'Lost’ in Transition: iPod’s Wakeup Call

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In one fell swoop, Steve Jobs and Robert Iger rocked the on-demand world last month with their breakthrough video-enabled iPod deal, which allows consumers to download five television shows, including the highly popular Lost and Desperate Housewives, for $1.99 per episode.

What cable operators could not do, or were not willing to do, Apple Computer Inc. and The Walt Disney Co. did for a nascent platform: provide primetime programming, on demand, immediately to consumers after the shows aired.

The battle lines have been drawn. If cable wants top-level primetime programming for on demand, it will have to pay content providers. The quick and easy way, as Apple chose, is to charge per program, deleting the advertising that goes with it.

That, of course, is the perfect model for Apple, which rewrote the rules of the music business with 99-cent downloads for individual songs. It’s a no brainer to offer TV shows for $1.99 per episode.

The iTunes infrastructure is in place. Technological advancements allow videos to be played on iPods. And Apple, itself, is a marketing juggernaut.

Conversely, operators have not been successful in selling non-monthly programming. So it would appear that if cable wants to play in this new arena with Apple, it needs to solve the VOD advertising/ratings issue quickly.

For Disney, the iPod deal is a masterful public-relations stroke, reminiscent of the National Football League’s first Sunday Ticket deal with DirecTV Inc.

While Disney captured headlines and the feel-good press, it’s unclear how soon the mobile-video market will turn into a large revenue stream for programmers. The shows Disney is offering are completely owned by the company. The VOD and mobile-video rights for most other TV shows are caught in a labyrinth of competing interests — actors and actresses, producers, directors, writers, studios, production companies.

Even though the current iteration of VOD is five years old, on-demand rights for primetime shows are lost in that netherworld of competing interests, each wanting their piece of the revenue pie. For the same reason, it could be years before the iTunes carries all primetime programming.

There is also some skepticism whether large numbers of consumers will want to watch video on such a small screen. At the same time, consumers can download Lost and watch it on their computers, which provides a larger viewing experience than the iPod.

It might also take some time before the iPod reaches certain distribution milestones. Even at 1 million subscribers, it’s anyone’s guess how many Lost fans will be among that group and be willing to pay $1.99 for shows they missed. As a cable operator might inquire: 'Don’t they have a DVR?’

Still, the bar has been set. And cable faces another danger with their VOD platform, even as they continue to add hundreds of hours of free content: the possibility that VOD will be marginalized in the rapidly expanding new platform world.

It’s not the old days. Cable’s broadband connections are allowing programmers to send content directly to consumers, and explore new revenue models, without the cable system middleman. Mobile video is yet another platform.

For many content providers, there’s not much love lost with the cable industry. Sure they built a $50 billion-a-year industry together, but there is the ever-present “what have you done for me lately?”

If the Internet and mobile provide new growth opportunities for programmers, and set different rules, cable has a simple choice: adapt or risk getting left out.

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