Vudu Podcast: Should Pay TV Players Fight the Leading OTT High-Def Content Provider, Or Join 'Em?

We had a chance recently to catch up with VUDU Executive Vice President Edward Lichty to capture his views on the role Vudu is playing in fostering the burgeoning over the top (OTT) video market, as well as his perspective on the market in general. Click here to listen to podcast.

Vudu has certainly been making a lot of noise lately. They seem to be at the forefront of many of the major innovations in the OTT space. First, while many skeptics thought the delivery of quality Internet HD on demand could not be done with any kind of a reasonable user experience, Vudu has embraced high-def, with 2,000 of their 15,000 movie titles available in up to 1080p resolution, more than any other OTT provider and more than the total Blu-ray library, according to Vudu. As a result, Vudu’s $150 box (they also sell a higher end $500 box) boasts the highest revenue per subscriber of any VoD service, with around $20 per month collected from customers. This is high compared to cable, a fact that Edward pins on the fact that, for cable, VoD is a service primarily used to buttress the value of their subscription-based service, as opposed to the core transactional business that drives the Vudu user experience. Edward also chalks this up to Vudu’s superior selection, high quality 5.1 sound, convenience, and ease of use. (By the way, for those following the protocol wars for HD video distribution in the home, Edward made it clear that even WiFi G is enough for them to deliver HD content in real-time with delays of 1 second or less. Of course, a mix of VoD and streaming live TV would be more taxing.)

Vudu is not afraid to try out new business models. Last week, the company announced a deal with Disney’s Buena Vista Home Entertainment for the first major download-to-own service for movies. “I think this is another example of Hollywood endorsing Vudu as a premier HD platform,” he said.

Vudu is also pioneering different types of OTT business models and hybrid IPTV/OTT solutions. Last month the company added Brightcove ad-supported content as an option in addition to its core VoD service, the first OTT set-top box company to do so. Together with current applications like Pandora and Flickr, Vudu is becoming more of a one-stop shop for OTT entertainment. “We see Brightcove as an adjunct to the movie service. It extends the Vudu platform and makes it more than a movie download service.”

More recently, the company announced a deal to port their Vudu service to an Entone IPTV set-top box (capable of delivering the same HD quality content as their own hardware) and Edward suggests that Vudu may announce similar deals with other device manufacturers including other STB companies, devices that bridge the Internet and HDTVs, as well as Internet-connected HDTVs themselves. Ultimately, Vudu sees themselves as a service and software company with a lot of skill in delivering the best Internet video experience to consumers.

“In general we believe there will be a proliferation of devices that connect TVs or are TVs… all of those devices become an environment where a service like Vudu can live. We see our business as being built around our service. The service is where the financial pay-off is.”

Perhaps the most interesting part of my chat with Edward was our offline discussion of hybrid PayTV/OTT business models and why the Pay TV players can’t easily replicate what Vudu is doing. His answer was interesting. He states again that cable companies use VoD as a way to build value for their subscription, noting “there really is no growth in their transactional renting of movies.” He also claims that the “Hulus and Fancasts of the world are a PC-based strategy” and highlights Boxee’s recent hand-slapping by Hulu as an example of the pressure applied by content owners worried about cannibalizing their lucrative Pay TV business in the living room. Edward sees a massive difference between the PC and the living room, and he is not afraid to throw a few verbal hand grenades:

“The nature of what we are doing is so different from what’s happening in cable and satellite. Those guys may find it a little harder than they think to just match us. Getting that powerful, Internet-driven, interactive, community focused, VoD service deployed on a broad basis is going to be pretty hard for cable and satellite to reproduce because it is not in their DNA. They are not software guys; they are not fundamentally of the Internet culture. They have great content power but they are not nimble and they do not have nimble technology.”

While Edward recognizes that Vudu is still a small company by Comcast standards, he believes there are a lot of proof-points that make the Vudu business model very compelling, including the lack of monthly fees, $20 a month average revenue per subscriber for VoD downloads, extensive HD movie library, and the intuitive and fast user interface. And while he sees some resistance by the big Pay TV service providers to stave off the OTT threat, or somehow appropriate the OTT business model, he sees smaller and mid-size players embracing its potential, potentially through revenue-sharing with companies like Vudu.

“It all depends on what the goals of the service provider are. If I am a mid-level telco that has no interest investing in the infrastructure it would take to deploy a robust VoD solution, then there really is not much conflict. Having something like Vudu in my system really makes my platform more attractive and allows me to compete with other video providers for that core subscription.”

Listen to the quick 12 minute podcast for more.