Three years ago, Cablevision Systems Corp. and News Corp. broke ground in providing marquee broadcast-television programs to viewers when they wanted them.
For two seasons, the Bethpage, N.Y.-based cable operator offered up a primetime broadcast show, Fox’s counterterrorism drama 24, as well as FX’s pugnacious cop show, The Shield, as part of its video-on-demand service.
Since then, programmers and distributors have struggled to make other marquee primetime hits available on-demand. But negotiations bogged down. Missing was an economic model that broadcasters, distributors such as Comcast Corp. or DirecTV Inc., advertisers and “profit participants” like show producers could agree on.
But in recent years, competition from the Internet and the exploding use of portable playback devices such as the Apple iPod has changed the landscape for all of these players. Suddenly, the logjam keeping hit primetime shows from the “Big Three” broadcast networks — ABC, NBC and CBS — off on-demand platforms has ended.
Distributors are reacting to the continuing ascent of Internet powerhouses such as Google Inc. [“Will Everybody Love Google Video?” Oct. 3, page 3], which offer more and more video content on their sites, and new technology like digital video recorders and iPods, which are creating new outlets that exist to suck in content and play it back at will.
This has created a kind of “tripping point” — accelerated by The Walt Disney Co.’s deal last month with Apple Computer Inc. to sell hit ABC shows such as Lost and Desperate Housewives for replay via iPod. Media giants like Comcast Corp. are now suddenly tripping over themselves to tie up deals to offer primetime shows on-demand to consumers.
“These are just the quickening of a long series of events that are evidence of the unbundling of television from its traditional business distribution methods,” said Timothy Hanlon, Starcom MediaVest Group’s senior vice president and director of emerging contacts.
“Madison Avenue and media companies have been spooked by what Google has basically been able to do under their noses, by creating an advertising marketplace, a $3 billion business,” Hanlon said. “They’re seeing the collective efforts of companies like Yahoo and MSN and AOL, and now you’re seeing some major media companies making some smart moves.”
During the past month, ABC, NBC and CBS have convinced cable and satellite distributors to do what some thought was unthinkable: charging consumers for on-demand access to broadcast’s most precious — but nonetheless free — content: hits like Desperate Housewives and CSI: Crime Scene Investigation. The nation’s largest cable system operator, Comcast, in particular had tried to avoid making customers pay for videos on demand.
The fear: Charging for each download or playback could exclude advertisers, who could potentially foot the bill, and turning off consumers, whose pocketbooks would get nicked for each show they watch.
Nonetheless, last week NBC Universal said satellite provider DirecTV would be offering shows from NBC and cable’s USA Network, such as Law & Order: Special Victims Unit and Monk, for 99 cents, from a new interactive digital recorder found in its set-top boxes.
Hours later, CBS took the wraps off a deal that permits Comcast to offer shows like Survivor and NCIS on-demand, also for 99 cents apiece.
In each case, Comcast and DirecTV would split the 99 cents with the broadcast networks.
But today, the per-program price for full-length TV shows — at least old ones — drops to zero. America Online is expected to announce that it will become a TV programmer, showing such more than 14,000 full-length TV episodes from out-of-syndication series such as Wonder Woman online for free, beginning in January (see story, page 6).
It’s no coincidence that those deals came on the heels of last month’s groundbreaking news from Disney and Apple. Disney, which owns ABC, is the second-largest media conglomerate in the world, behind only Time Warner, which owns AOL.
Additional on-demand deals for primetime programming are in the works, according to officials from the players already in the game, including ABC, DirecTV and Comcast, and new players, ranging from cable-system operator Cox Communications Inc. to Rupert Murdoch’s global media outfit, News Corp.
But News Corp. is approaching the dowloadable-TV rage cautiously, president Peter Chernin told analysts last week.
“The last thing we’re worried about is that we’re somehow going to miss opportunities here,” Chernin said. “I think we’re talking about establishing precedents for some time to come.”
Disney’s new chief, Bob Iger, is a proponent of expanding the company’s content to new platforms, and his iPod move shook the TV industry. It lit a fire under some of the other players, who didn’t want to be perceived as technology laggards, according to industry analysts.
“The iPod-Disney deal; people scurried after that,” said Dan Fawcett, DirecTV’s executive vice president of programming acquisitions. “Once that was announced, there was something a little more tangible to look at and compare to and everybody just decided now is the right time to figure it out.”
The recently announced deals share a number of similarities, the primary one being that consumers are picking up the tab, not advertisers — a possible precedent some analysts and ad agencies don’t like. Comcast has opposed charging fees, but has apparently conceded the point in order to gain access to high-rated broadcast shows. Hit programs can help drive the success of its digital television services — and help the No. 1 U.S. cable operator gain an edge against satellite competition, according to analysts.
“They were afraid they were lagging in the one area they have staked out as the cornerstone of their strategy,” Sanford Bernstein & Co. analyst Craig Moffett said. “It would be a tough pill to swallow for Comcast not to be perceived as at the forefront of this evolution.”
But Moffett, and critics like Hanlon, don’t like the model with which CBS, Comcast, NBC and DirecTV have come out of the gate.
“There is a risk that these kinds of nickel-and-dime pay-per-view deals will do real and lasting damage to the progression of video on demand,” Moffett said. “The fundamental question is who is going to pay for video on demand, and this model jumps to the conclusion that it’s going to be the consumer.”
For their part, NBC and CBS say the 99-cent model is only “a first stab.” For example, CBS is also reportedly talking to distributors about an approach that only involve a 49-cent fee, and another includes ads that couldn’t be skipped.
Indeed, what will happen to ads is up in the air. NBC’s shows for DirecTV’s on-demand platform will be commercial-free, while CBS is keeping the ads in its programs for Comcast. This raises a red flag for Starcom’s Hanlon.
“Frankly, the difference between the two speaks volumes about the uncertainty of how the advertising-business model could and should look,” he said. “Marketers may be the losers here.’’
Disney’s iPod shows are also commercial-free. NBC Universal Cable president David Zaslav says people aren’t accustomed to seeing ads in content that they purchase, such as pay movies or DVDs.
CBS’s philosophy is that showing shows on demand is “an extension and reinforcement of the network, not a cannibalization,” said Martin Franks, executive vice president for CBS Television. “Therefore, leaving the ads in, and maintaining faith with our advertisers, is important.”
Page Thompson, vice president of Comcast On Demand, believes there will eventually be an ad-supported model for hit shows — but for now, the reach of broadcast networks means their hits have a different value.
“The deal we have only applies to broadcast,” Thompson said. “It is clearly a different bucket” than cable-network programming, because of the kind of ratings hit primetime broadcast show get.
Matt Stump and Mike Farrell contributed to this story.