanted to do. The only available players at the time, such as Real Player and Windows Media Player, were not equipped to handle streaming video and perform effectively. Unique code had to be created that integrated streaming video with the players of the day, and a solution developed over time. Now the players are much more friendly toward VOD streaming needs, especially since mainstream industries are now streaming.

Innovation is Key
Persuading producers to agree to let their content be used also proved difficult. Most of them were accustomed to making their money in the more traditional retail venues and were leery of a new, untested approach to content delivery. When the venture was in its infancy, there were no models to follow and no companies to look to for guidance. The earliest companies had to create their own business models and navigate through whatever unknown pitfalls they might encounter along the way.

Now that these questions of "if" and "how" have been answered, VOD has become one of the strongest markets in the industry. Although VOD has proven its worth, the difficulties haven't disappeared, and several issues still plague the best of providers. There still are numerous new problems to deal with now that the technology has caught up and a majority of the producers — and customers — have come to understand and appreciate VOD.

The success of early VOD companies led to stiff competition in the market, and more individuals continue to wade into the now-tested waters of VOD service. Innovation has become key to staying successful, with providers constantly searching for new ways to expand the business and offer more to their end users. However, just like the original development of VOD, any new innovations launched by a company will immediately be copied by the competition, hence the secrecy in developments and the need for constant innovation in order to stay at the top.

Competition isn't the only problem facing VOD providers in today's adult market. There are day-to-day problems in running a successful VOD company, issues that reinforce the reasons it is not an easy business model. For example, the cost of storage for multi-format, multi-bit-rate video is staggering. To be competitive and accessible to end users, VOD companies must offer movies encoded in several bit rates and in several different formats so that no customer finds a particular service unusable. While good for customers, it means companies must store several versions of the same movie in their systems, with increasingly larger file sizes as broadband becomes the standard, so one actual DVD in the system is like six DVDs in terms of storage needs.

Then there are other concerns — translation, functionality, categorization and 24-hour customer service — all expensive and all necessary for a successful VOD company. And even though the early pioneers saw VOD as a savior from costly overhead, there still is overhead involved in keeping a VOD running. There are significant costs per DVD for rights, storage, encoding and delivery (to name but a few) and that's a great deal of money to have to pay before a cent can be made back.

VOD Leads the Way
But despite the uphill climb, VOD has arrived. With past struggles behind and present growth making it one of the most successful markets in the adult industry, the future of VOD is very promising. With new innovations such as download-to-burn technology, VOD will pave the way for more expansion into the TV market, a service that many companies are chomping at the bit to offer. Providers also are searching for ways to move VOD — through the use of standard Internet protocol — to multiple platforms, including mobile, PSP and, eventually, IPTV.

"The future of VOD is moving into IPTV, where you're going to be able to watch the things you watch on your computer on your television," Coffman says. "And that's going to make all VOD companies television stations with adult channels."

It is obvious that adult VOD led the way, not only for the adult industry but also for the Internet in general. As it has been said so many times before, the adult industry is the place where new technology was tested and perfected, only for mainstream to tag behind and use it to their advantage. Adult VOD showed the mainstream media how successful it could be, and they followed, but only after being ambivalent and unsure of the technology in its earliest days. So while mainstream is just now beginning its long haul into the VOD business, the adult industry has its eyes set firmly on the future, already looking toward its next great technological advancement.