A method provides for the optimal location of servers and the optimal assignment of programs to the servers in a video-on-demand (VOD) network with a tree topology. Each node may have demands for multiple VOD programs. The central server at the root of the network stores all programs, and each of the other servers may store some of these programs. The cost considered include cost of servers, cost of assigning programs to servers, and cost of link bandwidths used for broadcasting programs from servers to demands at various nodes. The demand for a specific program is served by the closest server that has this program along the path that connects the requesting node to the root of the tree network. The invention consists of a dynamic programming method that determines optimal server locations and optimal program assignments for minimizing the costs. Starting from the end-nodes of the tree network, the method determines optimal solutions to sub-trees, eventually reaching the root node, thus providing an optimal solution to the entire network.