The introduction of video-on-demand will not be an overnight revolution, but will take place gradually over the next five years. Globally, just 26 million households will be capable of accessing VoD services by 2005, with the vast majority - 83%, located in the USA.
According to Screen Digest's Video On Demand report, published this week, this means that 22% of US television households will have access to VoD by 2005. Elsewhere, Singapore will be the leader in the Asia Pacific region, while the UK will lead the way in Europe.
Currently, VoD is available in only a few selected areas. In the US, it is only available to digital cable subscribers in a few cities and to even fewer households with DSL connections. A number of consumers have signed up for VoD in the UK, Hong Kong and Singapore - but that is about it.
Ninety percent of all current VoD deployments are on cable. Indeed, the Screen Digest report believes that cable will emerge as the dominant delivery system. This is because cable companies have invested heavily upgrading their networks to make them capable of the two-way interactivity VoD needs, and also because cable companies believe VoD will help them attract new customers. In particular, VoD is something that cable's rivals - the satellite companies - cannot offer.
DSL - where the service is transmitted over phone networks - is some way behind. Screen Digest believes this situation will continue. It pours cold water on the widespread belief that numerous telecoms companies are poised to enter the TV business. "This is far from true", it says. "Telcos have never been in the TV business and of the few that have, none have been successful." Some companies, such as KPN in the Netherlands and Telenor in the Netherlands, are beginning to experiment with the delivery of digital TV over DSL, but it will be some years before they are in a position to challenge the companies in the pay-TV market.
The report goes on to conclude that the introduction of VoD is being delayed because many cable and telecoms companies have decided that the broadband internet market will offer more immediate revenue opportunities. In the UK, for example, cable companies NTL and Telewest are spending millions on advertising the benefits of broadband, but they are not likely to introduce VoD until 2002 at the earliest.
Moreover, VoD business models are not ready. Many network operators are still experimenting with how they should price and package their VoD services. Some are adopting a subscription model, while others make viewers pay for what they watch.
Overall, the report judges it to be a difficult time for the industry. The atmosphere of confidence during 2000 - when all network operators were promising VoD within a few years - has now gone. With the values of telecoms and cable companies having plummeted, investor confidence and funds have drained away - making operators wary of committing to expensive new services like VoD.
However, consumers who have been involved in trials of on-demand services have reacted overwhelmingly positively. "This is a technology that TV operators would love to introduce. Its time will come. But rather than being a sudden revolution, the new era will arrive by stealth as operators gradually upgrade networks and bit by bit, deploy VoD. By 2005, the future of television will be well on the way."