It’s a given that while most people still watch linear channels, increasing numbers are time-shifting and placeshifting their programming with DVRs, iTunes, portable devices and—of course—the Internet, where broadband delivery of TV content vies for attention alongside viral videos and user-generated material.
For programmers distributing primarily through cable affiliates, this brave new world presents some unique challenges. While they can ill afford to ignore this shift and are delivering increasing amounts of content via other means—especially broadband—these networks must take care not to siphon viewers away from the very cable operators upon whom they depend for much of their revenue.
"A network offering content online is fraught with all kinds of complexities," says Craig Moffett, VP and senior analyst at Sanford C. Bernstein & Co. "It’s awfully hard to argue for a price increase from an affiliate when the affiliate’s push back is that you’re offering the network online for nothing at all."
That’s why most programmers are stepping cautiously into broadband waters and their Internet offerings are a patchwork of promotional material, program information, teaser clips, related content and the occasional downloadable full episode—either offered for free or for a fee. Generally, these networks emphasize online "partnerships" with operators and find ways to brand their channels on the operators’ own websites.
The Basics of Basic
Far from duplicating its linear channel, Court TV, an innovator in the broadband space, has created products unique to the Web, including Court TV Extra, a subscription service offering multiple live trials from across the country for $5.95 a month, and Court TV RED, a free site with footage of arrests, chases, explosions and other real-life police action. RED’s revenue comes from 15-second video pre-roll ads that run at the beginning of each footage segment.
Such material promotes rather than duplicates Court TV’s linear products, says Erika Faust, Court TV’s VP of online business development and operations. "We’ve been talking to affiliates about offering a promotional deal where people could get portions of Court TV Extra for free and then convert to broadband subscribers," she explains. "We’ll work within that partnership mode to make something of value that benefits both them and us…but we’ll do it in a nimble way."
Nimbleness is also the modus operandi at A&E Television Networks, where Steve Ronson, EVP, enterprises, oversees the digital media activities of A&E Network, The History Channel, The Biography Channel and other sister services. Ronson divides the company’s broadband offerings into short-form and long-form material.
"In short-form, we’re providing short clips, outtakes and pieces left on the cutting room floor — not full episodes," he explains. "Take Dog the Bounty Hunter. Online we do character development and show the backstory. We want to make viewers come back and watch more of the show."
For its long-form offerings, A&E follows a retail download-to-own model, but only makes its shows available online "once they’ve been consumed and become part of our catalog," Ronson explains. "The model of consumers willing to pay for a second viewing works online just as it does on DVD." Ronson adds "it’s natural that when these new technologies emerge, there’s a threat of what they could do to the core business, but TV is a dominant medium and we don’t see it going away. Plus, A&E is in constant discussion with cable operators and MSOs to develop custom applications…[and] tailor our brands and products to support their growth efforts."
At Cartoon Network, the online focus has been on gaming, says Paul Condolora, SVP and general manager of Cartoon Network New Media. "However, in 2006 we made a big push with online video" with the launch of Toonami Jetstream, an anime offering for boys 9-14, and Cartoon Network Video, which caters to kids 6-11. The revenue model is ad pre-rolls in advance of selected videos.
Like other network executives, Condolora views Cartoon’s broadband content as "promotional," although he admits that "the thought of having your content on TV and not elsewhere is very outdated."
But, to paraphrase Bill Clinton, that depends on what the content of the content is. Back when TV emerged as a medium "you couldn’t just put radio on TV, and today you can’t just put cable online," insists Evan Shapiro, EVP and general manager of Independent Film Channel. "That feels a little last-century to us."
Shapiro’s aim is to design content specifically for digital platforms. Take IFC’s outspoken music and interview program The Henry Rollins Show. "We tape two performances of every show," Shapiro says. "One for our network, the other exclusively for our website. They cross-pollinate each other, creating a need to see the show, and a need to see the content online."
Further protecting cable operators from online encroachment is IFC’s insistence that "consumers have to pay for any content on our website that came from the network," Shapiro says. "The consumers can’t go around the cable operator without paying an additional fee. We’re owned by a cable company [IFC owner Rainbow Media Holdings is a subsidiary of Cablevision Systems], so I hear it firsthand."
Turner Broadcasting System has a mixed approach. "As we go through our portfolios, we identify ad-supported products, subscription products and electronic sell-through where people can download stuff at our sites or at partner sites," says Dennis Quinn, EVP, business development. "Our strategy is both to extend the linear brand online, with product customized for that platform and that audience, and [to exploit] areas that are adjacent to our current products."
The Price of Premium
If the basic services—relying, as they do, on ad support—feel relatively free to adopt multiple strategies toward broadband distribution that include online advertising, the premium channels are in a more delicate position.
"When it comes to the pay services, it doesn’t make any sense for them to put [free] original content on broadband," says Larry Gerbrandt, SVP, general manager, Nielsen Analytics. "A show here and there for promotional purposes, or footage that extends the pay-TV experience [is OK, but no more] unless they start to charge for the programming. Selling programming on DVD doesn’t put them in conflict with their affiliates, and the same model applies to programming sold via broadband."
"Because we’re premium, we have a different approach," agrees Robert Hayes, SVP, general manager, Showtime Digital Media. "We use digital platforms to drive sub acquisition…with content derivative of our original series. For us, it’s about program promotion as much as about new revenue streams."
Showtime also helps affiliates by providing promotional content for their home pages. "It just reinforces the value of those portals. We co-op with our affiliates on this and advise them on the best way they can use it. In return, we get lots of free promotional exposure."
Showtime’s online content includes parallel storylines, behind-the-scenes segments and online communities of fans who, for example, upload their own videos to a Weeds-inspired "Chaos in Suburbia" section on user-generated-content site Break.com. Showtime has also offered limited downloads of full-length episodes of its original series.
One of the more aggressive players in online video is Starz Entertainment, which launched its Vongo movie download service in January 2006, offering unlimited downloads from a library of 1,000 titles for a flat $9.99 per month.
This January, Starz took Vongo (which has ballooned to more than 2,500 titles) a step further via a deal with Microsoft, which makes Vongo the "movies launch partner" for Microsoft’s new, long-awaited Vista operating system. Owners of Vista-based PCs who download Vongo’s titles onto their computers can view them on any connected TV set.
Of all the cable networks’ broadband offerings, Vongo seems most likely to pit a supplier against cable operators. "We include a stream of the Starz channel as part of the Vongo service," acknowledges Bob Greene, EVP, advanced services, Starz Entertainment, but "we’re working with our affiliates so they can bundle Vongo with their Starz linear channels and their broadband offering."
Greene also notes "to date, only 20% of our Vongo customers have Starz, and 50% of them actually don’t even have premium television at all. This is an incremental play." Starz will not say how many subscribers Vongo has garnered in its first year.
Owners of the Fat Pipes
MSOs we contacted preferred to let programmers do the talking on the complex issues surrounding content delivered via broadband, even though most have staked out an online presence with websites offering video programming—some in partnership with their network affiliates.
Moreover, although the networks’ broadband video offerings may appear to compete with their linear channels, the very availability of online video often plays into the hands of operators, who own most of the fat pipes that make decent-quality video downloads possible, whatever the source.
"It’s good for cable operators when compelling content is available online because it drives high-speed Internet acquisition and retention," a Cox official says. "Dynamic content is not as enjoyable on a slower dial-up or DSL connection, and cable has the advantage with offering traditionally faster speeds."
Cathy Hetzel, SVP, OnDemand Essentials, Rentrak Corp, concurs. "The availability of popular shows and movies from the operator’s content partners via broadband is helping to drive and retain the operator’s customers for their high-speed data product."
"In our partnership with operators, we’re looking to build broadband products that leverage the architecture they’re building," says Turner’s Quinn. "They’re driving acquisitions around having bundled offerings…The more services they can sell to subscribers, the higher the ARPU of that sub is going to be."
HBO — Mysterious Broadband Debutante
HBO, the largest, most well-heeled of the pay services, has yet to announce its inevitable plans for premium on broadband. Like the proverbial elephant in the room, it looms large without moving too much, making everyone else a bit nervous.
But it looks like 2007 will be HBO’s Web debut, although that initiative is bound to make allowances for the sensitivities of HBO’s affiliates, through which the network generates about $3 billion in annual revenue and $1 million in earnings.
"We plan to launch a product in 2007, and we are exploring with our affiliates the appropriate programming model," says Eric Kessler, president, sales and marketing. "The challenge is to figure out how to create a viable, sustainable economic model using broadband for a pay service like us. It’s a function of fitting our plans and the products we’ve created into the affiliates’ existing architecture and their plans."
Kessler adds that HBO’s discussions with its affiliates center on finding "the best programming model to deliver broadband so that it’s additive, and the best way for affiliates to incorporate that into the HBO subscription service. Is it as an embedded product, as some affiliates distribute HBO On Demand, or is there an a la carte version, so you buy your HBO subscription and maybe you pay for something on top of that?"
So which should it be? "It’s all open for discussion," Kessler says. "Other things are in discussion as well, but those are among the options we are considering." — PC