The video rental market has evolved from brick-and-mortar stores where the customer physically selected and picked-up the video, to on-line stores where he or she selects the movies from an on-line database and gets physical delivery of video DVDs by mail service. The only drawback of the on-line model is that the customers have to wait 3 to 4 days to get the DVD in the mail. Not many customers can wait for four days to watch their favorite movie. Now, video rental companies are a smart race - they quickly understood the customer’s disquiet and, in an attempt to overcome the delay, embarked on delivering movies through the Internet instead of the snail mail.
But the customer is a different animal. Most of them prefer seeing movies on TV rather than on their PCs, which are sometimes also jerky.
Understanding the customers augmented needs, and evidently seeing a lot of money and opportunity on the table, the service provider, content aggregator and content owner converged to delight this animal we best know as the customer on a platform christened Digital Television. The technology sounds simple (not that the customer cares) - A digital TV signal is beamed down to a satellite dish or through a cable wire. The signals are encoded by the service provider into the MPEG2/4 (simply meaning: full-screen video with surround sound, or at least stereo) standard, sent to the home, and decoded by a set-top box.
Pleasing the customer is a must but making a profit and sharing an agreed portion of the same with partners and others in the service provider’s delivery chain is equally, if not more important. In their urge to provide Video On Demand (and other Value-added services), service providers today are losing substantial revenue streams as a result of ‘all you can eat’ pricing, failure to accomplish content-value-based pricing and ineffective partner management systems. The fact is that there may be a difficult future for many of these operators sooner than later if the current levels of losses continue.
Most industry pundits argue that the media and entertainment industry is at a critical inflection point with user base saturation setting in and ARPU (Average Revenue per User) stagnating and offering Value Added Services like VOD in association with partners is the only way forward. But before making further advancements in providing customers with what they want to reduce churn the most obvious needs to be put in place - a pricing and billing system that supports the kinds of billing situations (bill per use) that VOD represents.
Service providers have not been very successful in this endeavor, primarily due to their technical inability to implement competitive pricing strategies. This technical inability is deep rooted in their existing pricing and billing systems. These systems were installed in an era when only “all you can eat” service offerings existed, the concept of usage-based services was not envisioned. Over time, these systems have become ingrained into the core operations of the service provider.
Replacing these existing billing systems with a new billing system capable of doing usage based pricing, is not a viable alternative as it requires tremendous cost, effort and time, to not just replace the system but also to re-build the interfaces to all the other software to which the billing systems have developed interfaces over the years. In the face of this daunting challenge most operators have chosen to live with the limitations of their legacy systems.
The main limitation of these legacy billing systems as it relates to the VOD and Pay per View, Video Rental or IPTV is that they force fit these usage based services into the existing “all you can eat” billing model. Hence, they treat each usage occurrence as a one time “all you can eat” subscription. Another limitation of these legacy systems is that they are also not capable of tracking and applying pricing algorithms based on usage within a given period of time for each customer. Hence every usage occurrence is treated independent of any other usage occurrence during the given period of time.
As a result, service providers are forced to only offer flat pricing. The price per movie is fixed and it is independent of the value of the content or the number of times a customer purchases an IPTV, VOD or Pay Per View movie. Which is clearly not very competitive with the subscription based offerings of the leading video rental companies.
Tracking usage and pricing is also important to enable accurate and timely revenue settlement with content providers. Accurate and timely revenue settlement is critical to winning the confidence and support of content providers to enable them to make content available to service providers at the same scale and terms as they currently provide to on-line video rental companies
What service providers need is an alternative to fork-lift upgrades of their legacy billing system. They can add to their existing IT infrastructure, an adjunct usage based pricing module that provides the required incremental pricing functionality, without replacing any existing system.
Usage Based Pricing Engines specifically designed to easily interface with any existing legacy billing infrastructure to deliver unified billing to the end-user is the need of the hour. A solution that also interoperates easily with existing video servers, and the new MPEG Edge Routers to provide enhanced pricing support for IPTV, VOD, Pay per View, and video rental services.
A comprehensive content and partner settlement module that delivers accurate and timely revenue settlements with multiple partners should be a given. Armed with the above, service providers can implement competitive pricing strategies to start revenues from the video-rental business and also to increases customer stickiness in an increasingly commoditized world.
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