As the demand for faster Wi-Fi and greater bandwidth continues to grow, hoteliers are finding that guestroom video-on-demand is no longer as lucrative as it once was.
REPORT FROM THE U.S.—Online content streaming services, such as Netflix and Hulu, have proven a challenge for cable and satellite companies’ business strategies, but one other area is facing the chopping block because of streaming content: video-on-demand in hotel rooms.
As guests want faster Wi-Fi and more bandwidth during their stays to power their own content, the demand for in-room video-on-demand is going down, hoteliers said.
Adult-themed video-on-demand content is the latest to get the ax: Hilton Worldwide Holdings recently announced it would phase out adult video-on-demand content at all of its properties, which follows a move Marriott International announced in 2011.
Hilton representatives declined to answer questions about the company’s decision to end adult video-on-demand entertainment or its plans for general video-on-demand in the future. Instead, they provided a company statement about Hilton’s decision to phase out this content:
“We are making immediate changes to our global brand standards to eliminate adult video-on-demand entertainment in all our hotels worldwide,” the statement reads. “While the vast majority of our properties already do not offer this content today, this content will be phased out of all other hotels subject to the terms of their contracts. We have listened carefully to our customers and have determined that adult video-on-demand entertainment is not in keeping with our company’s vision and goals moving forward.”
A sign of what’s to come
Though Hilton was under some pressure from The National Center on Sexual Exploitation, formerly Morality in Media, Ryan Sorensen said he is convinced the company’s decision was “purely a financial decision” with the added bonus of being removed from the center’s “Dirty Dozen” list and positive press.
Sorensen, president of online hospitality consulting firm Lodgistic Solutions and an HNN columnist, said via email that other companies, such as Hyatt Hotels Corporation, Starwood Hotels & Resorts Worldwide and Wyndham Hotel Group, will likely make similar moves soon, but he wouldn’t be surprised if at least one of them makes the jump to remove video-on-demand services all at once. He said he believes this is Hilton’s first step in phasing out video-on-demand altogether.
“The revenue figures just aren’t there anymore, and with the explosion of mobile devices and instant streaming video, on-demand entertainment is nearing extinction,” he said, later adding he expects all hoteliers to phase out video-on-demand through expiring vendor contacts by the end of 2016.
Changing the delivery, not the content
In its portfolio, Hotel Ventures Management Group has a number of Hilton and Marriott properties. Cory Chambers, VP and chief revenue officer for HVMG, said dropping adult on-demand entertainment when Marriott first made the cut had a minimal negative impact on revenue, while the public relations lift was “extremely positive.” There was fairly low demand for even general video-on-demand, he said.
“A large percentage of that came from adult programming, but that revenue stream was lean and waning given the proliferation of streaming content,” he said. “People watch what they want to watch (on) whatever device they have on hand: a PDA, tablet or computer.”
From a financial standpoint, a full-service hotel might charge $10 to $15 a day for Wi-Fi access, he said, and select-service hotels might offer complimentary Wi-Fi. Either way, guests using the hotel’s Wi-Fi will likely see it making more sense economically to use their own devices for whatever video entertainment they want rather than paying extra for video-on-demand.
“The only caveat is the strength of the Wi-Fi connection,” Chambers said.
Whether this is the beginning of the end of video-on-demand is still to be determined, he said. Some hoteliers are offering content streaming services already, he said, but that might not lead to the end of on-demand entertainment. Instead, video-on-demand would just be another amenity offered to guests along with other entertainment options.
“Nothing is happening overnight and quickly,” Chambers said. “Technology is moving at breakneck speeds, but think of the hardware implementation. To watch videos on your TV in a room, the TV needs to be equipped, either as a smart television or with a Wi-Fi device.”
Watching a TV show or movie on a phone or tablet doesn’t compare to watching it on a 50-inch or 60-inch TV, he said, so hoteliers need to think about offering TVs that can connect with those devices. Will video-on-demand providers make their services more competitive? That’s the question that will determine what happens with on-demand entertainment in the future, Chambers said.
A glimpse of the future
Marriott Hotels in June announced it would provide in-room Netflix, Hulu Plus, Pandora, YouTube and Crackle through guestroom TVs. Todd Winch is the general manager of the Dallas/Fort Worth Marriott Solana, one of the six Marriott hotels offering these free services.
“Our opinion is we’re leading the way in our industry in this,” he said.
There are some 50 million Netflix accounts out there, he said, and guests can easily launch them at his property. Even guests who don’t have an account can sign up for the one-month free trial in the room so they can enjoy the service during their stay, he said.
Since offering the new streaming content services, he said, the property ended its traditional video-on-demand entertainment. The revenue from video-on-demand was nominal, he said, and the cost of the infrastructure and maintenance meant the property was breaking even on it.
“The usage dropped off,” he said. “People are not willing to pay for that, and they would rather use the services they’re accustomed to using at home. So, we give them what they want.”
The staff has received a few questions about dropping video-on-demand entertainment, but there have been no real complaints, he said.
“I don’t have hard numbers on how many guests are using (the new streaming services),” Winch said. “We’ve increased bandwidth because of the usage of it. That’s a good thing. It’s being utilized. We doubled our bandwidth.”