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Behind Those Video-on-Demand Deals

Here's the hot new thing for TV networks hungry for revenues. Suffering from shaky ad sales and a fragmenting audience, the industry's biggies have turned to technology for a quick fix.

ABC (DIS) recently signed with Steve Jobs's iTunes for downloads of some shows for Apple's (AAPL) new video iPod, CBS (VIA) has hooked up with cable giant Comcast (CMCSA), and NBC (GE) with satellite operator DirecTV. The prize: video-on-demand (VOD), a 24/7, TV-at-your-fingertips service that will allow networks to charge folks who missed a TV show or want a blast from their past for the privilege of getting it whenever they want. Just log on, download or stream it, and watch it on your time.

Now comes the greatest indication yet of the adjustments that VOD faces before it can become a viable consumer product. On Nov. 14, AOL and Warner Bros. were set to announce that they would begin to offer thousands of the studio's older TV shows -- such as Welcome Back Kotter, Growing Pains, and Lois and Clark -- for on-demand streaming on a new channel it would call In2TV. The service will be offered free for AOL customers (see BW Online, 11/13/05, "Time Warner's Online TV Deal").

NO BIG RISKS. Separated into six channels, with comedy shows on LOL TV (Chico and The Man anyone?), drama on Dramarama TV, or cartoons like Bettlejuice on Toontopia TV, AOL is trying to recreate TV for 53% of U.S. households in the U.S. who currently get on the Internet via broadband connections. The shows will also have 15- or 30-second commercials, although AOL promises only one or two minutes of them for each 30-minute TV show, vs. the eight currently on network TV.

The dawning of a new era of TV? Not quite. Study the details provided by the networks carefully, and you'll notice that none are taking too big a risk. The deals include just a smattering of shows -- generally about four or five from each network -- and in some cases, the online services are designed not to ruffle too many members of the ecosystem on which networks live and prosper.

The truth is, going down this road is upsetting to many in TV Land. ABC affiliates are already irate about Disney's decision to allow Apple's iTunes service to have some of Disney's bigger TV hits, such as Lost and Desperate Housewives. But does anyone really think folks watching TV programs on those tiny iPod screens poses a real danger to at-home, nightly TV viewing?

"VERY RESPECTFUL." DirecTV has 15 million viewers -- hardly a threat to run off with NBC's core audience for the network fare such as Law and Order: SVU. And in allowing Comcast to have its shows, CBS insisted on keeping the commercials intact for programs that include Survivor and C.S.I.: Crime Scene Investigation, making sure to offer them in markets in which CBS owns the local TV stations. That's guaranteed to keep advertisers happy and not anger its partners among TV affiliates.

"We're trying to be very respectful to everyone we do business with," says CBS CEO Leslie Moonves. "The great majority of folks will still be watching network TV the great way that they always have." Yet over the long run, he thinks VOD "will be addictive."

So what's really going on here? Network executives are testing to see how much money they can wring from VOD customers without upsetting the already massive market they already have for TV shows.

AX THE MIDDLEMAN. The key element of the Warner Bros.-AOL announcement is that it will be AOL -- not DirecTV or Comcast or Apple -- that will serve as the content's gatekeeper. That's what makes it different -- and more intriguing. For years, content creators in Hollywood, be they music execs or film moguls, have chafed at having to give a piece of the action to music retailers, video-store chains like Blockbuster (BBI), theater owners, or anyone other business that brings their product to the general public.

Years ago, studios got into the theater business (but exited under federal antitrust pressure in the 1940s) and more recently have systematically either bought or merged with the Big Three TV networks. Throw in News Corp.'s (NWS) DirecTV and Time Warner's cable system with 11 million subscribers, and the pattern is pretty clear: Studios hate the middleman and want to get rid of him.

As VOD progresses, studios will try their hardest to reach consumers directly. Time Warner is doing it through AOL. Disney tried it with its Movie Beam service, which was designed to send movies directly to folks' TV sets. It was delayed last year but could be revived if the VOD market takes off. And sources close to Fox say Rupert Murdoch's network, despite its ownership of the DirecTV satellite service, may soon follow Time Warner's lead with its own version of a Fox-branded VOD site, giving Fox control over the TV shows it sell to consumers who want that special episode of, say, The Simpsons.

ROUTINE DRAMA. The tug of war between Hollywood and TV distributors is as old as rabbit ears. In the '50s, studios needed to curry favor with network executives to get their shows on the tube. More recently, a cable operator taking on a media company over the terms by which it will carry a TV station or cable channel has become a routine drama.

Comcast is currently locked in tense talks with ESPN for a contract renewal. Remember when Time Warner dropped ABC programming from several of its systems back when the Regis Philbin-hosted Who Wants to be a Millionaire was the hot ticket?

Warner -- and perhaps Fox -- may already be showing that they intend to control which TV shows get sent to consumers from the brand new world of VOD. More important, it would seem, they intend to control whatever new revenue VOD may generate. So sit back, folks, and enjoy. It's just the latest round in the reality show called Content vs. Distributors.


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