DirecTV On Demand: More Questions Than Answers

Fighting for relevance against cable companies and new telco TV services, satellite giant DirecTV (DTV) is testing a new video-on-demand feature, WSJ reports ($).

How will it work? Creatively: Because satellite is a one-way broadcasting system, you can't just request hi-def TV shows and movies like you can on a cable system. DirecTV's answer: Store some "popular" content on your DVR that you might want to watch at some point. Then let subscribers stream more on-demand stuff over the Internet.

Why bother pushing "popular" stuff to peoples' DVR boxes at all? Aren't they already using their DVRs to save the stuff they want to watch? DirecTV says that content will live on hard drive space that wouldn't ordinarily be alloted to subscribers. What? Either that means they won't be storing much "popular" stuff on your drive -- or they're keeping a lot of disk space away from their subscribers -- which doesn't make sense.

How well will Internet streaming actually work? DirecTV says half of its subscribers have broadband Internet access. But most of those subs are using DSL service from their phone company -- much slower than cable Internet service. Streaming HD content over DSL could be obnoxious -- before you start watching it, you'd have to sit and wait for enough to load so it doesn't stop playing halfway through. Is that really "on-demand?"

Our questions: Will this service work for everyone? Or just some DirecTV subs with newer set top boxes? Will older subs have to get new equipment? Will this service work in Latin America, where almost half of DirecTV's Q4 net subscriber growth came from?

What's the point? Mostly to keep subscribers from ditching satellite for competing TV services -- and to fend off rival Internet-based "on-demand" options from Apple (AAPL), Microsoft (MSFT), and Netflix (NFLX).

Will it dramatically boost revenues? Unlikely. Cable companies have hoped for years that on-demand programming would juice sales, but it's not happening. Plenty of people are watching on-demand programming: Comcast says its 15 million digital cable subs watch 275 million pieces of on-demand content a month, or about 18 titles per person, per month. But most of it's free. The cable giant reported $774 million in pay-per-view revenue last year -- up 22% year-over-year and nothing to sneeze at, but just 2.5% of its overall $31 billion of sales.