[opendtv] News: Looking for the Proceeds in TV-on-Demand

  • From: OpenDTV <opendtv@xxxxxxxxx>
  • To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
  • Date: Mon, 5 Dec 2005 08:02:26 -0500

December 5, 2005

Looking for the Proceeds in TV-on-Demand

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 

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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