Cable sector: Forget the Web, we have VOD

One of the most attractive benefits that Netflix, Hulu, iTunes, and other Internet movie services have to offer is that they're a cheaper alternative to paying monthly cable fees.

That may be one of the reasons why the cable companies are going on the offensive. The Cable & Telecommunications Association for Marketing Co-op, a group that includes Comcast, Time Warner Cable, Sony Pictures, and Universal Pictures announced on Wednesday it plans to spend $30 million on an advertising campaign designed to "expand consumer awareness...of (rental) movies on demand."

The theme of the campaign will be "The Video Store Just Moved In," and will illustrate "how easy it is for digital cable customers to view movies in their homes," the group said in a statement.

The group said cable's video-on-demand services (VOD) are growing and that research shows they will continue to grow. Still, the launch of the campaign comes as the cable and film industries have come under pressure from sweeping changes in technology, Internet competitors, and consumer viewing habits.

Let's start with the death of the traditional film rental business. The era of the DVD isn't over but the signs are that it's in decline. Hollywood can't be pleased to see Blockbuster, a major DVD buyer, threatened once again by bankruptcy. On Tuesday, the country's largest video rental chain said that declining sales and shrinking cash flow could make it hard to cover its $314.3 million debt, The Wall Street Journal reported. Movie Gallery, which operates the Hollywood Video chain and is Blockbuster's main brick-and-mortar rival, filed for bankruptcy protection last month for the second time in three years.

Tom Adams, owner of Adams Media Research, an entertainment data-tracking service, says that DVD sales are still a $20 billion business, but his research shows that disc sales fell 13 percent last year. The ailing economy and rapid technological advancement has prompted entertainment companies to shore up their biggest revenue streams any way they can, studio executives have told me.

First comes theater owners and then DVD retailers, such as Wal-Mart. They are followed by cable and premium movie channels. That brings us back to the threat posed by Netflix and Internet services.

Much has been made about cable subscribers who might choose to cut the cord to save money. But often overlooked is a younger generation that is spending more and more time on the Web. They are growing up watching YouTube and viewing Netflix discs on their laptops.

The number of Netflix subscribers grew by 1.1 million in the fourth quarter of 2009, giving the company a total of 12 million, Netflix said in its earnings report. For the full year, the video rental service grew by 3 million. Then there's Apple. We don't know how many movies and TV shows Apple will manage to sell once the iPad makes its debut in coming weeks but there are signs that there's big demand for the tablet computer.

The rise of Internet VOD and download services has not only prompted the big telecommunications companies and bandwidth providers to pile sandbags around their traditional businesses, but they have also begun creating their own digital services.

Last month, HBO announced the launch of HBO Go, a video-streaming service. HBO's parent company, Time Warner, is also part of the "TV Everywhere" initiative. Last summer, Time Warner and Comcast announced that they would create an authentication system that enabled subscribers--and only subscribers-- to access those companies' TV shows and films online.