Reviews in for Stargazer Pay per view: Bell Atlantic says its "video on demand" service proved itself during a market trial, but some analysts are skeptical.

March 25, 1996|By Michael Dresser | Michael Dresser,SUN STAFF

After a six-month market trial of its Stargazer "video on demand" service in Northern Virginia, Bell Atlantic Corp. says it has an astronomical success in its hands.

Trudy Marotta agrees.

"We love it. I don't ever want it to go away," said Mrs. Marotta, a Springfield, Va., resident who signed up for the test last May.

"I've not been to a video store since then," she said. "I've not been in the Blockbuster parking lot at midnight returning videos."

The questions that remain after Bell Atlantic's market trial are whether there are enough consumers as enthusiastic as Mrs. Marotta and whether they will order enough movies over their phone lines to make video on demand a paying business.

In a report on the trial issued last week, Bell Atlantic said that the "buy rate" of its videos delivered through its telephone system was 12 times as high as that of pay-per-view movies over cable TV.

"This beats all the things I've seen so far. I'm just excited and delighted," said Bob Townsend, vice president of programming for Bell Atlantic Video Services.

But industry analysts dismissed the pay-per-view comparison as highly misleading. Instead, they focused on a number on the third page of Bell Atlantic's statement, which showed that Stargazer households watched an average of 3.3 videos a month, compared with 3.2 videos rented per month by owners of videocassette recorders.

With the cost of full-length movies ranging between $3.29 and $4.49, that would mean the typical customer spent between $10 and $15 a month on the service, which carried no monthly membership fee. Even Mrs. Marotta, who said she had spent as much as $21 a month on the service, said that last month her bill dipped to about $4.

Industry analysts said such numbers suggest that video on demand would not be the "killer application" that speeds deployment of the interactive "full-service network" Bell Atlantic has touted as the wave of the telecommunications future.

"The demand that has been shown in the Bell Atlantic trial doesn't suggest there's a business case for video on demand," said Peter Krasilovsky, senior consultant at Arlen Communications in Bethesda. "You can't just do as well as video stores you have to do much better than a video store to make it worthwhile."

Stephen Effros, president of the Cable Telecommunications Association, was unimpressed by Bell Atlantic's numbers.

"They are saying that they are 0.1 percent more efficient than the local video store that doesn't have to build any infrastructure? That has got to be a very encouraging number for Blockbuster," Mr. Effros said.

But Mr. Townsend said video on demand is not intended to be a stand-alone business but part of a package of services including cable TV, shopping, electronic Yellow Pages and on-line shopping.

"This will be folded into our deployment of fiber to the curb," Mr. Townsend said, referring to Bell Atlantic's plans to deploy a high-tech fiber-optic system.

If that is the case, it means it will be a while before Baltimore-area residents will be dropping their cable TV subscriptions or cutting up their Blockbuster cards en masse.

Daniel Briere, senior consultant at Tele-Choice Inc. in Verona, N.J., said the construction of the full-service network is likely to be driven more by the need to update the basic phone network than by any dazzling new technology.

"If it's being fast-tracked, I'm not seeing any evidence of it," he said, noting that Bell Atlantic has announced plans to upgrade its network in only one of its major markets, Philadelphia, in the next year. That upgrade will be for phone service only, at least at first.

"Quite frankly it's going to be the next several decades over which this will be deployed," Mr. Briere said. "They're not building the full-service network in Baltimore any time soon."

Nevertheless, Mr. Briere does not view Bell Atlantic's trial as a failure. He said it shows there is ample demand to make video on demand a paying business as part of a full-service network.

"Putting this in is a no-brainer because you'll make a lot of money from it," he said.

Many of the results of the trial give Bell Atlantic good reason to be encouraged:

The service was operational 99.3 percent to 99.8 percent of the time over the past six months.

Independent surveys showed that customer service met or exceeded expectations 96 percent of the time.

About 73 percent of subscribers purchased some programming each month.

Customers generally found the service user-friendly, with 88 percent reporting that navigating the system was easy or very easy.

The survey showed that users leaned heavily toward new-release movies, which accounted for 50 percent of the transactions and 79 percent of the revenue, followed by older movies and children's programming.

The trial also showed a high degree of price sensitivity. One group in the trial was offered programming priced from 49 cents to $3.29; another group was offered prices of 79 cents to $4.49 for identical programming. On average, customers in the higher price group made one fewer purchase per month.

Customers in the trial indicated that there was not much hope that Bell Atlantic would be able to increase revenue by inducing them to watch more programs.

"In terms of my time and how it is divvied up, I probably watch more television than I should but less than they would want me to," said Jeffrey Zinn of Fairfax, Va.

Mr. Zinn said he generally liked the service, which he used about three times a month, but that wasn't as great as he expected it to be. One of the big attractions, he said, was that it was inexpensive.

"I suspect that if they'd charged us a monthly fee, we'd probably drop it," he said.

Pub Date: 3/25/96

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