Some of the on demand services are an extra... there are some that are FREE ala the drug dealer marketing method.
Most like HBO on demand are an additional $4.95 on top of your HBO subscription. IMHO Tivo makes the On Demand useless, as there is always something on demand, especially if you harvest shows properly you'll be able to find what you want without the additional fee.
BUT yes, it's very cool, especially if you don't have Tivo. On top of that some cable companies are going to be providing a tivo like service in the future.
I was fortunate enough to work on some of this technology a couple of years ago as a test. It works via multicast IP technology which your new digital cable box is capable of using. Large servers house all the video content, and it works very similarly to surfing web pages. In fact the digital box that I recently used with Cablevision was using a java front end.
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