Raging Debate on VOD Still Hasn’t Delivered the Hits

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While major programmers continue to experiment with video on demand, they continue to hold back their most-prized content — marquee primetime programming — from the new platform.

At last week’s National Show, how and when that drought might end was a recurring topic of debate.

“Fox’s 24 was and remains the only bona fide hit broadcast series to be delivered on VOD anywhere in the country,” Lindsay Gardner, Fox Cable Networks Group executive vice president of affiliate sales and marketing, said in a recent interview. The Fox TV hit only appeared on Cablevision Systems Corp.’s on-demand platform — and it was a temporary experiment that has ended.

VOD compensation just isn’t there yet for top-shelf “hit” programs from basic-cable or broadcast networks, be they from News Corp. or NBC Universal. The lack of on-demand availability for shows like Law & Order tends to limit the platform’s viewer appeal, some networks claim.

“If the core of personalized TV is watching what you want to watch, then the hole right now in the donut is the stuff people really want to watch,” said NBC Universal Cable president David Zaslav.

Thus, programmers and cable operators (notably Comcast Corp.) are trying to figure out a business model for VOD that satisfies everyone: networks, distributors and advertisers.

It’s a model that will have to define:

  • If and when networks get compensated for providing content for VOD;
  • How much compensation so-called “profit participants” for hit shows will get from VOD;
  • When and if consumers will have to pay for VOD content;
  • How any VOD revenue gets divvied up between cable operators and programmers;
  • The role advertisers will play.

Those questions were part of a lively exchange during a National Show panel of MSO and programming executives — including Zaslav and Amy Banse, Comcast’s executive vice president of content development.

“Most content owners, we want to be graduating our best content from NBC, and the best content from all of our cable networks, onto VOD,” Zaslav said during the session in San Francisco. “Right now, the question [is] what is the model, and what are the economics?”

NBC Universal isn’t the only major programmer that so far has been holding back its hit TV shows from the on-demand platform.

The Walt Disney Co. is revamping its VOD offering by clustering content from its cable channels, including ESPN and Disney Channel, as well as from the ABC Television Network.

But there’s been no indication yet that Disney plans to offer any of the Alphabet Network’s hottest hits, like Desperate Housewives, on demand.

DRESSLER: 'INVEST’

At last week’s panel Fred Dressler, Time Warner Cable’s executive vice president of programming, lambasted unnamed “entrenched interests” for dragging their feet on participating in VOD.

“As long as the networks and the other content developers look at this as a loss, as opposed to an investment, you will appear to have controversy,” Dressler said. “But I don’t think it really exists.”

Hammering out a VOD business model isn’t as easy as Dressler and others make it sound, network officials claim.

In fact, one of those officials said if it was all so easy, why isn’t Time Warner Cable offering hit TV shows produced by its sister company, Warner Bros., on VOD? Warner Bros. produces blockbuster series such as The OC and Nip/Tuck.

Comcast’s longtime position has been that it won’t pay programmers for non-unique VOD content. To bolster its stance, the nation’s largest MSO touts that it provides VOD for free to its digital subscribers.

“Content that is created originally for VOD is something that we would consider paying for,” Banse said at last week’s panel. “Our issue with David [Zaslav] is that we think were already paying enough for USA [Network]. We don’t particularly want to pay for the use of USA on VOD.

“That’s not to say that if somebody’s got original content — that isn’t showing up anywhere else, but warrants being put on VOD — we’d consider paying for it then.”

Zaslav argued back that with VOD, MSOs are trying to change the long-standing business model between networks and distributors for content: programmers get paid a license fee and secure “real estate” — a channel slot on a cable system.

“You say you want the content, but you don’t want to pay a per-sub fee for it,” Zaslav said. “As loud as that yell is — that we should get comfortable not getting paid and not getting specific real estate to deal with — [it] is a change in the fundamental way that we’ve done business.”

'WHAT’S WRONG WITH $1?’

If NBC Universal created a “virtual” VOD channel featuring the best content from its networks, “what’s wrong with paying NBC a dollar a month for that?” Zaslav asked.

At one point, Banse expressed bullishness on featuring unique original content — like Comcast’s local dating service, or the guitar lessons on Rainbow Media Holdings Inc.’s Mag Rack — on VOD rather than repurposed programming.

But at the show’s closing panel, Jeff Bewkes, chairman of Time Warner’s entertainment and network group, downplayed VOD offerings like “how to fix your attic” when compared with Home Box Office’s HBO On Demand and marquee shows like The Sopranos.

“Half the VOD use in the cable industry today is subscription, mostly HBO,” Bewkes, the former HBO chief, said. “Those [are] programs that have value, are proven.”

Some programmers contend Comcast must inevitably yield on paying for VOD or it will never get access to the hits viewers most desire.

“The product they [Comcast] have been handing away for free is not the marquee product,” one cable-network chief said. “The more that the larger guys [major programmers] can hold the line on not providing marquee product to Comcast, the more Comcast will ultimately have to look at, well, is it worth charging a fee for the marquee content? Realizing that despite the fact that they’re charging a fee, that it’s still something that by and large the DBS guys aren’t able to do.”

Crafting a VOD model will become easier once on-demand usage can be accurately measured, something Comcast is helping spearhead.

“The measurement has to be in place,” said Turner Network Sales executive vice president of sales and marketing Coleman Breland. “Once the measurement is in place, I think the model starts to unveil itself.”

But there are other complications. Programmers must factor in VOD’s potential to devalue their other windows — when a theatrical movie, say, is in stores as a video or when a series comes out on DVD.

Just as importantly, moving marquee hit TV shows onto VOD triggers a hornet’s nest of rights issues for networks, with respect to the producers of those series.

“We have to agree to determine what participation various owners of the content will have and licenses,” NBC Universal chairman Bob Wright said at last week’s closing panel. “It’s probably more complicated than anybody wants to deal with right now, but I think it [VOD] clearly has a big future.”

Fox Cable at one point considered launching a sort of FX on Demand, a VOD version of its cutting-edge entertainment network, like HBO on Demand or Showtime on Demand, according to Gardner.

Fox Cable backed off that idea, in part because of concerns it wouldn’t be able to nail down VOD rights for one of FX’s biggest hit shows, Nip/Tuck, owned by Warner Bros.

Fox Cable was afraid FX on Demand would be less than compelling if cable subscribers came to it expecting to find Nip/Tuck and it wasn’t there.

On the sports side, Fox Cable is currently doing a VOD trial in Seattle in partnership with Comcast, offering Seattle Supersonics basketball games on a delayed basis on-demand. Fox owns FSN Northwest in that market.

But as with premier entertainment programming, rights-clearance issues remain a barrier to on-demand professional sports content.

“Operators have expressed a lot of interest in the core product that’s on Fox Sports Net, which is chiefly games, but there are league issues,” Gardner said.

NBCU ON DEMAND?

When NBC acquired Vivendi Universal Entertainment just shy of one year ago, the media giant’s top executives were making noise about offering hit NBC shows such as Law & Order on VOD. At one press conference, Wright showed a slide with a menu for “NBC Universal on Demand” that included USA Network’s primetime hit The Dead Zone.

Just last fall, NBC Universal Cable officials said they were considering VOD offerings that incorporated NBC programming such as Today, The Tonight Show With Jay Leno and Late Night With Conan O’Brien.

But the process of prepping for VOD has turned out to be rather laborious, and the NBC and USA hits have yet to hit VOD. NBC Universal Cable has been sorting through its content portfolio to see what’s usable for VOD, according to Zaslav.

“We have spent the last five months going through all of our content — our movie library, our TV library, and all of our original content on all of our platforms; our 11 cable networks and the broadcast network — so we know have a very clear understanding of everything that we have that we would call 'green-lighted,’ that we could use right now,” Zaslav said.

“Then there’s another basket of content that we coded as yellow, that we have the rights, but there are some additional clearances or hurdles until we could put it on a VOD platform,” he added.

In the third basket or category is content that’s “just mired,” according to Zaslav. “It’s not clear who has it, or we don’t have it.”

Both Fox Cable and NBC Cable currently have VOD plays, but not with the crème de la crème of high-rated hit shows.

News Corp. president Peter Chernin has been outspoken in insisting his company wants compensation for VOD content.

Nonetheless, Fox Cable and News Corp. were not only early experimenters in VOD, offering hit shows such as 24 and FX’s The Shield, but also supply content from networks such as National Geographic Channel and Speed Channel for VOD.

FSN DOES NBA ON VOD

In the Seattle VOD trial, with the support of the National Basketball Association, Seattle Supersonics basketball games and some FSN Northwest magazine shows are being offered on VOD to Comcast subscribers, according to Gardner.

The VOD window on the Supersonics games is that they are typically available an hour after they air on the regional sports service, remaining for a maximum of 48 hours or until the next scheduled Sonics games starts.

On the entertainment side, Fox Cable hasn’t given up on getting FX’s growing batch of original dramas, from Rescue Me to new series such as Over There, and even shows from the Fox broadcast network back onto VOD.

“In the right set of circumstances, we’ll pursue further broadcast VOD, and the same thing with FX,” Gardner said. “In the fall, FX could end up with four or five of the biggest dramas in cable or broadcast. We’re going to have, I think, a duty to make those available to as broad an audience as we can. And providing consumers with control and flexibility over when they watch something is the most consumer friendly thing we can do.”

Fox Cable and News Corp. broke VOD ground and made headlines back in 2001, when they first permitted Cablevision to offer Fox’s 24 and FX’s The Shield on the operator’s iO: Interactive Optimum on-demand platform. That experiment went on for three years.

It came about as a result of a meeting that Gardner had with Cablevision Systems Corp. CEO James Dolan, who at the time “was fuming” because ABC had backed out of a handshake deal to offer Who Wants to Be a Millionaire on VOD, according to Gardner.

“In the same conversation, he was talking about how much he loved 24,’’ Gardner said. “I came back to L.A. and I said, 'You know, we might be able to score some serious points with Jim Dolan by showing him that unlike ABC, we could come through.’ ”

SLICING THE PIE

It was through setting up that trial Gardner learned the often-difficult machinations of trying to get the “profit participants” in a hit how to agree to VOD distribution. That was thorny for 24 and The Shield, even though they were produced by Fox Cable’s corporate siblings, 20th Century Fox Television and Fox Television Studios. (At that time, both Fox Broadcasting and FX aired 24.)

Fox’s “compensation,” if you will, was largely a ton of promotion in the New York metropolitan area for the then-fledgling 24 and The Shield, which went on to become red-hot hits. Fox Cable also got access to Cablevision’s VOD-viewership data for the two shows.

“These two shows were among the most watched offerings on VOD in Cablevision history,” Gardner said. “They routinely trounced everything, other than maybe The Sopranos.”

Cablevision initially offered 24 and The Shield for free on VOD, later charging a fee.

As for the VOD content from networks like of National Geographic Channel, “we’re being compensated in terms of promotion,” Gardner said. “We’re also being compensated in certain cases with broader carriage of the underlying channel on broadly distributed tiers, so it’s part of the underlying distribution agreement. In no cases today, with any of the cases of what I call deployments, are we getting cash.”

Disney has also been vocal in its insistence on compensation for VOD. The Mouse House claims it’s found the right model with Disney Channel On Demand, a subscription VOD service offered by MSOs such as Cablevision.

DISNEY’S REVENUE MODEL

“Our experience with Cablevision has been extremely positive,” said Anne Sweeney, co-chairman of Disney’s Media Networks group. “What we’ve learned from it, first and foremost, is that there is a revenue model that works for the cable operator and works for the programmer.”

Industry observers also speculated Fox Cable and Disney could cut broad VOD deals with Comcast in exchange for launches of new networks, like Fox Reality Channel, or a carriage renewal for existing networks, such as Disney’s ESPN.

George Bodenheimer, co-chair of Disney’s Media Networks unit and president of ESPN Inc. and ABC Sports, hinted this may be the way Disney resolves issues on VOD with Comcast.

Unlike several MSOs, such as Cox Communications Inc. last year, Comcast has yet to renew its carriage deal for ESPN.

“We have a lot of respect for [CEO] Brian [Roberts] and Comcast,” Bodenheimer said. “Obviously, we’re in the middle of a long-term agreement with them. We’re negotiating to renew that agreement. That’s been in the press. And there’s many different ways to receive compensation.”

Like Fox Cable, NBC Universal has been experimenting in the VOD field, with Comcast in particular. NBC Universal Cable is currently distributing Universal theatricals for VOD use. In Philadelphia and some other Comcast markets, NBC is providing local news from owned-and-operated TV stations, as well as programs such as NBC Nightly News With Brian Williams, Meet the Press and Dateline.

“It’s a limited amount of content for a limited amount of time in limited markets,” Zaslav said. “But it did give us full access to all the research around it and how it’s used.”

Going forward NBC Universal, like News Corp., wants some kind of compensation for programming on VOD, said Zaslav, who maintains cable subscribers aren’t getting it “for free” because they pay a subscription fee for digital boxes.

Regarding VOD, Bodenheimer also trotted out the familiar “content is king” argument. “Nobody sits home and watches technology,” he said. “ESPN and Disney and ABC have brands people want to watch.”

Matt Stump contributed to this story.

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