[opendtv] News: Looking for the Proceeds in TV-on-Demand
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- Date: Mon, 5 Dec 2005 08:02:26 -0500
December 5, 2005
Looking for the Proceeds in TV-on-Demand
By RICHARD SIKLOS
For five decades or so, the television industry's main mission has
been to come up with hit programs, get them on screens, and hope
people will stop and watch. Now, that is just the starting point.
As an era of ordering TV shows at the push of a button gets underway,
new challenges are clouding the landscape in the year ahead: What
business models are going to work and who is going to get paid what?
These questions loom behind attention-grabbing announcements in
recent weeks from some of the biggest TV networks, cable operators,
satellite companies, gadget-makers and Internet players, including
Apple, Disney, NBC Universal and Comcast, offering what is expected
to be the first of many new video-on-demand and downloading services.
"The video segment of the content industry is trying to be out ahead
and not have happen to them what happened in the music industry,"
said Saul Berman, a partner specializing in media with I.B.M.
Consulting, referring to the widespread illegal downloading of music
in the absence of appealing legal ways to buy online music.
But the road to video convergence is crowded with convoluted business
relationships and potential conflicts. Behind the press releases, a
major power struggle is unfolding among a wide group of stakeholders
- from studios to satellite operators to manufacturers of consumer
products - as new ventures are being devised for the digital age.
"We've taken a couple of steps forward, but there really isn't a
clear business model yet," said David Zaslav, the president of NBC
Universal Cable.
One issue is whether consumers ought to pay for their shows
individually or whether on-demand access should be a free component
of a subscription to video services provided by cable or satellite
operators or newer competitors like Internet or telecom companies.
Another is whether the shows will be sold for viewing during a set
time period, or will be permanent so that consumers can collect them
like DVD's. And, not surprisingly, a big point of contention is how
the revenue generated by these new services is shared. As a result,
only a handful of the most popular shows on television are available
on-demand so far.
Mr. Zaslav and other industry executives and analysts said progress
was slow because of the longstanding and often convoluted
relationships that exist among the companies that create content, the
networks that package and market it, and the distributors who deliver
it into households, which can sometimes all be tentacles of the same
conglomerate. The News Corporation, for example, owns the Fox TV
network and production studio and also controls DirecTV.
Also, the broadcast TV networks that reach the biggest audiences and
have relied on advertising as their sole source of revenue have had
to run on two parallel and seemingly conflicting tracks.
First, they've had to explore new revenue models as TiVo and similar
digital video recorders threaten conventional advertising by allowing
viewers to fast-forward through commercials on the shows they record.
At the same time, they've had to ensure that marketers and especially
the network affiliates that own the majority of the big networks'
local stations around the country are not alienated by these new
ventures. For example, making a popular show available on demand via
cable or the Internet within hours of its airing may lead fewer
viewers to tune in during its scheduled time slot. That, in turn,
would mean reduced advertising revenue and hamper the ability of the
local affiliates to promote other shows in their lineup.
Because of this, CBS, for one, will begin offering reruns in January
of hit shows like "CSI: Crime Scene Investigation" for 99 cents an
episode, but only in markets where Comcast offers cable service and
CBS owns the local TV affiliate. And, like NBC and ABC, CBS is so far
only offering programming that it owns a large piece of and has the
right to rebroadcast. Notably, the CBS partnership with Comcast only
runs until the end of August 2006, an unusually brief period for such
an arrangement.
Until recently, Comcast, the nation's largest cable company, has made
free video-on-demand products a cornerstone of its strategy to
convert more of its customers to its digital service. CBS was already
allowing Comcast to offer programs like its CBS Evening News free on
Comcast's video-on-demand service. But Comcast, faced with the
prospect of NBC's deal to show selected programs on DirecTV for 99
cents a show, acceded to CBS's insistence that it be paid directly.
"There was no way we were going to do this for free," Leslie Moonves,
the chairman of CBS, said in an interview when the deal was announced
last month.
Josh Bernoff, an analyst at Forrester Research, a technology and
market research company based in Cambridge, Mass., predicts TV shows
available by video-on-demand will eventually be free, and that new
interactive business models for advertising on demand will help pay
the freight. For instance, he believes broadcasters will adopt "click
though" pricing models similar to the fast-growing Internet
advertising on portals like Google and Yahoo. Under that scenario,
the network would be paid each time a viewer clicked on an ad or
perhaps an icon super-imposed on the screen that paused the show they
were watching and took them to a longer commercial.
Cable operators including Comcast, Cox Communications and Charter
Communications have already made long-form advertising such as
sponsored musical performances and infomercials part of what they
offer on free video-on-demand. TiVo - a service for which subscribers
pay a monthly fee to access - offers so-called showcases to
advertisers. These showcases encourage customers to check out
long-form advertisements and special promotions when they are
browsing through a cable company's listing of TV shows, for example.
Mutual accusations of greediness are nothing new among the various
players in the television ecosystem, but the newest technologies have
intensified those accusations.
Broadcasters like CBS and NBC will continue to push either to be paid
directly or to be compensated in some other way for what they see as
their part in helping companies like Comcast or DirecTV put their
digital boxes in more homes.
"If we're putting our best content on the digital platform - and if
that content excites viewers and therefore increases the number of
people that want to keep that box in their home - then we should get
a piece of that value," Mr. Zaslav said.
Distributors such as cable companies, however, argue that they have
invested tens of billions of dollars in the technology to make these
services possible and the networks are already being fairly
compensated under existing relationships.
Despite the pressure it is under from digital video recorders and the
spread of video on the Internet, television supported by advertising
is "a successful model that everybody understands," said Jeffrey M.
Bewkes, who oversees Time Warner's entertainment businesses, which
includes the Turner cable networks, HBO and the Warner Brothers
studio.
Mr. Bewkes has been championing StartOver, a service developed by
Time Warner Cable as an alternative to video-on-demand and digital
video recorders. StartOver was introduced in a small test market in
South Carolina several weeks ago.
StartOver offers digital cable subscribers a free restart button if
they join a program in progress, with about 60 broadcast and cable
networks participating in the venture. While the utility of the
service is initially quite limited, Mr. Bewkes and Time Warner hope
over time to be able to persuade the networks and their nervous
affiliates to continue to extend the window when people could restart
programs they have missed by hours and possibly days.
While this may sound exactly like video-on-demand, the difference is
that StartOver viewers can pause a show, but not fast-forward past
the advertising. It is far from clear that such a service would gain
acceptance in households where people with digital video recorders
are already zipping through ads. In Time Warner's case, Mr. Bewkes
says that because the company has content, networks, the nation's
second largest cable company and online heft through its America
Online division, it need not pick sides in the shakeout over new
digital business models.
However, he is skeptical of a future without TV networks as a
platform to introduce programs, build loyalty or direct viewers to
affiliate programming like local newscasts. "Nobody's got a crystal
ball here," he said. "But I'm not sure we're ready to throw out 30
years of television industry economics."
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