What's the real purpose of a media company? Of course, it's to make hot-shot "content"—TV shows and movies—and get as many folks as possible to see them and pay to see them. That's what keeps the lights on at multibillion dollar media giants like Time Warner (TWX), Walt Disney (DIS), and News Corp. (NWS), not to mention the legions of writers, directors, and actors who make their living helping to create that content.
So, on the surface, a whole army of folks ought to be cheering Viacom's decision on Feb. 2 to demand that YouTube (GOOG), the hottest video site on the planet, take down more than 10,000 clips from the Net unless it's willing to pay Viacom (VIA) for the right to carry them. So, for the 29 million unique viewers who logged onto YouTube as recently as December, that means no more clips of The Daily Show with Jon Stewart from Viacom's Comedy Central channel or MTV's Punk'd.
Sounds like it makes perfect business sense for a media mogul on the make for added revenues, right? Well, maybe. But as a card-carrying member of the TV generation who logs onto YouTube on a regular basis, let me tell you how short-sighted Viacom Chairman Sumner Redstone and his crew really are. For years, TV ratings have been heading south, well before YouTube was launched in early 2005 by three former PayPal executives. Folks were tuning out and watching DVDs, playing computer games, heck, probably even reading a little more.
Saw It on YouTube
Even cable channels, which stole a march on broadcast networks in the mid-90's, have started to lose viewers of late. But a funny thing happened last year: According to Nielsen Media Resarch, household TV viewing jumped to its highest level last year—8 hours and 14 minutes a day, a full hour more than a decade ago. And, according to Larry Gerbrandt, senior vice-president of the company's Nielsen Analytics unit, "Video on PCs and iPods actually is expanding the audience of traditional TV programs."
Media guys, that means that folks who are logging onto the Net, even YouTube, may actually like what they see enough that they head to the tube to catch the next show. It's called promotion, and it isn't costing you a dime, certainly not the millions a year in billboards and other ads you traditionally spend to launch or keep your shows in front of viewers' eyes. Sure, there are all kinds of counter arguments: A recent study by Harris Interactive found that about 32% of frequent YouTube users are watching less TV. Then again, that means that more than two-thirds are watching at least as much TV as they did before.
So far, there isn't much in the way of hard evidence that says, one way or the other, whether folks are logging off the Net and headed for the TV after getting hooked on one of those brief clips. But media companies have tons of anecdotal evidence. NBC (GE) said not long ago that its show The Office owes at least some of its popularity over the last year to its appearance on Apple's (AAPL) iPod service. Same for DVD sales of the Walt Disney's show Lost, I'm told.
And David Poltrack, CBS' (CBS) chief research officer, recently told me that 16% of the folks it surveyed said they actually watched more TV as a result of having gotten hooked on a show online. And that's out of the 56% of the folks who even knew they could find TV shows on the Web. "New digital technologies," says Poltrack, "have the potential to turn on folks who might not ordinarily tune into our shows."
Of course, Poltrack and any media executive worth his standing reservation at Michael's is eager to point out that these numbers are for sites that legally offer TV shows to potential TV viewers. That would include the sites that all the networks now operate to offer a handful of shows you may have missed when they aired, or services like iTunes that license them from the networks. My wife Valerie recently missed an episode of Grey's Anatomy on ABC, and headed the next day to ABC.com to catch it. Along the way, ABC made sure she knew about some of the other shows on the site—and its airwaves—such as Ugly Betty. She's not a big fan of that show, but the next time it was on the tube, she gave it a try. Will she become an avid viewer? Not likely, but there she was sampling it anyway.
Remember how YouTube got its first brush with fame? By airing a skit from Saturday Night Live on Dec. 17, 2006 called Lazy Sunday: Chronicles of Narnia, which became such a huge hit online that more than 5 million folks downloaded it within two weeks. NBC, of course, acted like any media company might, firing off a "cease and desist" letter that YouTube acknowledged and acted upon, taking down the video within hours.
Follow the Money
Then NBC got religion, as well as CBS, and they signed deals with YouTube to provide it with clips of their shows in hopes of generating just the kind of grassroots popularity that Lazy Sunday got. Oh, yes, and ratings for the TV version of Saturday Night Live also jumped as YouTube started getting mentioned in just about every newspaper in the U.S.
You get the feeling that Viacom, which has said it wants to negotiate license fees with YouTube, is getting its back up this time because, well, there are some deep pockets on the other side of the table. Last October, Google paid $1.65 billion to acquire YouTube, and now the monster that's scaring the suits up and down Madison Avenue wants to make money from the advertising that it's already starting to put on YouTube.
"We cannot let them profit from our programming," Viacom CEO Philippe P. Dauman told The New York Times. I get that. Everyone gets it. And YouTube executives have been hustling to find a way to share the profits with Viacom and other media companies. One offer supposedly on the table would have the Google unit paying Viacom and other content providers as much as $100 million a year for the use of their programming. Viacom, however, says that it doesn't currently have any such deal on the table.
Get With It
You know that there will be a deal, and it may happen sooner rather than later. Media companies have famously taken on their distribution partners in the past. Disney went to Washington to object when Time Warner stripped its then-hot ABC show Who Wants To Be a Millionaire? in 2000. Eventually the show was back on the air. Time Warner is currently embroiled in a stand-off with EchoStar Communications (DISH) over the satellite service's refusal to pay the added money Time Warner wants for CourtTV. So, Echostar has stripped CourtTV from its Dish satellite service.
It says a lot that Viacom is pulling the same kind of hard-edged negotiating style with YouTube that Dish is using on CourtTV. Maybe that means that Internet content sites such as YouTube and MySpace have come of age. They are aggregating the kind of large audiences that have traditionally made hits out of shows on network TV and more recently cable or satellite TV. Get it, Viacom? You need YouTube as much as YouTube needs your programs. Chill…make the deal. You're starting to look very old media.