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European video-on-demand (VOD) will fail to achieve a return on investment and will have cumulative losses of USD2.4 billion by 2006 according to a new report.
The report, produced by research company Datamonitor, entitled "Return on investment for video-on-demand: Cable and ADSL VOD in Europe," predicts that there will be no large-scale VOD rollout in Europe until 2004, due to the budget constraints among European cable providers.
Video on Demand refers to technology that is set bringing motion, video, audio and 3-D images down the cable or telephone line (via ADSL) and should let consumers see or listen to movies, drama series, music and sports events at their chosen time, either through their television, or on the Net through their PCs. Video-on-demand (VOD), until now, was expected to allow broadcasters to generate higher average revenues per user (ARPUs) and reduce customer turnover in a competitive pay-TV environment.
But of the market, Datamonitor says, by the end of 2002, costs to deploy VOD will have reached USD44 million and this will run into USD3.6 billion by 2006. The report predicts that VOD will have accumulated negative returns of USD2.5 billion by 2006.
ADSL VOD in Europe faces a prohibitive cost base resulting from decreasing, but still significant, network access charges and from higher technology costs, relating to bandwidth utilisation and load balancing over IP networks, Datamonitor claimed.
Although VOD has already been rolled out in the UK by Videonetworks and by KIT and e.Biscom in Italy, the report predicts that European operators will delay investment in the costly technology until they see a viable VOD industry in the US.
"VOD over the ADSL platform, faces a bleak future and is only likely to become profitable for individual players such as major satellite operators like BSkyB or ADSL providers in countries where cable has not reached significant penetration," said Panni Kanyuk, the report's author. "For sizeable cable operators, with a long-term investment view, VOD will form an important corner stone as part of an advanced interactive offering."
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