When Lynn Ellis has a movie night at home with her family this winter, she gladly skips the cold drive to her local video store in Evansville, Indiana.
Instead, she pops some popcorn and -- with a few clicks of the remote -- she orders a film from her Insight Communications digital cable video-on-demand service. Video on demand lets her choose from hundreds of videos to watch whenever she wants.
When she needs information about local news, entertainment and weather, she picks up her remote and searches Insight's interactive community guide, LocalSource.
"It gives more information than the paper can," she said. Plus, "it's easier to use than the Internet because it just takes a couple of clicks."
Insight is counting on video on demand and interactive local content to keep subscribers such as Ellis happy -- and keep them from switching to satellite TV.
"The new battleground between cable and satellite is shifting to interactive services," said Phillip Swann, president and publisher of TVPredictions.com.
Insight has been a leader in that battle, using the interactive capabilities of digital cable to develop services that satellite can't duplicate. The company was recently honored as the "Cable Operator of the Year" by The Bandies.
The battleground between cable and satellite used to be channel selection -- and satellite was the clear winner, Swann said. When EchoStar and DirecTV launched in the mid-1990s, they offered three times the number of channels that cable companies could. Plus, satellite provided digital-quality sound and image.
"We didn't have a competitive product," said David Beckwith, a spokesman for the National Cable and Telecommunications Association. "It's been hard to take. Satellite was stealing our best, our highest-end customers."
The two satellite companies now have 16 million subscribers between them.
Insight and other cable operators are luring subscribers back by going digital. By upgrading to broadband two-way digital networks, they have been able to expand their channel selections and introduce interactive services such as video on demand.
Video on demand is a movie lover's dream. Like a virtual video store, it lets viewers choose from a library of videos to watch whenever they want.
Videos are stored on the cable operator's servers and streamed to subscribers' TVs through their digital set-top boxes. Viewers can pause, fast-forward and rewind, as with a VCR.
"A lot of cable operators see in video on demand an effective defensive weapon against the onslaught of satellite," said Henk Hanselaar, CEO of Diva Systems.
Diva provides video-on-demand technology to Insight and other cable operators.
Satellite companies cannot offer video on demand because they lack the continuous two-way connectivity the service requires. Instead, they offer personal video recorders and pay-per-view options, which do not provide the same degree of choice and control over the viewing experience.
When Insight launched its digital package in 1999, it was the first cable operator to include video on demand. It was also the first to offer two interactive Source Media products on digital cable: the community guide LocalSource and the program guide SourceGuide.
Insight's focus on interactive services is paying off with increased revenues and customer satisfaction, said Pam Halling, Insight's vice president of marketing and programming.
The company's digital subscriber "churn," or loss of subscribers, is only 1.4 percent -- less than half of the industry norm, Halling said. Insight has 250,000 digital subscribers, who each pay an average of $19 to $20 per month.
In addition to video on demand, LocalSource is another service that Insight is using to differentiate itself from satellite competitors.
If video on demand is like a virtual video store, LocalSource is like a virtual local newspaper. With a few clicks of the remote, subscribers can find movie theater listings, stock quotes, community events, news, sports and even their horoscope.
"Some people in focus groups have said it's how they find out what's happening. Instead of the local paper, they turn to LocalSource," Halling said.
Neither DirecTV nor EchoStar offer LocalSource. If one of the satellite companies did want to offer the service, it would need to offer a pared-down, less robust version, said Lawrence Brickman, senior vice president of programming for Source Media's Interactive Channel.
Unlike cable operators, satellite companies do not have enough bandwidth to offer all the local content in the service, he said.
LocalSource currently consists of static pages created in HTML and converted to MPEG streams to be displayed on the television. However, Source Media is in preliminary talks with Diva to use its video-on-demand technology to add motion video to LocalSource.
"Video on demand is available to use because LocalSource is deployed with it" on Insight's networks, Brickman said.
With Diva's technology, Source Media could add on-demand news videos to LocalSource. "We could partner with local TV news stations and create essentially a video jukebox," Brickman said.
The company could also add movie trailers to LocalSource's cinema guide.
Source Media is currently running pilots of interactive advertising using banner ads that launch static HTML pages or audio. However, future ads could launch video advertising spots using video on demand, Brickman said.
The company is also stepping into television commerce. It recently added shopping to LocalSource by linking to the Insight Digital Mall, which launched in September in Lexington, Kentucky. The Insight Digital Mall offers CDs, DVDs, video games, books and other products. In the future, Source Media plans to sell movie tickets with its LocalSource movie listings.
"We're always looking at ads and television commerce. We're adding features as fast as we can," Brickman said.
Swann said that as cable operators roll out new interactive television services, educating the consumer is essential. "When you start rolling out interactive TV services, you can't just expect people to adopt them right away. People need to learn about the need, the interest, why it's important."
He believes the success of video on demand will pave the way for consumers to accept other interactive services. "Once they get hooked on video on demand and digital video recorders, it's not such a big leap that they can buy products on their television," he said.
