The TV revolution: take two

Video on demand was going to be the next big thing - letting you watch television shows you forgot even to record. Yet, five years on, the leading operator has just 3,000 customers. Can a big relaunch save it? Alex Benady reports

At its launch, in 1999, video on demand was going to be the future of television. The viewer, until then happy to sit back and absorb the programmes thrown in his direction, was for the first time to be put in control. A few button-presses on the remote control, and he would be able to search an archive of thousands of films and television shows for the one that suited his mood at that moment.

Yet, five years on, the story of HomeChoice - as the leading player is called - does not need much explaining: the numbers speak for themselves. Today, Sky Digital is in seven million homes; digital cable is in 2.2 million homes; even Freeview - which rose from the ashes of ONdigital and ITV Digital - is in two million homes. HomeChoice has all but disappeared. It has just 3,000 subscribers.

And yet, and yet... even today, the technology looks appealing. Aside from the ability to call up a programme from a huge archive, HomeChoice users can compile running lists of their favourite music videos, order news reports on subjects that suit them and pause, rewind or fast-forward whenever they like.

Better still, if you missed that big drama last night and you forgot to record it, you should be able to go home this evening in the knowledge that you will be able to call it up from the HomeChoice archive.

Which is why, this summer, HomeChoice plans to muster its forces and relaunch with improved technology and a revamped product, in what may be the last real chance for anybody to challenge seriously the orthodoxy of television broadcasting.

At the start, part of the excitement was the unobtrusive way in which HomeChoice reached viewers. While Sky was betting its shirt on digital television delivered by satellite, and ITV was losing its shirt on digital television delivered by terrestrial transmitters, HomeChoice took a punt on digital television delivered through the phone line. More significant still was the profound change it promised in the way TV programming would be consumed. "It challenged the power of the channels to dictate our viewing. For the first time, it allowed viewers to choose what they wanted to watch when they wanted to watch it," says Russ Lidstone, head of planning at the advertising agency Lowe, which has been running a year-long study on how we will use television in the future.

"Coupled with advanced interactivity, it was clearly a superior product that made rivals look primitive by comparison and could completely reshape our relationship with the box," he explains.

Despite a better product with better technology, the revolution petered out. The company came close to going under 18 months ago, and for a while it seemed that television would not be revolutionised after all.

But could a revival be on the way? After a substantial injection of cash from Chris Larson, a millionaire who made his money at Microsoft, HomeChoice is now planning a comeback. It's just as well that Larson has deep pockets. In 2002 HomeChoice lost £162.5m on sales of just £3.1m.

"Our vision is for people to disengage from linear broadcast schedules and to give greater viewer choice," says the chief executive, Roger Lynch, who joined the company last year.

He says that the main reason its revolution failed first time round was cost. It was smothered by BT's pricing structure, which made leasing phone lines hugely expensive. "HomeChoice needs broadband to work. But BT was charging us £425 per connection and £50 per month each thereafter. We were charging customers between £6 and £40 a month. The more customers we signed up, the more money we lost."

And there was another big snag. The BT technology used by HomeChoice could not carry live broadcast television. So HomeChoice always had to be an add-on service. If you already had satellite or cable, you now needed two subscriptions. And if you only had terrestrial, you may well have been a digital refusenik who wasn't interested in hi-tech television devices in any case.

But now a change in the law means that HomeChoice has been able to build its own network in London and obtain broadband at a fraction of the previous price. The company has also expanded its area of operations, from small areas of north and west London, to include an extra 1.2 million homes. And new technology means that it is at last possible to broadcast high quality live television programming down the phone line.

All of a sudden, HomeChoice is looking not only very advanced but better value, too. A subscription of £35 a month will buy all the current services -the film archive, the programme archive, the video juke box and the ability to hire the latest releases, such as Chicago and Pirates of the Caribbean, for between £1.99 and £3.49.

It will also get you a one megabit broadband service - twice as fast as conventional broadband, worth most of the sub on its own. But crucially, for the first time it will give access to 50 television channels plus the ability to pause and rewind live action and view recent programmes (although just how recent will vary channel by channel).

"We believe it's the most advanced television system in the world, and in theory we can easily add as many new channels as people want," says Lynch.

The idea that you can pick and mix your own selection of programming from anything broadcast recently plus a large archive is certainly attractive.

The Sky+ personal video recorder, which allows even the most timid technophobe to record programmes, replay them and speed through the bits they don't like (such as the advertisements) has been drawing positive reviews from media pundits and is on course to triple its user base within nine months. HomeChoice performs most of the same functions but is even better, according to Lidstone.

"Sky is claiming that Sky+ allows you to 'create your own TV channel' when, in truth, it doesn't - it is just a glorified video recorder. Viewers are still restricted in terms of picking what to watch by what the schedulers have put on. HomeChoice, on the other hand, gives complete control over viewing. You don't need to record anything because it's all there on a HomeChoice server waiting for you to call it up."

True, HomeChoice doesn't have the 400 channels offered by Sky, but then access to the archive means it doesn't need to have. "The choice available to viewers of systems like Sky comes from the huge number of channels available, many of which, let's face it, are of questionable quality. But the level of interactivity that HomeChoice gives means you no longer need those hundreds of channels since you have a massive library of quality content available to be called up all the time."

So here is a system that could potentially break the absolute power of the television stations to determine our viewing. It is easy to use and not very expensive and, according to Lynch, it has a range of applications outside conventional television. "The interactivity makes it particularly useful for distance learning and e-government initiatives," he enthuses.

But how confident is he? Sky says it will have sold 300,000 Sky+ boxes by the summer, but Lynch won't reveal his sales targets. All he will says is: "The economics of this mean that we can be profitable with surprisingly few subscribers. And we can easily roll it out to other areas of the country."

Other, however, do not share his enthusiasm. HomeChoice had its chance before Sky, cable and Freeview cemented their positions - and messed up, according to Dario Betti, media analyst at Ovum Research. "In the technology business timing is everything," Betti says. He is concerned that HomeChoice may be too early and too late to be successful. "It's an outstanding product but it will depend for success on the uptake of broadband to work commercially, and that is happening very late in the UK," he says.

"By the time enough people have broadband, I fear that there will be little or no room in the digital TV market for a new player. They will need to steal customers from existing platforms, and that will be very, very hard."