Redefining the Business of Television

Digital technology puts consumers in control


Two "tectonic shifts" in electronic media--high-definition video and personalized on-demand entertainment--are having such a high impact on viewers that the core business models of television are now being redefined, industry executives say.

As broadcasters prepare to gather again for the annual NAB convention in Las Vegas, viewers are subscribing to new pay HDTV and video-on-demand (VOD) services at a brisk rate. Once they experience the new technology, few turn back.

VOD at Showtime has become "a beloved product," said Judith Pless, senior vice president of the network's Digital Media Group. "We're seeing usage grow in quantity and breadth. The volume is going up, and what subscribers are watching is expanding across more categories.

"Personalized television is getting here sooner than we thought. It's almost like the iPod of video," Pless said.

Mitchell J. Weinraub, senior director of new media initiatives for the cable operator said, "At Comcast we found that when you launch on-demand, cable churn goes down something like 20 to 30 percent. It becomes very sticky. Viewers are finding value.

"As to HD, we've the seen the usage and the interest of folks paying attention to these channels just skyrocket. In fact, we've begun testing HD VOD together in a couple of different markets. Customers value HD more. They think the movie is more important in HD than in SD."


Pless and Weinraub made their comments last month at the 2005 Media Summit New York, an industry conference sponsored by the McGraw-Hill Companies. Two days of panels featuring dozens of industry executives focused on topics covering the television, cable, satellite, broadband and advertising businesses.

Panel after panel debated how digital technology is transforming media businesses and extending the same content available across multiple platforms including linear television channels, VOD, broadband, the Internet, mobile devices and packaged media such as DVDs.

"All business models are going to be challenged when the digital domain becomes more of a reality, " said Peter Lee, vice president of business development for new technology at the Walt Disney Company. "We are already seeing what consumers want to do and are starting to do with that digital domain. But we are nowhere near where it's going to be three to five years from now.

"That change is coming very, very quick," Lee said. "When consumers can start moving content around to all these digital devices, that's where the big impact to business models is going to come; not just from an advertising perspective, but from a programming perspective."

Comcast has identified five categories of video content that could turn VOD into its own standalone medium, Weinraub told the conference.

The first, he said, is what the cable operator terms "high-value, high-refresh programming," which includes timely sports highlights and topical news clips. Describing this material as "enormously popular," he said Comcast had more than 600,000 views in this category in the first week it was launched.

A second category is "after-the-fact" content.

"As an example, we took the political conventions from C-SPAN and broke them up into individual speeches and put those on VOD," Weinraub said. "One that stood out was Barack Obama. Nobody had heard of him at the time and most missed his speech live. But everybody woke up the next morning to read the headlines about him in the newspaper. On Comcast, VOD customers could watch Obama's speech in its entirety after they had heard that it was really important."

The third significant VOD category is new channel launches (highlighted programs before the full-channel debuts), and the fourth is custom DVD content. The fifth is described by Weinraub as "micro killer applications... extremely important programs to a niche of viewers who find them alone worth the price of the entire cable service."

He cited "Hispanic sampling" as a successful example.

"We are taking Spanish language programming from about 15 different countries and creating a 120-hour package," he said. "That's a target market, and this is invaluable content to this audience. It's the most important thing they get on television, and we're the only place they can get it."


The other important technology is HDTV. Showtime's Pless said high-definition service is "taking off" with premium subscribers, who tend to be the earliest adopters of new technology. "They are in there first. They want it all. HD viewers favor sports and dramatic series," she said.

"We've seen in focus groups that people who own high-definition sets go to their HD channels first," Pless said. "If there's nothing there they want to watch, then they will go elsewhere. So if they like what's on HD, they will stay with you."

Pless said she could see a day in the future when viewers will regard standard-definition programming as a second-class product. "That's why we work hand-in-hand with the studios to make sure that a lot of the classic movies get transferred to HD. But it's a push."

NBC Universal CEO Robert Wright went out of his way to portray his new consolidated media company as technology agnostic. "We are a very simple business," he said. "We develop programming, produce it and we market it. We recognize that technology is our friend over the long haul, but it doesn't have to be developed by us. We only have to be compatible with the changes in technology to get the value out of the content we create."

Wright, long an advocate of adding television-generated transactions to traditional advertising revenue streams, predicted that sports programming will soon migrate away from the broadcast networks to pay media.

"I believe that one day you'll be able to buy a virtual seat at Madison Square Garden," he said. "You could buy a 10-game ticket. We've envisioned having different camera positions for different prices of tickets. So if you wanted a courtside ticket, you'd be able to get a view from the court. We've haven't gotten there yet, but things of that nature are happening."

There was general agreement among panelists that the industry is about to see an explosion of new programming choices--from hundreds to thousands--through VOD technology.

Stacy Jolna, an early TiVo executive and now senior vice president of TV Guide's television group, said traditional electronic program guides will no longer be adequate to help viewers navigate through the vast expanse of program choices to come.

"We are going to be launching the first on-demand television network across all digital platforms, " he said. "I can't say a lot about it yet, but it's a short-form video programming concept that speaks to entertainment guidance. Whether it's sports, astrology or movies, it's an opportunity for consumers to cut through that sea of choices to find the best."

Jolna, who revealed that TV Guide will launch the new network with Comcast, Time Warner and on through broadband, said the opportunity to integrate entertainment programming and marketing is "wide open" in the nonlinear world.

"There are amazing new ways to integrate entertainment and marketing outside the realm of the 30-second spot," he said.


How television advertising will fare in the new universe of techn ology was a highlight of discussion. Tim Hanlon, a senior vice president with Starcom MediaVest Group, a major branding firm, was clearly annoyed with the doomsday talk he heard from many advertisers and traditional media outlets.

"The time is here where we should focus collectively as an advertising industry on the possibilities and the opportunities, not on the challenges and threats," he said. "Let's face it: as traditional media companies and traditional media buyers--in those old conventional roles--it's always a threat and challenge. It's always 'how do we prevent this from happening?' 'How do we counter this?' I would suggest it's time to go beyond that and embrace [the future.]"

There's an urgent need, said Hanlon, to find new ways to accurately measure media across the new digital platforms. "The media buying community comes from the school of 'that which gets measured gets bought,'" he said. "But let's also be honest that the Nielsen sample-based methodology of television measurement doesn't do a decent job of keeping up with today's television, let alone tomorrow's television."

Audiences, Hanlon insisted, have demonstrated that they want to be in control of how and where they use media. "I think consumers are starting to get very ornery about not being able to do what they want with stuff they've paid for--whether it's to take video with them or watch it in another part of their home.

"Whether the business models work or whether the media companies can or cannot control the use of media, they've got to recognize that inevitably that's where it's all going," he continued. "Consumers told the music industry 'we're mad as hell and not going to take it anymore.' Now it's happening to video."

Skeptical of overly zealous digital rights management (DRM) schemes, Hanlon said finding ways for consumers to share content on a peer-to-peer basis is essential to advertisers, whose messages will increasingly be embedded in the programming. The viral marketing that comes from sharing is highly valued and most effective, he said.

Adam Bain, vice president of production and development at Fox Sports International Media, shot down all the talk he hears about personalized media bringing an end to traditional television spot advertising.

"The answer is 'no' to the end of the 30-second commercial," Bain said. "It's probably the birth of the 60-second commercial, the 2-minute commercial, the 10-minute commercial, even the 5 or 10-second commercial. It's all about finding new ways to wrap advertising into the programming."

Stuart Lipson, vice president of content solutions at SeaChange, the VOD technology company, described the new media scene as about "choice and control." However, he warned that high-tech companies must make their increasingly complex technology more simple for use by non-technical people.

Noting that part of his job is helping SeaChange's VOD customers develop new business models for content distribution, he said an increasing number of clients now want to deliver their programming to a wider variety of technology platforms, including linear broadcast, VOD, virtual networks, broadband, narrowband, Web and portable media players. "As the world gets more complicated, companies want to know how many chips they can put on the table," Lipson said.

Sony's Scott Smyers, a vice president who focuses on network architecture for the electronics maker, expressed concern during a panel on the "connected consumer" that ordinary people are going to find it difficult to make all their new digital electronic devices interact together.

"Are consumers going to have confidence that all these new products work together?" he asked, only half joking that he's already the non-paid IT manager for his friends and relatives. "To make (networked) products simple to use makes the products immensely more complicated. We are going to have to give consumers confidence that the product does what it claims to do on the side of the box."

Alcatel's Tim Krause criticized U.S. government regulators, led by the FCC, for retarding progress in media technology, such as preventing devices from easily shifting functionality between different wireless networks. Regulators have also held the U.S. back in broadband development when compared to other nations, he added.

"The rest of the world knows broadband better than we do," he said, noting that Alcatel supplies about half of the world's DSL telco lines. "We supply about four-fifths of the DSL lines in the United States and that almost doesn't even show up on our operating income," he said. "That's how much disparity there is. Here at home we've created a climate of limitation."

Another impediment, said Bill Taylor, a senior marketing executive at Motorola, is content rights management, which he termed "a pretty sticky wicket." He also suggested that the rest of the world is ahead in broadband connectivity and cellular phone technology largely because they didn't have the investment in infrastructure that was already in place in the United States. "It's very expensive for companies to swap out this type of infrastructure," he said.

For the future, panelists cited IP video as the next big technology platform for wide adoption--first by telco companies now deploying video networks and later by cable in upgrading their distribution technology. Telephone companies now deploying broadband video services and constructing fiber optic networks are being welcomed as the next big competitors to cable and satellite.

In wrapping up a panel called "Transforming Television," Hanlon closed with a prediction: "I think the industry has a couple of more tectonic shifts to come. Some which we'll see and some which we won't see.

"One that I'll take a guess on is satellite and telco are going from holding hands to perhaps walking down the aisle together. Perhaps leveling the playing field against cable. It will be interesting to watch how the bandwidth is bundled."

Frank Beacham

Frank Beacham is an independent writer based in New York.