Online Extra: "People Are Willing to Pay"

Viacom CFO Richard Bressler talks about developing new business models for media in the Digital Age

Richard J. Bressler still has Napster nightmares. When he recalls just how quickly the illegal music file-sharing service in 1999 ramped up from 200,000 users to more than 35 million, the Viacom (VIA ) chief financial officer says he shudders. These days, the 45-year-old Bressler is on the front lines of making sure what happened to music doesn't happen to Hollywood, serving as his media conglomerate's point man for figuring out how to navigate the digital future. And Viacom certainly has lots to protect, from the CBS Network to Paramount Studios to MTV Networks to Blockbuster Entertainment.

The first lesson Bressler says he has learned is that companies can't operate in silos. That's why on June 11, he flew to Los Angeles to take part in a gathering of industry heavyweights at the city's Museum of Television & Radio to talk about the piracy threat. News Corp. (NWS ) President Peter Chernin organized the event. Among the attendees: DreamWorks co-founder Jeffrey Katzenberg, Imagine Entertainment honcho Brian Grazer, and influential media investor Gordon Crawford.

The most important guests, though, were a dozen or so college kids who spent the day giving the moguls a tutorial on just how easy it is to download movies from the Net.

Staying wired to what movie and TV fans want is more crucial than ever, says Bressler. He spoke recently with Tom Lowry, BusinessWeek's Media editor, about how to protect content while trying to developing new business models for the Digital Age. Following are edited excerpts of their conversation:

Q: How serious a threat are new digital technologies to the TV and movie studios?


You have to realize that both good and bad can come from digital technologies. There's a huge potential here for us to use the technology to provide great content in more ways with more revenue streams. But any time there's an advance in digital technology, the threat of piracy increases. We're realistic about that.

Q: What lessons have movie and TV executives learned from the music industry?


We need to listen to what consumers want. Clearly, music got off to a slow start waiting for the perfect solution. But in just the last couple of months, we've learned from music, specifically Apple's iTunes Music Store, that people are willing to pay for legitimate services.

Another lesson is that we need to be out there more, raising awareness about piracy with kids, parents, policymakers, academics, and others. The stealing of intellectual property is wrong, whether it's from a store or from online.

Q: What are you doing internally at Viacom to address the threat?


We're all working as a team. We have a committee of division chiefs that meets regularly to discuss digital technologies at a business level. We also have an internal Web site that provides the latest information, from news articles to legal rulings, on piracy. Our executives come together on a regular basis. For example, I might talk with Jon Dolgen [CEO of Paramount Studios] about the progress of Movielink [an online movie service created by the five major studios] and what could be done to make it better.

Q: How much time does Hollywood have to find a viable digital model before piracy takes a big bite out of its business?


I don't think it's a tomorrow problem, but we can't afford to put off learning how to manage both the threat and the opportunities here.

Q: Can you imagine in the near future having a movie released to theaters, to DVD, and to an online service on the same day?


No. We're all in business to make money at the end of the day. Look at what happened at the migration to DVDs. Nobody could have predicted that the adoption of the disks could have gone that fast. And you know what? Going to a movie is still an event. You're not going to get the same experience in terms of sounds and visuals by watching The Hulk online as you would in a theater.

Q: Viacom owns Blockbuster Entertainment, whose business model would seem to be threatened by the sale of movies online. Can video retailers exist in this new digital future?


Of course they can. Will businesses be impacted by the change in distribution forms? Sure they will. But every business beforehand has been impacted by new distribution forms, and they're still around. There will always be customers who want to rent or buy DVDs.

Q: What needs to happen in terms of cooperation between various industries for everyone to prosper from digital entertainment?


We all need to acknowledge that nobody benefits over the long term unless we're together. Content drives the information technology and consumer-electronics industries, and when it's not protected, it affects us all.

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