Designing the Mouse’s New-Media House

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With so much premium content and so many new devices to play with, it would appear that Albert Cheng is in the catbird’s seat.

Known to the cable industry as one of the key architects of The Walt Disney Co.’s video-on-demand strategy, Cheng has a new job that places him in the center of today’s media and entertainment convergence.

He’s responsible for all Disney content — movies, news, sports, children’s programming — for all the new platforms, mobile video, broadband, VOD, you name it.

The most recent thunderbolt: Disney’s deal to place several shows on Apple Computer Inc.’s new video-enabled iPod platform for pay-per-download play.

With a myriad of platforms, some untested and unproven, and a wide swath of content, it might seem perplexing to know where to begin. Not for Cheng, who was recently promoted to executive vice president of digital media for Disney-ABC Television Group.

“It all starts with the content and our brand,” he said. “Those are our core assets.”

The next step is to understand the changing needs and desires of Disney’s viewers, he said. And, there are the advertisers: “We want to help advertisers reach who they want to reach.”

Cheng said there are “three dimensions” that come into play. First is the company’s brand strengths — including Disney, ABC, ABC News, Soapnet, ABC Family and ESPN — and their content.

“The second axis is the platform: VOD, [interactive TV], broadband, mobile,” he said. “The third dimension is: 'What is the consumer doing?’ You can’t forget that. We need to match all three of those up.” The big question posed by all of these factors is how Disney can better serve its audiences across all its platforms in a holistic way.

“In the past, new media was considered a separate thing,” he said. “We never quite integrated it. [Disney-ABC Television Group president] Anne Sweeney moved to create a division in this area, but also respect the lines of communications.”

The hottest platform today seems to be wireless. “My group — the Digital Media Group — we create the mobile video product; what the content is, what the pricing and packaging is, dealing with carriers.”

But, Cheng added, “We do not run the Disney MVNO [Mobile Virtual Network Operator] business.” ESPN has its own group to run its service, which will debut in February, and a Disney MVNO product is in the works, which will be handled by the Walt Disney Internet Group, Cheng said.

New Web site ABC News Now and other Disney content are available on cell phones capable of displaying video. As those platforms improve the viewing experience for subscribers, Cheng said, “you’ll see more just-for-mobile content. There is a lot of movement at ABC in terms of original content on phones. We’re looking at extensions of our properties,” such as original content from Desperate Housewives or Lost that work well off main shows. There are also interactive aspects of cell phones, such as polling and instant messaging features, that Disney is exploring, he said.

The second mobile-video market involves handheld devices, such as the iPod. “It was a bold move,” Cheng said. “It is a good deal because of a confluence of factors.”

To start, he said, Apple as a company and iPod as a product are leaders in their own categories. “It’s very consumer friendly.”

Ad-free episodes of Lost and Desperate Housewives, plus Disney Channel content, are available for $1.99. “We view this as incremental,” he said.

The news caused some initial negative reaction from ABC’s network affiliates, worried that downloads would hurt the rerun market. Anyone can download the shows from iTunes and watch them on a PC and laptop. Viewing is not confined to the iPod, but strict copying rules are in effect, preventing shows from being distributed across the Internet.

As for the stations, Cheng said, “we’re not surprised by the reaction, but we have to move towards the future. There is a piece of this for everyone.”

If viewers miss too many episodes of serial dramas, like Lost, they may give up on the show, Cheng argues. “If you miss one episode of Lost, it’s really hard to catch it any other way,” he said.

Although Disney did one mobile-video deal, don’t expect dozens more immediately. “We have high thresholds,” Cheng said. “[The iPod] is a high-quality product.” Perhaps the other notable portable device is Sony Corp.’s PlayStation Portable gaming player that also plays video. “It looks pretty good,” Cheng acknowledged. But there are other elements to be weighed when Disney does mobile-video deals.

In addition to the level of quality, “there is also the digital-rights management piece of it. The video iPod has the same [digital-rights] rules as iTunes. It can’t be shared across the Internet. It is licensed for only a small number of PCs,” Cheng said.

There also is a marketing element, he added. Apple has a built-in marketing machine with the iPod and iTunes service that appeals to Disney.

The question arises how the new download business will affect the DVD business. In essence, Lost and Housewives fans can download the entire season and “own” the DVD, one show at a time. Of course, the cumulative purchase of 20 plus episodes would net Disney/Apple $40. Even if the Disney split was in the $25 to $30 range, downloads would produce more revenue than a DVD box set sale.

But Cheng emphasizes that the DVD box set would contain extra footage, interviews and other material not seen in the downloads. The aspect ratio would also be different.

Echostar Communication Corp.’s Dish to Go player, in essence a portable digital video recorder, draws less praise from Cheng. “It does meet a consumer need, but they are leaving money on the table,” he said, noting that when Dish Network subscribers use the DVR product, they have the ability to watch content at will, but content providers and Dish don’t get any recurring revenue.

“They should rethink the model,” he said. “The challenge is: how do you create value for the consumer on the platform and balance that with the relationship with existing distributors? A lot of times, we have to be more creative about differentiation, and also determine what’s the most efficient way of delivering the product.”

On the Internet side, Disney’s flagship broadband Web sites are ESPN 360, Disney Connection and ABC News Now, each with hours of video content. Verizon Communications Inc. will offer those sites on its high-speed Internet-access service as part of FiOS. Individuals networks, like ABC Family and Soapnet, also have their own Web sites.

The sites now report to Cheng. “We need to reinvent ourselves on the dotcom side,” he said. “They had all been marketing platforms,” he said, “but they are actually media platforms.”

The company does sell ads across both TV and PC platforms, he said, “but we need to do a better job.”

ITV is another area under Cheng’s domain, but business models remain elusive. “It’s not clear where there is any money,” he said. Discrete applications like games could fall under a subscription or pay-per-game model, he said.

Where advertising fits in ITV is another unanswered question. “We’re interested in looking at trials and experiments,” he said. “Are there incremental dollars here?” he asked rhetorically. “It remains to be seen. You can take a person from a 30-second spot to a more in-depth commercial, sure, but what about the next commercial, or getting them back to the show? If it feels like shifting ad dollars from one to another, why do it?”

Disney signed a broad VOD deal with Verizon, as part of a larger content pact, where 50 hours of content across Disney Channel, ESPN and SoapNet will be offered. But VOD deals with cable have largely stalled, as operators are unwilling to pay for content.

“The trouble with existing negotiations is that there is no sense of how this can be a win-win,” Cheng said.

The company is taking a similar slow approach to offering content to portals. Disney offers some news content to AOL and Yahoo!, but isn’t ready to hand over all its content to portals. Cheng notes that paid searches on Google and Yahoo! are almost a form of classified advertising, and don’t supply advertisers with the kind of feel-good environment that Disney brands provide through video.

Disney hasn’t figured out a way to make paid search a part of its current business model. And it is in no rush to hand over content, en masse, to Internet portals, despite their multibillion dollar paid-search revenue stream.

For Cheng, all the platforms present opportunities. Broadband could be as ubiquitous as television 10 years from now. But it’s branded content, Cheng believes, that will win out.

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