Video-on-demand (VOD) is a relatively new program-delivery service akin to PPV. VOD allows cable customers equipped with addressable converters to order recorded programming whose start time can be determined by the customers themselves. An array of program titles are digitally stored in a server located at the cable system headend and distributed to cable customers as ordered. Billing procedures for VOD buys is the same as that for PPV buys.

The history of PPV and pay cable shared a parallel course until 1974, when Coaxial Communication inaugurated the first true PPV service in Columbus, Ohio. The service, called Telecinema, provided movies priced at $2.50 per title. Telecinema shortly succumbed to pay cable’s better revenue stream. Warner Cable introduced Columbus to another short-lived PPV service via its interactive QUBE system in 1978.

Not until late 1985 did two satellite-distributed national PPV services appear. Viewer’s Choice was launched on November 26, 1985, and Request Television was launched a day later. By 2001, 13 PPV networks were in operation in the United States. The In Demand network led its competitors in cable-system carriage as well as subscriber potential. More than 1,750 systems carried In Demand to over 24 million addressable subscriber households. By 2000, in the United States there were more than 52 million addressable cable households (75 percent of all cable house-holds) capable of receiving PPV programming. VOD deployment was just beginning to gather steam at the beginning of the 21st century. By the end of 2001, some 36 VOD services were either operating or preparing for launch. In all, these services were meant to reach more than 6 million cable households.

PPV programming falls into two broad categories: movies and events. Movies occupy most PPV network schedules. However, following their initial theatrical run, most movies that perform well at the box office are released to home video before they are accessible through PPV. Only after videocassette or DVD versions of the movies have been available for rental or purchase for a period (called a “window”) ranging from 30 to 90 days are they then available for PPV. VOD programming also consists primarily of movies, with a growing number of customers—PPV and VOD alike—preferring adult (i.e., sexually explicit) movies and associated adult fare such as “call-in” programs.

The PPV event category may be subdivided primarily into sports and concerts. Sports, especially professional boxing and wrestling, occupies a commanding share of the category. Professional baseball, football, basketball, and hockey, as well as several college football teams, all make some of their games available to PPV subscribers.

Pricing PPV events is a matter of what the market will bear. In 2001 PPV prices for professional boxing matches ranged from $40 to $50. Rock concerts and other musical events during the same period ranged in price from $10 to $20. Movies generally cost between $3 and $4 per title. It is risky to predict what PPV subscribers will pay for an event and what the buy rate (the percentage of PPV subscribers who choose to buy a movie or event) might be. For instance, NBC bet that 5 million subscribers would pay between $95 and $170 apiece for access to daily live events of the 1992 Summer Olympics from Barcelona. The so-called Triplecast—for the three PPV channels that carried the events—proved a failure, however, and NBC eventually tallied its Triplecast loss at nearly $100 million.

Apart from such failures as the Triplecast, PPV revenues have continued to rise. PPV revenues for 2000 stood at more than $2 billion. Most of that revenue came from the purchase of movies, but roughly one-fifth was generated by sports and musical events and another one-fifth was generated by adult movies and associated programming. Wrestling events such as “Wrestlemania” led other sports events in total buy rates. Also, cable system operators were finding that in terms of adult PPV services, the more explicit the content, the higher the buy rate. Buy rates for VOD customers were highest (roughly 70 percent) in the hit movie category. About 20 percent of VOD buys were in the adult programming category. Program buying characteristics that were emerging in 2001 showed that fewer than 20 percent of PPV customers accounted for nearly 80 percent of all PPV buys, and the buy rate for VOD movies was nearly triple that of PPV movies.

The success of PPV cable has been and continues to be a function of promotion. One cable executive labeled PPV a “marketing-intensive business” that relies on an “impulse buy” strategy to attract subscribers. The PPV industry’s future appears firmly in place, however, with predictions that nearly one-quarter of the 500-channel cable system of tomorrow will be occupied by PPV program networks.

VOD was still a relatively new service at the beginning of the 21st century. Nonetheless, cable system operators were hoping that customer embrace of VOD would help build digital-cable penetration, which had reached nearly 14 million households (accounting for roughly 20 percent of all U.S. cable households) by the end of 2001. Cable operators also were counting on VOD to help stem the number of persons who were choosing direct broadcast satellite (DBS) services over cable. By the end of 2001, new DBS subscribers led new cable subscribers by a 3-to-1 ratio. Another delivery system that stood poised to compete with cable was computer-based streaming video. A service launched by Microsoft in late 2001 provided its high-speed Internet customers in selected markets with the opportunity to download VOD movies at a cost comparable to that charged for video rentals. However, any advantage that one delivery system might have over another eventually may depend less on technology than on the deals that VOD providers make with movie producers for their product.