In spite of the issues video on demand (VOD) has faced, on-demand services still offer the potential for a major revenue stream for distributors, with an expected reach of 65.9 million homes within the next 10 years, according to one researcher.

VOD services are facing increasing competition from digital video recorders, such as Tivo's. The companies are also encountering constraints from low margin revenue models, as well as bandwidth constraints even as subscribers continue to grow, according to market researcher Kagan Research.

Multichannel services are undergoing a fundamental transformation, and the mainstreaming of on-demand delivery is a core component of the change, says Kagan Senior Analyst Ian Olgeirson.

This year, Kagan estimates VOD-capable homes numbered nearly 26.2 million, accounting for 86 percent of the 30.4 million digital cable homes in the U.S.

While the number of homes with VOD capabilities is large and continues to grow, the firm notes that revenues generated from them remain minimal. Approximately $757 million was spent on cable VOD programming in 2005. Kagan forecasts that number will pass $1.1 million in 2006.