KEY POINTS:
TVNZ will ditch premium downloads from its internet-based video on demand service and the digital rights management software designed to prevent piracy as it looks to advertising to pay the way.
The state broadcaster is also working with Microsoft and Sony to bring its video on demand service to the Xbox 360 and PlayStation 3 video game consoles and aims this year to introduce an ad-supported video service for mobile phones.
Almost a year on from the launch of TVNZ OnDemand, the portal where TV shows can be streamed for free or downloaded at a cost of $2 to $4 an episode, 200,000 TV shows are being streamed each month to 150,000 local users.
TVNZ's head of emerging business, Jason Paris, said free video streams of programmes with adverts featured at the beginning and end of the feed had outnumbered paid-for downloads by "many thousands to one".
"New Zealanders conclusively said they didn't want to pay for content online. We're now focusing purely on an ad-supported model and it seems to have won out around the world as well."
How soon the ad-supported model takes over depends on the progress of negotiations with content providers, but Paris said it could happen from as early as next month.
"We're very close to securing a deal with Disney to move them from paid downloads to ad-supported. The same goes for a couple of the big local production companies."
TVNZ has been using Microsoft's PlaysForSure digital rights management software to try to prevent downloaded TV shows from being copied. But just days after the launch of TVNZ OnDemand last March, the protection systems had been bypassed by viewers using software freely available on the internet.
Paris said the dropping of anti-piracy measures was an admission by TVNZ and its content providers that they could not prevent TV content from being copied and dispersed.
"We've made a conscious decision at TVNZ that we're no longer in control of our content," he said. "We need to make it easier to get it from us than to steal it."
Part of making the content easier to get hold of would include making it available on a growing range of devices. internet-connected game consoles would be capable of receiving video feeds from TVNZ straight to the lounge, providing an alternative to computer-based downloads.
"We're open to offering a type of a la carte bundle of on-demand content which they can host," said Paris of Microsoft and Sony, the two console makers TVNZ has started discussions with.
One of the country's two mobile players, which Paris declined to name, was expected to offer a version of the OnDemand portal for access on mobile phones without attracting bills for mobile data usage.
"That will be free, zero-rated data charges," said Paris.
"It's a reasonable investment for us and the payback in terms of advertising isn't going to be there for a while. We don't have the long commuting distances that people have in other countries. We'll have to pick and choose the content carefully," he added.
Sky TV claims it has 10,000 Vodafone customers accessing its premium TV content on mobile phones.
While pleased with the popularity of the video on demand service, Paris said, TVNZ's business model needed to change for the service to make money.
"The business plan is pretty tight because our delivery costs are so high," he said.
Advertisers were charged 15c per streamed video to have their ads featured around a programme. An ad agency fee of 4c and the 9c cost of delivering the video to a viewer consumed the bulk of revenue generated.
"That just blows our business model out of the water. We've got 2c left to share with content suppliers," said Paris who is confident TVNZ OnDemand will break even this year on the basis of increased demand for videos and a more cost-effective delivery platform.
Paris said the US was well ahead of New Zealand when it came to "catch-up TV" where viewers go online or use pay-per-view services to view a programme outside of its scheduled broadcast time, but that TVNZ would increasingly offer catch-up viewing to keep people watching its shows.
"Research internationally shows that even if it is your favourite show you're still only going to watch about 40 per cent of it," said Paris.
"But it's been proven that by allowing people to catch up online, they're 35 per cent more likely to watch the next week's episode."
A partnership with Google saw 5 per cent of OnDemand content uploaded to the video website YouTube. But Paris said it had attracted modest traffic.
"It's not huge numbers yet. The biggest challenge we've had with YouTube is that our site is reasonably hard to find. It hasn't been well indexed yet in their search engine."
TVNZ had turned down an attractive revenue-sharing deal with fledgling web TV player Joost.com in favour of concentrating on its own platform which was now showing Chinese programming through a content deal with CTV. Other online-only ethnic channels were planned for this year. Interactive TV allowing voting in polls from a remote control in real time was not on the cards in the short term.
"Red button functions, smart boxes and two-way interactivity through the internet is a bit of a way off. We thought it would happen faster with Telecom's IPTV plans. But they seem to have put that on the back burner," said Paris.
Mobile text appeals remained the most successful form of viewer interaction - a text poll on last week's Close Up asking whether texting while driving should be made illegal attracted more than 12,000 texts at a cost to the sender of 99c a text.
"We don't get a lot of that revenue, it goes to the telecommunications companies," said Paris.
He was confident broadband connections were fast enough to offer a good viewing experience.
YOUR VIEWS
* TVNZ OnDemand attracts 150,000 people and streams 200,000 videos a month.
* The number one streamed video is the Paul Holmes 1989 walk-out interview with America's Cup contender Dennis Conner. It attracted 7500 viewers in its first week on the website.
* 70 per cent of content viewed on TVNZ OnDemand is new content, the rest is from the broadcaster's archives.
