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BizReport : Internet : February 22, 2002


Exclusive Interview with Jonathan Taplin, CEO of Intertainer

Jonathan Taplin isn’t one to shy away from risk. The CEO of interactive video firm Intertainer has spent the last few years trying to convince cable companies and other multichannel video providers to take a leap from the passive tradition of TV viewing into the uncertain new world of interactive programming. The idea was to use the existing IP network—along with the growing number of broadband connections—to pump robust bit streams into consumers’ homes, offering video-on-demand (VOD) and other content. Taplin took a few minutes to tell BizReport about this new service and why he thinks VOD over the Web will eventually take off.

by Michael Grebb, Special Correspondent

It has been a challenging few years of fits and starts in the interactive world. But now, Intertainer has partnered with Microsoft (and its powerful MSN network) to offer a subscription VOD service to broadband users on the Internet. For a flat monthly fee of $7.99, users can watch streams from about 400 hours of television shows (individual movies can be rented for 24 hours for the price of video rentals).

MG: A lot of people aren’t really familiar with the concept of VOD over the Web. How will this new service work?

JT: The service that we announced with MSN is a national broadband VOD service delivered over virtual private networks to 35 of the top markets in the United States. We believe there’s probably about eight million broadband homes passed in those markets—plus there are uncounted number of dormitory rooms that have Ethernet connections through the colleges. So that’s kind of the wild factor that we don’t know.

MG: Any idea how many broadband dorm rooms there are out there?

JT: Well, the word we have is that nationally there are about 10 or 11 million dorm rooms that are broadband connected, so a subset of them might be six million in the top 35 markets.

MG: Don’t many colleges restrict bandwidth because of file sharing services such as Napster, which often clogged networks?

JT: We haven’t had any complaints yet, so we don’t really know. But if it became wildly successful, it might cause a Napster-like effect. But I doubt it. People are paying for the content, and that tends to slow down their activity a little bit.

MG: The world of VOD over the Web is littered with the corpses of those who have come before you. Why do you expect to be successful where so many others have failed?

JT: We began to look at the Nielson statistics and ratings that were broken out for broadband, and we began to see it grow month over month quite dramatically. That includes the colleges as well as domestic DSL and cable modem subscribers. And when we put that into one part of the thinking… we took the fact that some of our suppliers in the cable space were still having problems in terms of scale… but our network platform works like a mother. We’ve been running in Cincinnati for almost a year now with about 8,000 customers there. It works. And it scales. We’ve never had a denial of service. So we were very confident in the architecture, the security, the technology. The other thing that happened was that the backbone prices were dropping weekly because of the glut of backbone capacity. So all of the lines came together in a place where we said, “Okay, we can make a nice margin on a national service. We can do it. The time is right.” To me, it feels exactly like the point when HBO, CNN, and MTV started 25 years ago. People had cable, but it was just because they had a bad broadcast signal. But once you could get content on it, that was a real reason to get it. People have broadband, but just to get your email faster is not a good reason. So if there’s a really great service that people can get… I get emails from people saying, “This is unbelievable.” It’s just a radical jump.

MG: Do you expect people to watch this video on their PCs or use wireless or S-video connectors to watch it on their TV sets? Have you gotten any anecdotal evidence yet?

JT: Let me give you some incidental statistics that might help. Of people who were visiting the site, we were converting about 20 percent of them to a subscription. That’s pretty high. Usually, you talk about 2, 3, 4 percent conversion rates. Of the people who are using it, they are watching between 3 to 4 pieces of content per week. It’s actually increasing. If you take the classic pay-per-view model, it’s one piece of content per month.

MG: What about the medium—PC or TV?

JT: We assume that 80 percent are watching it on the PC. We’re going to start pushing—along with some of our partners—these TV-to-PC connection kits. We’re going to do a Christmas promotion for all the people who are selling digital TVs with a direct input to PC in them. There are lots of ways to do it. The problem is that there are only two ways to do VOD: One is with a PC, which is incredibly robust and powerful. The other is with a cable set-top box.

MG: Of course, the cable industry has backed off using the higher end boxes in favor of lower end ones that generally don’t contain modems. Considering this Web push, have you given up on the cable guys?

JT: No, no, no… We are constantly trying to educate the cable universe… and some guys have really come along. When I got up at CTAM [Cable & Telecommunications Association for Marketing] a year ago and said, “Look, get with the IP program,” everybody thought, “What’s IP?” It just fell on deaf ears. But a year later, a lot of people are listening. Charter is running a trial in St. Louis right now. People are rushing. I don’t think there’s any other way you can do massive deployments.

MG: Explain the pricing model and how it works. What do you get for the flat rate of $7.99 per month?

JT: That gives you a package of about 400 hours of television. All of that stuff comes for the one fee. But then the movies are a-la-carte because the movie studios don’t want us to offer anything on a subscription. The price points that we use in the movie section is exactly pay-per-view. It’s $3.99 for a first-run movie with a 24-hour license to watch it as many times as you want, and then $2.99 for a library movie. As for the $7.99, we talked to the people who were giving us content and created a royalty pool for them. We got their advice on what to charge and it’s working.

MG: Indeed, your partnership with Microsoft and use of its Media Player almost makes this the main competition for Real Networks’ newly launched “RealOne” service. How important is the Microsoft component to Intertainer’s success in this space?

JT: It was very important… When we saw that MSN had 11 million unique visitors in broadband last month, that was pretty astonishing. And so, in that sense, it’s a marketing vehicle. You’re just grabbing eyeballs. You’re putting the content in front of where the people are.

MG: Your movie licensing deals are with the major studios, which are working on their own subscription VOD services. So you are licensing content from companies that will soon be your competition. Do you worry they will cut you off at some point?

JT: I don’t think they can legally. They’ve all said very clearly to the Justice Department that they plan to license this content to third parties such as ourselves. Now, will they keep their word? I don’t know.

MG: I have a feeling you would have something to say about it if they didn’t.

JT: (Laughs) You can bank on that.

MG: How much of your revenue model depends on such marketing versus the fees that people pay to view content up front?

JT: We ask you for your age, your sex, and your zip code. Can we target you with stuff that would be of interest to you? Absolutely. Most of the patents we have are built around personalization. We have e-commerce links that are very easy to use as well. I think that VOD in the early stages will be a big part of the revenue, but I think advertising and e-commerce will grow over time and become maybe 30 to 40 percent of the revenue. If you’re just grazing around videos, every ten minutes you’ll get a full-screen, 30-second ad. There’s a little logo on the bottom that will tell you it’s interactive. You can click it and suddenly you’re in the e-commerce page. Then the ad finishes and you’re back to the music videos. The advertiser can say I only want this to go to 18-year-old girls in these zip codes. That’s pretty powerful.






Tags: Microsoft, MSN, VOD








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