How Will TV Survive Its Own Reality Show?

To thrive in the Internet Age, the industry must remake itself.

The television world used to be so simple. When onetime suspender salesman Ralph Roberts started what would become cable giant Comcast Corp. 41 years ago in Tupelo, Miss., it was a just matter of stringing up wires. Surely folks would come to him, eager to get crystal-clear signals from the Big Three -- CBS, NBC, and ABC. But for CEO Brian Roberts, who has taken over from his father, competition is everywhere today, from satellites to phone companies. More than rivals, though, the biggest challenge for Roberts and every media executive is something bigger: consumers empowered as never before.

In fact, TV is confronting the biggest turning point in its more than 60-year history. The most profound change under way is one of technological upheaval. Digitization and high-speed data lines are giving viewers unprecedented control over what they view and when they view it. That's because programming has become less and less tethered to a particular device, threatening the extinction of the old square box. It also means that prime time will certainly evaporate, so that new revenue models will come to replace the traditional 30-second spot ad as the lifeblood of the industry. "The world is going to change whether we like it or not," says David Westin, president of ABC News (DIS ), which in July began delivering the new 24-hour ABC News Now service to cell phones and the Internet. Phones and a computer? How would legendary CBS founder William S. Paley get his head around that idea?

Once upon a time, viewers got comfy in front of the boob tube. Today they're armed with time-shifting and personalized devices that zap ads -- such as digital video recorders, Internet connections, and even cell phones that can order up the latest Hardball show on MSNBC. They can watch Monday Night Football on Thursday and Everybody Loves Raymond whenever. Sanford Bernstein media analyst and former NBC (GE ) exec Tom Wolzien calls this the "great decoupling" between TV content and how it is delivered. In what he calls the "Internet bypass," Wolzien sees the rise of broadband leading to even more experimentation with the way shows are distributed. Indeed, as he grapples with his place in this new world, Robert C. Wright, chairman of NBC Universal, now talks about being a content provider that is "platform neutral."

They're all figuring out how to give liberated customers more choices. Comcast's Roberts has set out to give viewers what amounts to a huge video store in their living rooms. On Sept. 14, he agreed to ante up $300 million to help Sony (SNE ) buy the MGM studio so that it could tap MGM's 4,000-film library. And Wright pushed parent General Electric Co. (GE ) to approve NBC's merger with Vivendi Universal to be able to offer Universal's vast library of programming across many outlets.

To better understand what consumers will want in this new age, TV honchos are intensifying their research. Three years ago, CBS built its Television City Research Center, a 5,000-square-foot facility in the MGM Grand Casino in Las Vegas. The move made perfect sense, say CBS execs, since the 36 million visitors a year to the gambling mecca, from high rollers to sunburned families from Arkansas, offer up the ideal test audience. They are mostly being tapped to render opinions on new shows but increasingly are helping the network study all kinds of trends -- how people use personal video recorders, for example, or how viewers respond to products placed in shows. "We get folks...who are generally more upscale and younger than the population at large," says CBS chief researcher David Poltrack. "Those are our kind of people."

Now, as new technology revolutionizes the distribution of shows, and the networks lose their iron grip, they'll need to figure out new ways to make money. The old model, built on the 30-second spot that fetched a premium at prime time, still delivers $19 billion a year to the networks. But no one feels secure about the future as the mass market splinters. So some are testing alternative revenue streams. Beefing up subscriber fees is one tack: Last year, Fox test-marketed a cable fee of $19.95 a month to see recent episodes of its hit show 24 on demand. HBO subscribers on Time Warner Inc.'s (TWX ) cable systems can pay an added $6.95 a month to catch The Sopranos and Six Feet Under episodes they missed. Comcast offers replays of the NBC Nightly News free with a digital subscription and may do the same with MGM movies. A small business now, video-on-demand may hit pay dirt by 2009 when it becomes available in 44 million U.S. homes, figures Josh Bernoff of Forrester Research Inc. (FORR ).


Perhaps the biggest challenges for TV execs are ad-skipping digital video recorders such as TiVo. With satellite and cable operators pushing DVRs, as much as 20% of the country will have them by 2008, estimates PricewaterhouseCoopers. And 70% of the DVR users will fast forward through ads, says Forrester. To combat that, networks are loading up programs with product placements: Doritos for contestants on CBS's Survivor and AT&T (T ) phones used for call-in voting on Fox's American Idol.

The proliferating platforms, however, may turn out to be less threatening and more lucrative than execs think. TV outlets such as NBC News, Fox Sports, and ABC News are already finding new revenue by licensing shows to Sprint PCS Group (PCS ) phones. Handheld devices powered by Microsoft software will soon be able to deliver programs much as music is available for download today. "It really is a way to make existing programming go a longer way," says Larry D. Gerbrandt, head of the media practice at consultant AlixPartners.

Although broadband speeds are still too slow to show TV in real time, networks are preparing for the day when the Net is a viable alternative. CBS airs a daily Internet talk show about its Big Brother show. ESPN went a step further when it streamed its Pete Rose movie Hustle on the Net two days before its Sept. 25 TV debut.

TV execs like to downplay what is going on in their business by saying it is not a revolution, but rather evolution. Either way, the TV world is anything but the uncomplicated place it was when Ralph Roberts started out more than four decades ago.

By Ronald Grover

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