ViewPlus Business Plan 1999

190500068580 BUSINESS PLAN Confidential and Proprietary October 1, 1999 TABLE OF CONTENTS TOC Executive Summary PAGEREF _Toc457648229 1 Management PAGEREF _Toc457648230 6 Service Description PAGEREF _Toc457648231 11 Technology13 Market and Competition18 Marketing30 Marketing Strategies32 Pricing34 Internet Strategy35 Schedule & Milestones37 Risks & Barriers38 Executive Summary “The principal business opportunity driving investment in a broadband network is the delivery of movies on demand to the home.” Mitchell Kapor Chairman of the Electronic Frontier Foundation Founder of Lotus Development Corporation Our Company ViewPlus, Inc. is a unique video-on-demand (VOD) service company. We are a seed-stage venture with a patent-pending video-on-demand technology and strategy that distinguishes us from the rest of the field. While most of our competitors are focused pointcast (one-to-one) systems, our service utilizes a multicast (one-to-many) system that is more efficient and economical for our cable and direct broadcast satellite (DBS) partners. Our cost-effective, flexible video-on-demand solution will immediately generate new revenue streams and increase the service appeal for their customers. Additionally, our patent-pending video ordering process and correlating broadband movie portal, with web-based video ordering, will greatly enhance the convenience for our customers and separate us from our competition. Our Market Opportunity The size of our target U.S. video rental market is $9.75 billion. With the advent of new networking technologies and telecommunications deregulation, the basic premises for VOD is in place to redefine the industry. This industry is extremely attractive and ViewPlus will capture significant market share due to four key market drivers: Lack of existing competitors in our space There are no other multicast VOD service providers at this time. Pay-per-view is utilizing an archaic 46-year old technology which is not tapping the full potential of the at-home movie market. Other VOD companies (pointcast solutions) have developed systems which, as of now, are more expensive, not as efficient in video distribution, not as scalable, and not as flexible as ViewPlus's. Increasing pressure from potential VOD customers to differentiate their services CATV operators are feeling the pressure of DBS's success and need new means, such as VOD, to combat its rapidly increasing presence. Barriers to entry will shift from mid to high as ViewPlus gains market share The barriers to entry will be raised as ViewPlus’ technology can offer hundreds of movies and quick response time of viewing from the home. Incentive for content providers to supply VOD providers Early tests have shown that VOD increases at-home movie viewership by at least 300%. Many companies are striving to deliver one convenient package of voice, video, and data to businesses and households. Video-on-demand is one technology within this parcel of interactive services that many companies believe will be a killer app for the future. There are several issues facing our potential partners and competitors: Bandwidth availability and allocation. Heavy reliance on infrastructure (two-way plants, growth of DSL). High head-end and terminal costs. No current video-on-demand solution for DBS operators. Slow return on investment for cable operators and video-on-demand providers. Some cable executives hope that video-on-demand will be the “DBS killer.” Current DBS systems do not have two-way capabilities and face bandwidth issues similar to cable companies in providing a point-to-point service. Many cable companies with infrastructure upgrades believe video-on-demand and other two-way interactive services will provide the competitive advantage over DBS services. So DBS companies, such as DirecTV and EchoStar, have no direct counter-measure in sight until they deploy high-powered Ka-band satellites. For the cable industry, a gap exists until true VOD services will be available to the mass market. For ATM or MPEG Transport based VOD services, widespread infrastructure investment and upgrades are necessary. Industry analysts believe these VOD systems will not become a prevailing reality for at least five years in the U.S. DSL technologies, which are being promoted by telephone carriers, are already being outpaced by cable modem providers. The cable industry is fully confident DSL services and copper wires are not suitable to carry high-quality video. Furthermore, almost every company is focusing on the advent of digital television or other services. Even as cable giants, such as AT&T and Comcast, push for digital service offerings, the reality is approximately 95% of cable systems are still analog-based. All these developments are marred by upgrade costs, competing standards, and movie studios concerned about copyright issues. Given these obstacles, it seems that offering an economically feasible and executable VOD service may not be possible in the immediate future. Our Solution ViewPlus was forged to take advantage of these market conditions to provide cable and direct broadcast satellite companies with a cost-effective and scalable video-on-demand solution for their customers. Our flexible patent-pending system can utilize existing hybrid-coaxial cable and satellite broadcast networks which will yield a rapid return-on-investment. Our solution is a limited version of true VOD. Video orders will go through a short delay before they are fulfilled (an average of 5 minutes for 80% of the requests and no longer than 30 minutes for the remainder). Unlike pay-per-view and near-video-on-demand systems, our solution provides viewers with improved convenience and access to a library of hundreds of movies. The leading VOD solutions base their technical design on the following premise: subscribers' movie orders and times will greatly varying for each household. In order to support this assumption, a pointcast system seems to be the ideal choice. However, implementing a pointcast system not only requires costly infrastructure upgrades, but the usage of high-end delivery and receiving equipment. Furthermore, market research shows that subscriber video orders do not varying infinitely but actually converge on the top twenty movies, and subscribing times and patterns can be anticipated. Based on these findings, ViewPlus presents a better VOD solution. We believe ViewPlus offers cable and DBS operators a compelling value proposition to provide our service to their customers. Our competitors utilize pointcast technology (ATM or MPEG Transport), which sends one data stream for each video order. Not only does this solution consume bandwidth, but limits the revenue potential for each stream. Recently, PaineWebber analyst Christopher Dixon stated it would not make sense for AT&T to offer video-on-demand because of the bandwidth a two-hour movie would occupy. He believed companies would provide services that produce the highest return, which is currently voice traffic. For example, under AT&T’s current model it charges 10 cents per minute, so for equivalent network use it would have to charge $12 for a two-hour video stream. Our major competitors state their system's cost is $350 per video stream with a server supporting 2,000 video streams. They assume for cable operators: One system covers 100,000 households with a 20% digital penetration rate, which equates to 20,000 households. 10% concurrent usage rate, which results in 2,000 video streams. 500 household node with 10% concurrent use rate, which is fifty users at any given moment for each node. For fifty users, true video-on-demand solutions are using five 6MHz channels to deliver fifty 3Mbps MPEG2 video streams. A 6MHz channel has a transfer rate around 30Mbps, which means 10 simultaneous users can be serviced with one channel. In examining these assumptions, our competitors face various dilemmas, such as system capacity and subscriber bottlenecks, which can be solved through additional equipment and infrastructure upgrades by cable operators. As the buyrate and number of concurrent users increase, so does the cost for the system operators. In other words, these systems have a fix cost associated with each video stream delivered, while our cost per video stream drops as more consumers use it. Our solution optimizes network use since it can service an unlimited amount of customers with one data stream. ViewPlus provides system operators and consumers numerous advantages: Economically viable business model with low-fixed costs and quick return on investment. Enhanced convenience for customers by providing movie ordering through cable remote or website. Enhanced functionality, such as variable pricing and DVD capabilities. Flexible system that can be used over two-way or one-way cable plants, digital or analog systems, and through direct broadcast satellite and LMDS networks. Inexpensive solution for cable and satellite operators. Our digital system will cost $700,000 and will recoup the overall investment in 13.5 months. Reliable solution that will not encounter subscriber bottlenecks, which pointcast systems will face. Scalable and flexible head-end system for infrastructure upgrades. Our Strategy ViewPlus will initially concentrate on its video-on-demand service for cable and DBS subscribers. By using our proprietary technology, custom functionality, and marketing strategy, we plan to create an attractive service for cable and DBS subscribers. Our four strategic goals are: To build our brand as the premier video-on-demand service provider in the U.S. and abroad. To rapidly capture market share of cable and direct broadcast satellite operators and subscribers. To become a provider of various entertainment services, such as game-on-demand and music-on-demand. We believe video-on-demand is the ideal entry service for consumers to acquire the next generation of set-top boxes, which will provide a wide range of interactive services (email, e-commerce, web-browsing, and game playing). It is essential for us to obtain strategic partners who would benefit from furthering our goal to be the premier VOD and interactive service provider. We will establish a revenue-sharing model between the content providers, cable or DBS companies, set-top box manufacturers and ViewPlus. To become the ultimate broadband and Internet movie portal by providing video-on-demand ordering and related entertainment content. We believe there is an enticing synergy in offering consumers movie-related content and the capability to order movies on demand for their cable or satellite service through the Internet. Our movie portal would be optimized for broadband subscribers (@Home and RoadRunner), but accessible and marketed towards all Internet users. We will achieve these goals by: Developing multiple revenue streams. (i.e. video-on-demand, online advertising, and game-on-demand) Emphasizing our numerous advantages to system operators. (i.e. cost-effective solution, bandwidth efficient, and consumer friendly functionality) Establishing strategic partnerships with related media and consumer entertainment companies. Leveraging our patent-pending video-on-demand solution and movie ordering process to distinguish our service from the competition. Promoting our service and brand through our broadband movie portal. Providing a convenient and customer-focused service to cable and direct broadcast satellite subscribers. Management Peter Taehwan Chang was a consultant at Andersen Consulting, LLP, in Seoul. He has recently worked on developing the market entry strategy for Dacom Satellite Multimedia, a new DBS startup in Korea. He has extensive knowledge of the CATV and broadcasting industry in Korea. He also has worked on a project to create LG Mart’s e-commerce market entry strategy where he analyzed the Korean e-commerce market and developed business cases. For Iridium Korea Co., a partner in the global satellite communication consortium, he developed and analyzed business requirements especially for customer care systems. Additionally, he has material management knowledge from automotive industry projects. From his technical background, he is one of the members who developed the technical design and marketing strategies for ViewPlus. He earned his M.S. in computer engineering from POSTECH (Korea) in 1996 and B.S. in electrical engineering from Brown University in 1993. For ViewPlus, he will be involved in the technical development and marketing strategy. James Homin Kim was working in the product planning team of the TriGem Computer, Inc., in Korea. During his time at TriGem, Mr. Kim has been responsible in product planning, company policy and strategy. He has been handling affairs with TriGem’s OEM partners such as Microsoft Corp., Intel Corp, IBM Corp, and Softbank Korea. Furthermore, he has been deeply involved in the restructuring and reengineering of the TriGem Group. Over the past year, he has reengineered a procurement process, which resulted in a 50% saving and 15% profit margin from a US$23 million and 2% profit margin. He earned his M.S. in genetic engineering from the Korea Advanced Institute of Science and Technology (KAIST) in 1996 and B.S. in biomedical engineering from Northwestern University in 1993. For ViewPlus, he will be involved in the operations and strategic planning. Suk-Tae Kim was a consultant at Andersen Consulting, LLP, in Seoul. During his stay at Andersen Consulting, he was involved in a numerous projects covering strategy formulation, business process reengineering and system (SAP) implementation. Recently he worked on the convenience store (CVS) innovation project at LG Mart, a leading Korean retail company. He conducted an environmental analysis on the current and future Korean retail business. He also diagnosed CVS operations and developed a revenue-forecasting program for new store sites. He worked on SAP Controlling module implementation project at Automotive Parts Division, Samsung Electro Mechanics Corporation, where he defined the cost centers and cost allocation rules. He was assigned an overseas project in Brisbane, Australia to design new processes of individual housing application registration/lease agreement processing and customer billing and receivable management. He earned his B.S. in business administration from Seoul National University in 1996. For ViewPlus Korea, he will be involved in content acquisition, management, and operations. Mu-Hyug Kwon is a manager working in the Strategic Technology Center at TriGem Computer, Inc., in Korea. He was one of the members who developed the technical design for the Thru Net, Co., (the joint venture between TriGem Computer Inc., Korea Power Corp, and Microsoft Corp) which provides fast Internet service provider over cable television (CATV) networks in Korea. He has relationships with all of the CATV service operators (SOs) and Relay Networks in Korea and is an expert in CATV systems and networks. He holds a patent pending system configuration called “Atom” which allows two-way communication over CATV networks. He is one of the members who developed the technical design for ViewPlus. He earned his M.S. and B.S. in computer science from Han-Yang University (Korea) in 1989 and Sogang University (Korea) in 1985. For ViewPlus Korea, he will be involved in the technical development and system integration. Ho-Seung Lee was an associate consultant at KPMG Management Consulting in Seoul. He has recently worked on a project that analyzed policy issues arising from the convergence of the telecommunications and audiovisual industry for the Korea Information Society Development Institute (KISDI), and a market entry strategy for Korea Telecom. In particular, he was involved with convergence enabling technologies and revenue forecasting for various services, such as telephony, video rental, and VOD. In addition, he has participated in the leased-line service business plan for Korea Highway Corp. Currently, he is on leave from KPMG to pursue his AICPA license. He earned his B.A. in economics from Grinnell College in 1996. For ViewPlus Korea, he will be involved in marketing and finance. Hyuek Joon Lee was a manager in the Management Innovation Team at LG Chemicals Ltd., Korea. While at LG Chemical, Joon was involved in a number of strategy and new product development projects as well as supporting the overall innovation initiatives. He has recently worked on a project to formulate a strategy for the battery business, where he conducted a study to identify the key drivers and future trends in the notebook PC market, and devised mid- to long-term R&D and product plans. He also was involved in developing a new product introduction process for a business unit, which recorded $7.5 million in the first two months of sales, and increased ROS by more than 3-fold. Additionally, Joon has conducted a number of lectures on new product development at LG Chemical. After receiving B.S. in chemistry from Seoul National University in 1990, he earned his M.S.E. and Ph.D. in chemical engineering from the University of Michigan at Ann Arbor in 1991 and 1995, respectively. For ViewPlus Korea, he will be involved in the business development. Bernard B. Moon is a recent graduate of Columbia University’s School of International Affairs where he earned his MPA (1998). His concentration was in telecommunications and new media policy. Bernard has a variety of new media experiences from consulting Koplar Communications on their InTOUCH TV venture, an interactive television service, to the creation of several websites. He has also worked in the strategic planning unit of Digital City Chicago, a partnership with the Tribune Co. and AOL. Prior to his graduate studies, he completed a fellowship with the Coro Foundation. He earned his B.A. in English from the University of Wisconsin-Madison in 1993. For ViewPlus, he will be involved in the operations and strategic planning. Board of Advisors Keun-Ho Chang is president of the Korea Aerospace Research Institute (KARI), which is South Korea’s NASA counterpart. Dr. Chang has a wide array of entrepreneurial and technology-related experiences. After receiving his B.S. and M.S. in Electrical Engineering from the University of Minnesota (1963 & 1965), Dr. Chang earned his Ph.D. in physics from Catholic University (1974). He has served as the Laboratory Director of GoldStar (now LG) Precision Industries (1974-1976), Laboratory Director of GoldStar Cable Co. (1977-1989), Vice President of Ssangyong Cement Co., (1989-1992), Technology Planning Director for the Ssangyong Group (1993), and President & Advising Director of Ssangyong Computer Systems Co. (1994-1995). Michael Crow is Executive Vice Provost and Professor of Science Policy at Columbia University in the City of New York. He is responsible for the integration of Columbia University’s central research functions which includes research support, technology transfer, strategic initiatives, and an assortment of special projects. As Vice Provost for Research (1992-1993), designed and implemented The Columbia Innovation Enterprise and the Columbia Knowledge and Innovation Network. Prior to moving to Columbia six years ago, Dr. Crow was Director of the Institute for Physical Research and Technology at Iowa State University. While at ISU, he developed a technology transfer program for business start-ups which led to the creation of more than 10 new ventures. He earned his Ph.D. in Public Policy from the Maxwell School at Syracuse University in 1985, with his dissertation, relating to the structure and performance of energy laboratories, serving as the basis for the National Comparative Research and Development Project (NCRDP). He co-authored the forthcoming book, Limited By Design: Federal Laboratories in the U.S. National Innovation System, which draws upon 12 years of NCRDP work. He is the author of many articles and editor of several books relating to the analysis of laboratories, technology transfer, strategic R&D management, research universities, science and technology policy, and the practice and theory of public policy. He currently sits on the board of directors for Engineering Animation, Inc. and In-Q-It, Inc. Young-Gil Kim is President of Handong University. He still maintains his professorship of material engineering at the Korea Advanced Institute of Science and Technology (KAIST) where he has been since 1979. Additionally, he was a visiting professor at UCLA and worked as a researcher at NASA from 1974-76. He is a fellow at the American Metal Research Society and president of the Korean Innovative Science Research Society. His numerous awards include the King Sejeong Award for Science (1989), the Presidential Dongbeck Medal for Scientific Achievement (1987), Scientist of the Year by the Korean Press (1987), the American IR-100 (1980), and the NASA Tech Brief Award (1976 & 1981). He has also served as a consultant to various companies such as Motorola, a receiver of one of his patents. Dr. Kim is the holder of 40 Korean and U.S. patents. His inventions include special steel CAM-1, electronic semiconductor lead frame PMC-102, and special alloy MA 6000. He earned his Ph.D. in material engineering from Rensselaer Polytechnic Institute, M.S. in metal engineering from the University of Missouri at Kansas City, and B.S. in metal engineering from Seoul National University. Dr. Kim is widely considered the leading material scientist in South Korea. Woo-Young Lee is Vice-President and Professor of Business Administration at Sogang University. He previously served as Dean of the Graduate School of Business at Sogang University from 1993-1997. He has been a visiting professor at Harvard University (1984-1985) and an assistant professor at the University of Northern Michigan (1976-1977). Dr. Lee was the president of the Korean Marketing Association from 1994-1996 and the chief business advisor for the Korea Broadcasting System from 1991-1993. He earned his Ph.D. in business administration from the University of Nebraska, M.A. in business administration from Northern Illinois University, and B.A. in political science from Yonsei University. Other Relationships Morrison & Foerster LLP is one of the largest international law firms with more than 600 lawyers in 15 offices worldwide, including San Francisco, Los Angeles, Sacramento, Palo Alto, Orange County, Walnut Creek, Denver, New York, Washington D.C., London, Brussels, Beijing, Hong Kong, Singapore, and Tokyo. Morrison & Foerster was recently ranked the “Top IP Practice” by Am Law Tech as the largest intellectual property practice of any general practice firm. Service Description Overview Nowadays, PCs are getting as inexpensive as television sets, and television sets are developing towards PC-like power and functionality. These trends are merely signs of things to come. As computing and communication are converging, everyone in the industry is bracing himself or herself for the imminent battle over interactive TV. As most of our competitors prepare for tomorrow, we offer a solution to provide a video-on-demand (VOD) service ideal for today. The leading VOD solutions base their technical design on the following premise: subscribers' movie orders and times will greatly varying for each household. In order to support this assumption, a pointcast system seems to be the ideal choice. However, implementing a pointcast system not only requires costly infrastructure upgrades but also the usage of other high-end delivery and receiving equipment. Furthermore, market research shows that subscriber video orders do not varying infinitely but actually converge on the top twenty movies, and subscribing times and patterns can be anticipated. Based on these findings, ViewPlus presents a better VOD solution. By utilizing existing infrastructure and broadcast technology, ViewPlus provides a VOD solution that not only serves subscribers' needs but also is cost-effective for system operators and can be readily implemented. To our end-customers, ViewPlus provides a whole new viewing experience. They have access to hundreds of movies and television programs at their disposal 24-hours a day. They can request a selection using a remote control or our web interface, and orders will be fulfilled within an average of five minutes. Customers will have full VCR-functionality with fast forward, pause, and rewind capabilities. The consequential news to our cable and direct broadcast satellite partners is that our service is not only readily available, but is also cost-effective to deploy. By utilizing existing CATV or satellite infrastructure and technologies, ViewPlus’s products minimize incremental expenses. The result is fast market penetration and rapid return on investment. Furthermore, compared to our point-to-point competitors, our design inexpensively accommodates growth in the subscriber base. These savings, from low entry cost to inexpensive scalability, presents cable and DBS companies a compelling reason to partner with ViewPlus to offer a VOD service to their customers. Additionally, ViewPlus's patent-pending movie ordering process will provide a new paradigm in movie ordering. Our ordering process is integrated into our Internet strategy and its goal to be the premiere broadband movie portal. This differentiates us even further from our competitors. Once establishing itself, ViewPlus plans to leverage its platform and offer services such as music-on-demand, music-video-on-demand, game-on-demand, and e-commerce, therefore offering our subscribers the ultimate multimedia experience. Difference between PPV, NVOD, True VOD, and ViewPlus’s VOD service To be more specific on ViewPlus’ service offering, the difference between pay-per-view (PPV), near VOD (NVOD), true VOD, and our service is described below. True VOD is defined by instantaneous delivery of video content and full VCR-functionality. Currently, true VOD solutions are being implemented by utilizing ATM technology over ATM compatible networks (ADSL, two-way hybrid-coax). These solutions are based on a pointcast system, which sends one data stream to the home for each movie order. This allows for instantaneous movie ordering and full VCR-functionality (PLAY, STOP, FF, RW, or PAUSE). However, due the requirement of infrastructure upgrades and equipment costs, current true VOD solutions have high-end functionality but remains an expensive solution. PPV and NVOD offer a limited number of movie titles in long intervals without full VCR-functionality. NVOD is simply a more frequent version of PPV. Instead of every hour, it is usually at half-hour intervals. The VOD service offered by ViewPlus is a limited version of true VOD and can be categorized as a service between NVOD and true VOD. ViewPlus’s VOD service can offer a wide selection of titles as true VOD. However, our service delivers the requested video content in quick 10-minute intervals (average wait time is 5 minutes). Additionally, ViewPlus’s VOD solution offers full VCR-functionality similar to true VOD. Overall, ViewPlus offers a VOD solution that is more advanced than what PPV and NVOD currently provide, and comparable to the true VOD solutions currently available. Quick Video DeliveryWide Selection of VideosFull VCR FunctionalityCapitalizes on Current Infrastructure True VODPPV & NVODViewPlus ViewPlus: The Better Business Model As mentioned above, current true VOD solutions utilize ATM technology resulting in a pointcast system. Although pointcast systems seem to be the ideal choice for a VOD solution, it does have its limitations and shortcomings. Due to the nature of delivery, the revenue per stream in a pointcast system is limited to a single purchase. This means the only way to increase the revenue per stream is to increase the price of purchase. This poses a significant limitation on generating revenue and marketing the service. Furthermore, even if multiple users order the same movie at the same exact time, current VOD solutions must generate separate streams for each order. If one hundred subscribers order “Titanic” at the same time, one hundred separate streams must be sent out, which is an inefficient use of bandwidth. For a 2,000 video stream server (average for true VOD systems), if 30,000 subscribers (average cable operator) order “Titanic” at the same time, only 2,000 can be served. In other words, pointcast systems have a subscriber bottleneck problem. To overcome this, current true VOD solutions require additional upgrade costs. Rather than rewarding the cable operator with higher profits due to increases in digital penetration or purchase rates, these solutions require additional upgrades pushing back the break-even point (BEP) even further. Therefore, not only do current VOD solutions have high-fixed costs for implementation, they also carry continual expenses associated with growth. Since ViewPlus utilizes broadcast (multicast) technology to deliver its content, the revenue per stream is not limited to a single order but an infinite amount. ViewPlus’s patent-pending movie ordering process leverages the strengths of broadcast technology (described below and in following sections). Continuing from our example above, for our solution, if one hundred subscribers order “Titanic” at the same time, rather than one hundred separate streams being sent out, only one stream is required. Furthermore, if 30,000 subscribers order “Titanic” at the same time all subscribers could be satisfied by one stream. ViewPlus’s system has no subscriber bottlenecks, and does not have any additional costs associated with increases in digital penetration or purchase rates. The Internet: Enhancing Convenience and Services The primary component of ViewPlus's Internet strategy is its patent-pending movie ordering system which will greatly enhance customer convenience and incentive to order movies through our service. Customers can order movies through two methods: EPG (electronic program guide) and our broadband movie portal. Through the ViewPlus website, the potential of our patent-pending ordering process will be manifested. A recent trial by Comcast provided consumers a web-based ordering option, which was an overall success and resulted in 46% of orders coming from first-time pay-per-view users. We believe our unique ordering process coupled with our video-on-demand service will bring an enormous amount of traffic to our website. Not only will ViewPlus leverage its traffic by selling advertisements on its website, but will also offer targeted marketing for our advertisers. ViewPlus plans to keep a profile of each subscriber, track every movie order, and create a database of video rental patterns. ViewPlus will offer movie-related content such as movie reviews, movie trailers, short films, and interviews with Hollywood stars. The combination of our VOD service and content will be providing the synergy for ViewPlus to become the premiere broadband movie portal. Technology Overview Our VOD solution provides an exciting experience where viewers can choose the movie or programming they want to watch from a vast selection within a short period of time. Unlike the pointcast technology used by other VOD solutions, we utilize a broadcast technology. This enables us to efficiently use the bandwidth available and generate more revenue. It also provides us with a variable pricing mechanism which empowers viewers to control their price. Our solution uses a buffering technology in the client set-top box (STB) to provide viewers with DVD like functions and personal control over the content they are watching. Decentralized control on the content significantly reduces the load on head-end server and enables simpler and cheaper head-end equipment. The broadcast and buffering technologies used in our VOD solution allows our solution to be indifferent towards the size of the network. Therefore, our solution does not need any additional upgrades or investments as the buyrate or size of the network increases. Technical Design Head-end System On the head-end side, our VOD system consists of three major components: Content Delivery System, Control System, and Data Communication Module. The technical architecture needed for a single CATV network to provide a VOD service is shown below. The Content Delivery System consists of a content server and QAM modulators. The content server stores the videos and delivers them to the STB through QAM modulators when requested. The content server uses a clustering technology for fast content retrieval and fault tolerant operation. When delivering content, a full 6MHz channel is used for delivering a single video. This allows our solution to deliver a full two-hour video in less than 10 minutes using 256 QAM modulators. The delivered video is stored in the STB’s buffering device and played back. The Control System is the brain of the whole VOD system. It is responsible for processing viewers’ orders and commanding the content server to deliver the requested videos. Viewers’ orders come from STB through the Data Communication Module and also from our Internet website. Order processing includes authenticating the viewer and managing channels and videos in order to schedule the delivery of movies and programming. Users place an order from the electronic program guide (EPG) screen generated by the STB. The contents for the EPG, which includes content listing and pricing information, is generated from the control system and delivered to all STBs and used for active promotion. Determining the variable prices based on each timeslot’s number of viewer participation is another major task for the control system. Additionally, the control system generates order records for billing purposes and interfaces with existing head-end’s billing and subscriber management systems. The Data Communication Module handles all the data communication between the control system and STBs. QPSK modulator and demodulators are used for data communication separate from broadcast channels. Data Communication Module is a generic module built into the broadband technology for any application utilizing data communication. For our VOD solution the Data Communication Module delivers order and confirmation information between the control server and STB. Set-top Box On the STB side, EPG functionality, dynamic channel allocation protocol, content buffering and playback, and the data communication functionality with the Control System needs to be implemented. The content of the EPG is configurable in real-time from the Control System that enables active promotion to the viewers on video content and their prices. The dynamic channel allocation protocol needs to be implemented to align the receiving channel with the broadcasting channel from the head-end system. The content buffering and playback need to be implemented to download the content rapidly and to playback from the buffer with DVD functionality for personal control on the content playback. Furthermore, the communication function needs to be implemented to send order information and receive the assigned channel and EPG information. Dynamic Channel Allocation Protocol Viewers can use a preview channel, electronic program guide (EPG), or our Internet website to order the video content they desire. The selection is made by using the remote control for the STB. Once an order is placed, that information is sent to the Control System on the head-end side through the Data Communication Module of the CATV network. At the time when the order is placed from the STB, the STB does not know what channel the content will be broadcasted on. The Control System continuously manages the available channel and video content statuses and dynamically assigns a channel for the requested video content for delivery. Afterwards, the Control System sends the assigned channel information to the STB that requested the video content. The STB receives the information and displays the expected start time along with the confirmation of the order to the viewer. Once the STB displays the confirmation message to the viewer, it sends back an acknowledgement to the Control System and configures itself to the assigned channel at the expected start time. The Control System collects the video content requests for one timeslot (10 minutes) and directs the Content Server to prepare for the broadcast at the end of the timeslot. The protocol described above is called Dynamic Channel Allocation protocol because the broadcast channel for delivering the content is determined dynamically on real time. The broadcast channel is selected among the downstream channels allocated for VOD service. Our VOD solution requires at least fifteen 6 MHz channels for minimum configuration and needs thirty 6 MHz channels for optimum performance. The usage of the CATV bandwidth and information flow between the STB and the Control System are shown below. Broadcast Technology and Timeslot Concept Available bandwidth is the limiting factor in the battle to reach end customers via CATV. While some solutions, such as all point-to-point scenarios, are more susceptible than others to this bandwidth concern, all solutions must address how to maximize the channels available to them. Our product overcomes the bandwidth limitation by using two important elements: broadcast technology and timeslot concept. In ViewPlus’s VOD scheme, the content server at the head-end uses a broadcast channel to fulfill a video request. This is in contrast to the more popular point-to-point counterparts, where a personalized data stream is used for each STB, creating a massive bandwidth and server load problem at the head-end when high concurrent usage occurs. ViewPlus’s VOD system sends out a single stream per content for multiple requests at set intervals to all STBs. Only the STBs with correct decryption key are allowed to accept and view the content. Therefore, within a given time interval, the bandwidth requirement is the same whether a particular content is order by one viewer or ten thousand viewers. Our design uses a timeslot to collect orders. The timeslot is a time interval to collect orders. During this timeslot, our VOD system captures as many requests as possible and fulfills them concurrently at the end of the timeslot. We believe that 10 minutes is a short duration acceptable for viewers to wait without dissatisfaction. Actually the average wait is 5 minutes since requests are collected for 10 minutes and fulfilled at the end of a 10-minute interval. Our timeslot concept maximizes bandwidth utilization and service delivery while minimizing costs. This short period of wait will also provide a valuable advertisement space. Currently, our solution guarantees to deliver 30 different videos for each timeslot. A channel is occupied for less than 10 minutes to deliver a video content. So the channel is freed up before the end of next timeslot. Afterwards, it can be reused to deliver another video. Clearly, the duration of a timeslot, available bandwidth, and the number of videos fulfilled per timeslot are interrelated to each other. For example, increasing the number of videos provided for each timeslot requires either increase in bandwidth or increase in the timeslot duration. Thus, increasing bandwidth will allow us to offer more videos per timeslot. Scalability and Adaptability Scalability is inherent in our product. By abandoning the point-to-point paradigm in favor of broadcast technology, our solution is free from backend bottlenecks in downstream bandwidth. To our knowledge, no other VOD solution in the market uses this method. Implementing a pointcast video-on-demand solution creates network overload problems and limited scalability when too many requests occur. However, our solution uses a broadcast technology so our cable and DBS partners would never encounter these financial, customer, and public relations disasters. ViewPlus’s system is incredibly adaptable because our technology can be implemented over any type of broadcasting network such as CATV, direct broadcast satellite (DBS), and local multi-point distribution system (LMDS). Only the dynamic channel allocation mechanism needs to be outfitted in the two end devices, which are usually the STB and the head-end equipment, of any of these transmission networks. Market and Competition Our main competitor will be the video rental industry. It will be crucial for ViewPlus to accentuate the benefits and conveniences of our service compared with the traditional method of selecting movies for the home. It is also essential to our success that we differentiate ViewPlus’s service from pay-per-view, enhanced-analog or digital cable services, and other offerings for our customers and strategic partners. We are able to provide our solution to any type of multi-channel video providing firm: traditional cable companies, direct broadcast satellite services (DBS), and telco cable services. It is important for our venture to build the right strategic alliances. Our additional competitors are companies preparing for true VOD services to the mass market. We need to be constantly aware of their operations, changes in cost structures, and development of new technologies. Video Rental Market The U.S. video rental market is an estimated $9.75 billion industry. Over the past four years, the market has experienced a steady decline in revenue. As a reflection of the whole industry, in 1997, Blockbuster’s rental and sales were freefalling, and its first quarter earnings were off by 20 percent. A major factor for this decline was a growing dissatisfaction among customers towards the availability of rental tapes. Approximately 20 percent of Blockbuster’s customers were leaving their stores without a selection. 43751595250 In response to what industry players label the “disappointment factor”, Blockbuster, Hollywood Entertainment, and other major video rental chains had to change their traditional business model. The growth of pay-per-view ($311 million in 1995 to $560 million in 1997), direct-broadcast satellite services (1.8 million subscribers in 1995 to 6.3 million in 1997), and the advent of video-on-demand were decreasing their revenue and market share in the entertainment industry. The new model was a revenue-sharing system where the major chains give 30 - 40 percent of the rental revenue to the movie studios or wholesalers. Previously, retailers would purchase the videotapes for $60 - $75. This would limit each store to approximately 40 copies of each hit movie and lead to the “disappointment factor.” Under the new model, retailers “lease” each video tape for $8 - $12 and receive as many as 120 copies. In the second quarter of 1998, 80 percent of Blockbuster’s tapes were purchased through this new model, an increase from 25 percent in the first quarter. They have also increased their market share from 25 percent at the beginning of 1998 to 30 percent. In 1997, Blockbuster and Hollywood held 30 percent of the rental market which some analysts project will be 60 percent within the next few years. Even with the recent turmoil and changes in the video industry, consumer demand is stronger than ever. People's desire for movies as a source for entertainment is evident from a recent study conducted by The Yankee Group shown below. 00 -19685-111125 Our primary competition in the video rental market are the major video rental chains: Blockbuster Entertainment Group, Hollywood Entertainment Group, Movie Gallery Inc., Video Update, Inc., West Coast Entertainment Corporation, and Hastings Entertainment Inc. These are the companies who ViewPlus will be battling for the market share and loyalty of the video rental customer. Blockbuster Entertainment Group is a subsidiary of Viacom. It is the largest retailer with over 4,000 video stores in the U.S. and 2,000 overseas in more than 26 foreign countries. In 1997, its sales revenue was $3.9 billion that was an increase of 10.5% over the previous year. Hollywood Entertainment Group is the second largest retailer with over 1,100 video stores in 42 states. It has been opening approximately one store per day. In 1997, it experienced a sales increase of 65.6% and sales of $500.5 million. Of its sales, $418.5 million (84%) were from rentals and $82 million (16%) were from product sales. Its stores present a decorative big-screen theme and typically carries 10,000 movie titles. Recently, Hollywood acquired Reel.com the premiere online video sales store. Movie Gallery Inc. is third largest retailer in the U.S. with about 840 video stores and 100 franchises in 22 states, concentrated in the Southwest and Midwest. Each store carries anywhere from 3,000 to 10,000 movie titles. In 1997, its sales hit $260.4 million, an increase of 2.4% over the previous year. $220.8 million (85%) accounted for its rental revenue and $39.6 million (15%) accounted for its product sales. Video Update, Inc. is the fourth largest retailer in the U.S. and third largest in Canada, with about 680 stores and 75 franchised. 615 stores reside in the U.S. and 138 in Canada. Approximately 300 stores operate under the Moovies name. Its stores carry between 5,500 and 7,900 titles. In 1998, $138.3 million (88%) accounted for its rental revenue, $17.1 million (11%) in product sales, and $0.8 million (1%) in service sales, which totaled $156.2 million in sales. This was a 70.2% increase over 1997. West Coast Entertainment Corporation owns about 290 video stores and franchises 220 more. In 1998, West Cost obtained $102 million (82%) in rental revenue, $19.3 million (16%) in product sales, and $2.5 million (2%) in franchise fees, which totaled $123.8 million. This was a 68.9% increase over 1997. Hastings Entertainment Inc. operates over 125 superstores in the Midwest and western U.S. In addition to video rental and sales, it provides music, books, and magazines to its customers. Hastings primarily targets underserved markets that are towns with populations between 25,000 to 150,000. Video rentals accounted for 21% ($74.7 million) of its total revenue of $357.7 million. $131.1 million (37%) in music and $93.9 million (26%) accounted for more. ViewPlus’s advantage over these competitors is providing a convenient, timesaving process of ordering through households’ cable or direct-broadcast satellite provider. People will no longer have to trek to their local video store to face the potential disappointment of their chosen rental not being in stock. All our movies will be available 24 hours a day and 7 days a week. Additionally, our customers will never have to suffer late fees, which provides the video store industry 30% of their revenues. Our weaknesses are one; we may not be able to provide the latest movies on the same date as they are released in video stores. Due to the current bargaining power of the video market, PPV service providers, which are closest to VOD service provider, are allowed to air movies only 45 days after the video market releases the movie. We believe this will eventually change as the VOD market gains bargaining power with content holders. Two, the advancement of technology cannot directly replace the social and cultural exercise of people going to their local video stores with family and friends. For some, this arranges an opportunity to bond and share time with family and friends. CATV Market The cable industry in the U.S. has experienced steady growth over the past several years. In 1991, the industry penetration of television households was 60.6% or 55.8 million homes. By 1997, 65.9 million out of 98 million television households (67.2%) had basic cable service. In 1997, the overall industry revenue was $30.8 billion generated by 10,850 cable systems across the U.S. Of this total revenue, basic subscriber services yielded $20.4 billion and pay services yielded $4.6 billion. The remainder came from local advertising, home shopping, and other miscellaneous sources of revenue. With relevance to ViewPlus, in 1997, cable systems offering pay service had a penetration rate of 73.9% or 48 million households. In all cable households, pay services held 8% of viewing shares while broadcast networks had 39% and basic cable had 46%. The chart below provides a more detailed analysis of viewing shares across all television households and among cable subscribers. It reveals the distribution of viewing (Monday-Sunday, 24 hrs/day) during a given broadcast year. A broadcast year begins on October 1st and ends on September 31st of the following year. Viewing Shares: Broadcast Years 1993 - 1996 TOTAL TV HOUSEHOLDS1993199419951996Broadcast Network Affiliates52%47%46%42%Independent TV Stations21%22%21%21%Public TV Stations4%3%3%3%Basic Cable Networks26%30%33%36%Pay Cable Services5%6%6%7%ALL CABLE HOUSEHOLDS1993199419951996Broadcast Network Affiliates44%41%40%39%Independent TV Stations17%17%17%17%Public TV Stations3%3%3%3%Basic Cable Networks37%42%43%46%Pay Cable Services8%8%8%8%PAY CABLE HOUSEHOLDS1993199419951996Broadcast Network Affiliates42%38%36%35%Independent TV Stations17%17%18%16%Public TV Stations3%2%3%2%Basic Cable Networks36%41%43%46%Pay Cable Services15%15%14%13% To increase its services and capture more viewing shares, cable companies have been building for the future. In 1998, the cable industry invested $6.01 billion in infrastructure improvements for enhanced picture and sound quality, increased programming, and two-way capability. From 1996 to 2001, the industry is projected to spend an estimated $33 billion to upgrade its facilities. By the end of 1998, it is projected that 44.8 million cable homes (47%) will be passed by two-way plant. It is estimated that 46.8 million cable homes (71% of cable households) will be passed by at least 550MHz. For ViewPlus’ solution, a cable system needs to have the necessary bandwidth, but two-way plants are not required. The attraction to our system is the flexibility over current cable infrastructure. Our system can be implemented over one-way or two-way plants. Beyond cable companies’ projections, the reality is upgrades are not rapidly moving forward. Recently, TCI stated only 26 percent of its cable infrastructure had been upgraded to two-way plants. Thus, we can operate within the current cable infrastructure as cable companies invest in the future. Our ability to operate immediately allows us to capture market share now. And as the industry converts to two-way plants, ViewPlus’ technology can easily accommodate the upgrades and grow our current market share. MSO Facilities Above 550MHz 19961997E1998ETele-Communications32%37%37%Time Warner32%44%62%US West Media38%58%70%Comcast53%73%98%Cox65%86%100% Source: Deutsche Morgan Grenfall 00 In 1999, the cable industry has been heavily promoting “digital” cable to compete with the growth of DBS companies. These digital services provide more specialized content and movie channels to compete with direct broadcast satellites’ 180+ channel offering. Many cable companies, such as TCI, have aggressively advertised to extol the benefits of their “digital” service over direct broadcast satellite. 254635456565This push is not only external to customers but also internal to system operators. Cable industry leaders are pushing system operators to upgrade their analog systems to digital. Today’s reality is less than 5% of all cable systems are digital. This provides ViewPlus with the unique opportunity to cater to either type of system during this push towards digital. Though our strategy is to focus more on our digital product in the U.S., our extremely low-cost analog system can also greatly benefit those system operators who are not rushing towards digital upgrades. Competition against cable companies has been increasing over the past years. Direct broadcast satellite services (DBS), such as DirecTV and EchoStar, had 4.3 million subscribers in 1997, which is a growth of 62% over the previous year. There are over 11 million subscribers to non-cable multi-channel video providers (DBS, wireless cable systems, etc.) which is over 14% of the multi-channel video market. Cable companies have also faced additional competition from telcos. The Telecommunications Act of 1996, opened the doors for the ‘Baby Bells’ to offer cable service. For example, Ameritech’s americast service is available in select areas of Chicago, Cleveland, Columbus and Detroit, and has over 100,000 customers within a year of its launch. GTE already has 25,000 subscribers and plans to “build video networks in 66 markets reaching about 7 million U.S. households by the year 2003.” Video-on-Demand Competitors Since the early 90’s, cable companies and telcos have spent hundreds of millions of dollars testing video-on-demand & interactive television systems. Their trials have proven viewers want and enjoy watching movies whenever they desired. Unfortunately, their systems were too costly for the average consumer. Time Warner’s well-known Full Service Network trial had a minimum installation cost $12,000 per household. Interactive television, which was billed as the ‘next big thing’, would be place on hold due to its high cost and the onslaught of the Internet. U.S. Interactive Television Trials with VOD/NVOD Services (1994-1997) CompanyTrial NameLocationSettopServicesTechnologyBell AtlanticFuture VisionN/APhilipsNVOD,PPVSwitch Digital VideoBell AtlanticStargazerFairfax, VAStellar OneVOD, InternetADSLBell SouthInteractive ServicesAtlanta, GAScientific-AtlantaVOD, NVOD, transactionsHybridF/CoaxSBCLittle RichardsonLittle RichardsonTXN/AVOD, games, transactionsFiber to CurbPacific BellVODCaliforniaScientific-AtlantaVOD, NVOD, cableHybridF/CoaxSprintVDTWake Forest, NCN/AVOD, Sega, infoN/ATCI/MicrosoftMicrosoft TrialRedmond, WAGI, HP, NECVOD, games, infoN/ATime WarnerFull Service NetOrlando, FLScientific-AtlantaVOD, games, shoppingFiber to curb Now with lowering costs and the rush toward digital television, video-on-demand and interactive television has come back to the forefront of the industry. The following are competing technologies and their supporting companies: Technologies &StrengthsWeaknessesCompaniesMediumsATM via FiberTrue VOD:True VOD:AlcatelInstantaneous video ordering & deliveryBandwidth limitationsDIVA SystemsFull VCR FunctionalityRevenue per stream limitationsHong Kong TelecomInfrastructure of the futureHigh head-end server loadSeaChangeIncomplete infrastructureThruNet (Korea)ATM via DSLTrue VOD:True VOD:AlcatelInstantaneous video ordering & deliveryBandwidth limitationsIntertainerFull VCR FunctionalityRevenue per stream limitationsRBOCsHigh head-end server loadSeaChangeIncomplete infrastructureDistance limitationsVideo quality quot;
More questions are being raised about Intertainer's technical feasibility. The market for DSL services is currently fragmented because the industry has not agreed on a standard for the technology. ...insiders doubt that Intertainer could scale on DSL networks. They point out the DSL service providers, which are already short on space, would each need a terabit server in the central office. Because DSL signals can be transmitted only a short distance without degrading, Intertainer would have to place a huge number of terabit servers all around the country. …And because the digital set-top boxes needed to play Intertainer’s programming over TVs have not yet been developed, Intertainer will initially have to convince people to watch videos over their PCs-a daunting task, indeed.quot;
 - Red Herring, January 1999 quot;
The inherent problem with DSL is that service is only available to customers within a three-mile radius of a phone company central office, which substantially reduces the number of potential customers. The only way to reach these customers would be to substantially reconfigure the existing networks, costing billions of dollars that the RBOCs may be unwilling to pay.” - Forbes, February 1999 The following are the current principal players seeking to capture the U.S. video-on-demand market. DIVA Systems Corporation was formed by Paul Cook, the founder of Raychem, in 1995. Its scalable video server was initially developed at Sarnoff Corporation (formerly RCA Labs), and served as the foundation for its OnSet video-on-demand solution. OnSet is an end-to-end solution similar to ViewPlus’s, but provides true VOD to the consumer. Advantages over ViewPlus: Raised $348 million to support its venture. Signed agreements with six cable operators to provide the OnSet service to their cable subscribers. Over 2,000 video titles under license. Disadvantages: Incredibly high break-even point and return on investment. $80 million cost for a 4,000 household trial. Uncertainty regarding its scalability over large areas. Intertainer, Inc. was founded in 1996 by Richard Baskin, Jeremiah Chechik, and Jonathan Taplin. The founders have various entertainment media connections that they hope to leverage to build a quality content offering to their customers. Intertainer is a service delivered through cable modems or DSL to a customer's TV or PC. Advantages over ViewPlus: Strategic partnerships with Comcast, US West, Sony, Intel and NBC. Services include video-on-demand, music, informational programming, and pending shopping service. Personalize content through a smart agent. Disadvantages: Based on cable modem or DSL technology, which has lower quality video and suffers from inconsistent delivery of video and sound. Small customer base within infant markets. SeaChange is the television industry’s leading supplier of digital server systems. Based on a scalable, distributed software architecture and standard computing components, SeaChange systems allow television operators to automate the distribution and management of advertising, movies and other video programming. Advantages over ViewPlus: Existing customer relationships through their other product offerings (3,000 video servers installed). Manufacturer offering a video-on-demand system. Not seeking a revenue-sharing agreement. Disadvantages: Dependent on digital cable architecture. Expansion costs. One standard rack can only support 5,000 VOD subscribers. ViewPlusSWOT Analysis 10-minute wait in air time Delay in release window of movies (compared to video)30 contents delivered for every 10-minute interval.WeaknessesCost effective & early ROI provide compelling reasons for MSOs & DBS companies to partner with ViewPlusNo “disappointment factor” (vs. video rental stores)Patent pending technologyProvides convenience for consumersProvides savings (no late fees) for consumersEmpowers viewers to control their pricesUses existing cable infra-structureStrengths Value added services (e-mail, game-on-demand, music-on-demand, and e-commerce,) using two-way platformInput wide range of choices for consumers’ selectivity (music videos, sports, etc.)OpportunitiesManipulation of movie release window by video playersGrowth of VOD competitorsGrowth of DSL servicesImproved services of video storesInternet VOD via cable modems and DSLNew technologyPatent violationsEmbedded culture & notion of going to video stores to rent movies ThreatsMarketing Consumer Profiles The following was taken from a study conducted in 1998 by Yankelovich Partners, Inc. for the Video Software Dealers Association. It was an extensive study of consumers' home video rental and purchasing habits. We assume ViewPlus’ consumer profiles will be very similar to those outlined in the Yankelovich study. Five segments of video renters were profiled as: Voracious Viewers This segment is mostly young (72% under 40) and female (66%). They are very likely to have children at home (74%) and are more urban (40%). In general the Voracious Viewers segment is comparatively less educated (18% college grads) with lower household incomes ($35K average). This segment is more likely to be frequent renters (39% rent once a week or more), more likely to be renting videos more often, rent the most videos per visit (2.6) and purchase the most videos (13.3 average over past year). Hi-Fi Bachelors This segment is the youngest group (26.5 average age), mostly male (69%) and the least married (6%). Like the Voracious Viewers, this segment is more urban, less educated and have relatively low household incomes ($31.2K average, the lowest of any segment). Hi-Fi Bachelors are most likely to be frequent renters (40% rent once a week or more), most likely to be renting more videos and rent from the most different video stores (24% rent from 3 or more stores). SUV Suburbanites This segment is young (36.9 average age) and mostly female (63%). Most in this segment are married (86%) and almost all have kids (96%). SUV Suburbanites are educated (45% college grads), mostly live in the suburbs (43%) and have the highest average household income ($45.6K average). This is most likely the group thought to be the highest volume purchasers and renters, however, SUV Suburbanites include just an above average proportion of high frequency renters (33% rent once a week or more) and are slightly above average video purchasers (8.4 average over past year). Cultured Ladies This segment is the oldest group (84% over 40) and mostly female (72%). They are mostly married (71%) with virtually no children at home (3%). They are relatively educated (35% educated), have higher household incomes ($43K average) and are less urban (30%). This segment is less likely to be high frequency renters (21%) and are more likely to be renting fewer videos (37%). They are lovers of quot;
classicquot;
films and are the only segment to favor dramas (63% pick as favorite). Disinterested Gentlemen Finally, the Disinterested Gentlemen segment is older (50.9 average age) and mostly male (66%). Most are married (65% but not likely to have children at home (14%). This group has the highest household income ($45.8K average) and is the most educated (46%). Disinterested Gentlemen are the least likely group to include high frequency renters (12%) and they are the most likely to be renting fewer videos (48%). They rent the fewest videos per visit (1.6) and they are most likely to subscribe to a DBS service (16%). “The two most valuable renter segments are the Voracious Viewers and Hi-Fi Bachelors. These two groups represent 40% of video renters but account for 55% of video rental activity. The SUV Suburbanites, above average renters, represent 25% of the video renters and 25% of the video rental activity, while the Cultured Ladies and Disinterested Gentlemen segments represent 36% of video renters but just 19% of video rental activity.” As the Yankelovich study points out, our target customers are a minor fraction of the overall viewing population, but will be a majority of our revenue source. This is further supported by a recent study conducted by The Yankee Group shown below. 00 Marketing Strategies Our primary marketing strategies are to implement fast market penetration, build a strong brand, and acquire quality video content. Fast Market Penetration We believe the key to our success is becoming a standard solution and service provider within the cable industry. The compelling short return on investment of our solution will lead us to fast market penetration. Even with its limitations, we believe ViewPlus will satisfy at least 80% of the viewers within the first 10 minutes. Our solution is ideal for cable providers and their subscribers. The system costs less than US$600,000 and allows us to retrieve the hardware/software investment within 10 months. This is based on a 10% daily purchase rate from a CATV network of 30,000 subscribers (10% purchase rate means one subscriber purchases 3.0 movies per month). Studying the rental patterns of the video market, we discovered that over 80% of the rentals are from the top10 movies in video stores. This figure climbs up over 90% if we include the top twenty movies. The movie purchase patterns may vary in the VOD market because the added convenience of the service enables us to reach a wider customer base that might diversify the movie selections. Overall, the rental patterns of video market should not significantly differ from the VOD market. There is the possibility the purchase patterns might even converge more narrowly on the top10 movies. Market research has shown many people rent outside of the top10 because of the lack of copies in video stores. With ViewPlus, this would never happen. Building a Strong Brand Building a strong brand is an important success factor. It becomes more important in the later stages of our operation when the life of the technology is becoming obsolete. Additionally, our brand will allow us to carry our customers into the advanced service offerings of the future. Quality Content Acquiring quality content is an essential success factor for our venture since it is useless if there is nothing to watch. From researching our competition, we discovered that some trials failed because they overlooked the importance of acquiring popular and interesting movie titles. Our efforts will focus on securing licensing agreements with most of the major studios and attempting to shorten the release window for the VOD market so that it is comparable with the video rental industry. The release window is an initial barrier for us to directly compete with the video rental industry. Currently, the release window for the PPV market, which is the most similar to VOD, is at least 45 days after movies are released in video stores. This is a significant handicap when competing with companies such as Blockbuster. Fast market penetration is important for us to garner enough customers, so that we can negotiate the best terms with the movie studios. Ideally, we would want our release window to be the same as the video rental industry. Revenue-sharing agreements are standard between the movie studios and video-on-demand providers. Fifty percent of the revenues will go to the movie studio and the remainder will be divided among the system operator, set-top box manufacturer, and ViewPlus. Movie studios are in the favorable position of distributing their movies through various channels while cable operators and video-on-demand providers battle for market share. Pricing quot;
Fixed prices are only a 100-year-old phenomenon. I think they will disappear online, simply because it is possible -cheap and easy- to vary prices online.quot;
 Patti Mae Associate Professor, M.I.T. Media Lab Pricing is a very important element in our business strategy because it allows us to optimize our technology and business model. Similar to the online environment, our technology gives us the opportunity to dynamically price movies and other services. It allows us to maximize our channel usage by creating value incentives for our customers. We will price our top10 movies to directly compete with the video rental industry. A top20 movie rental is $2.50. In addition, movies are released to the pay-per-view market (similar to our market) a minimum of 45 days after the video rental market. We believe that in the market entry stage the convenience offered by a VOD service is not enough to overcome this release delay and justify a higher price point. Movie titles outside the top10 will be priced at $3.50. This is a different approach from the video rental market where stores price older titles at lower prices. The primary reason for this pricing structure is to encourage customers to select from our top10 movie list. As described in the Technology section, there are a maximum number of titles that can be fulfilled during a given timeslot. Orders requested beyond the maximum number will be pushed back to later timeslots. Therefore, bandwidth will be more effectively utilized when a lesser number of non-top10 movies are chosen. However, higher pricing will not eliminate the possibility of non-top10 movies from being ordered. When a non-top10 movie is ordered, we need to maximize our revenue from the already committed bandwidth. This is where we need to provide incentives and actively promote these choices. Once a non-top10 movie is selected, we will discount the price to $2.00 or lower for all our customers. This notice for discounted movies will be displayed on our order screen and preview channel. We hope this will create a piggyback effect and allow us to efficiently use the bandwidth. We are currently seeking a business process patent for our pricing method, so we could not discuss it in detail. Internet Strategy Goal To become the ultimate broadband and Internet movie portal by providing video-on-demand ordering, entertainment news, movie reviews, and related services. Objectives Provide an additional convenience of ordering movies through our website. Promote our video-on-demand service to non-service areas. Increase brand and service awareness. Generate online advertising revenue. Industry Background This year Prevue Networks, TelVue, and Comcast jointly conducted a field test for pay-per-view online ordering in select areas. Prevue Online, Prevue Network’s website, attracted approximately 10,000 visitors and 270,000 page views per day. Prevue Online’s visitor profile was: 70% were premium cable subscribers. 60% watched television and surfed the Internet at the same time. 45% ordered pay-per-view in the past six months. The field test has been considered a success so far: High consumer response. Over 46% of orders came from first-time pay-per-view users. Website traffic from Comcast subscribers in test areas increased by 28% in the first month and 41% in the second month. Broadband Movie Portal We believe there is an enticing synergy in offering consumers movie-related content and the capability to order movies on demand for their cable or satellite service through the Internet. Our movie portal would be optimized for broadband subscribers (@Home and RoadRunner), but accessible and marketed towards all Internet users. Services for all users Video-on-demand ordering Entertainment news Movie reviews (new releases and archives) Movie trailers (Quicktime or AVI) Movie chat rooms Video & DVD sales (associate programs with Amazon.com or Reel.com) Contests & games Services for broadband users Streaming video for trailers (i.e. RealPlayer) Streaming video for short films (i.e. independents, cartoons, etc.) Real-time contest & games Integrated into our online video-on-demand ordering will be our unique ordering process. Our goal is to encourage consumers into a piggyback effect and maximize the amount of orders for each movie demanded. Currently, we are seeking a business process patent for our ordering process, so details cannot be disclosed. Implementation We are considering two methods of implementing our strategy. First, to internally manage our broadband movie portal. This includes staffing, website development, content development, and backend integration with cable or satellite system operators. Second, is to outsource all or some components of the operation. For example, we would seek out content partnerships with established movie websites, such as Mr.Showbiz.com, Film.com, or TVGuide.com. Our video-on-demand service could greatly increase their service offerings to consumers, while we would benefit from co-branding with more established names. We can also outsource our website development to a variety of companies. These are issues that need to be further addressed. Schedule & Milestones Overview Our objective is to be a service operator in partnership with multi-channel video providing firms: traditional cable companies, direct broadcast satellite services (DBS), and telco cable services. We would provide these firms with the VOD hardware/software and support services to operate and maintain our system. In return for accepting our service, these firms would receive a share of the revenue for each movie or program purchased through our system. The following phases cover our first year milestones. Phase I (May 1 – August 30, 1999) Secure seed capital for prototype development. Complete barebone working prototype. Attend cable industry trade shows to build our industry knowledge and relationships. The industry wide trade show will be held June 13-16, 1999 in Chicago. Phase II (September 1 – January 31, 1999) Secure relationship with equipment manufacturers. This is for our hardware that includes the DVD jukebox, RAID, content servers, and set-top box. Additionally, we will join set-top box developers’ programs (Scientific-Atlanta, General Instrument, Liberate, etc.) Secure content licensing agreements with the major studios (Walt Disney Company, Sony Pictures Entertainment, Metro-Goldwyn-Mayer, Twentieth Century Fox Film Corp., Universal Studios, and Warner Bros.) and independents, such as Buena Vista, Miramax, and Trimark. This is a critical step towards the viability of our business model. We need quality content to enhance our service offering to cable and DBS companies. Secure startup capital for field tests, recruitment, and sales & marketing. Recruitment of U.S. and Korea team. Complete full-scale prototype. Phase III (February 1 – March 30, 2000) Conduct field tests with select cable companies. Risks & Barriers Risks Unknown VOD purchase patterns We assumed that the VOD purchase pattern will follow the video rental pattern. Video rental patterns indicate that Top10 titles account for over 80% of the rentals and Top20 titles account for over 95%. In our solution, viewers will experience delays if VOD purchase patterns are not clustered on the top titles, which will cause potential set backs in implementation. However, since VOD is aimed at replacing the video rental market, we assume the rental patterns will not significantly change. As mentioned in our Marketing and Pricing sections, we intend to promote the orders of the Top10 movies by pricing them lower than non-Top10 movies, and offer a discount for delayed customers. Furthermore, our technical solution is scalable, and we have already planned for a digital version of our system. This will increase the available channels to an average of 30-60 channels per time slot from the current average of 10 channels per time slot. We know that our digital solution will satisfy 100% of our customers. Barriers Release window for videos An impending threat is the interference of video rental chains to lengthen the release window of content for ViewPlus’ customers. Currently, the video rental market contributes to 50% of the movie industry’s revenue and 60% of their profits. Therefore, the major video rental chains, such as Blockbuster, can influence our terms with these content providers. A delay in the release window is a disadvantage in competing with the video rental market. This is why ViewPlus will focus on rapidly building our customer based to gain negotiating power with the movie studios.

ViewPlus Business Plan 1999

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ViewPlus Business Plan 1999