Broadcasters, facing declines in advertising revenue, view cable
television industry's push towards a subscription model for online
video as a potential opportunity to grab more carriage fees from
cable operators and their competitors.
While cable companies show signs of rallying around a plan to
keep online video programming behind a subscription wall in order
to preserve their TV service business, broadcasters continue to put
some of the most popular TV shows online for free in pursuit of
more ad revenue.
But despite early successes with offerings like Hulu and TV.com,
analysts say web video poses long-term threats to the broadcast
business as well as cable, and broadcasters may be persuaded to
join the push towards a subscription model - known as
authentication - if they can share more in the spoils.
"To the extent that authentication represents an additional way
for CBS as a broadcaster to get paid, I think that's very
interesting," said Quincy Smith, president of CBS Interactive.
This issue is particularly sensitive for CBS Corp. (CBS), which
depends on its broadcast network more than other network owners,
which are larger, more diverse companies.
CBS and other broadcasters have recently won higher subscription
fees from pay-TV providers in return for access to their
programming, as increased competition among cable operators,
telecommunications companies and satellite providers has
strengthened their hand in negotiations.
Still, the vast majority of the revenue reaped by broadcasters -
possibly as much as 90% - comes from advertising, which is
suffering due to the recession. Their cable counterparts,
meanwhile, make over half their revenue from carriage fees paid by
distributors from their pot of consumer subscription revenue, which
has continued to grow despite the downturn.
Without much in subscription fees to protect, broadcasters have
little incentive now to cooperate with the industry's push towards
a so-called "TV Everywhere" model, which would require viewers to
demonstrate through a log-in, or authentication process, that they
subscribe to a pay-TV offering in order to watch their TV
programming on the Internet.
Instead, they have put TV shows online for free in order to
reach the broadest possible audience to power their ad revenue.
eMarketer estimates that online video will be the fastest-growing
ad category this year, with spending up 43.5% to more than $1
billion. By 2013, the firm projects online video ad spending to
reach nearly $4.1 billion.
Currently, however, online TV boasts far fewer ads than
traditional TV programming, and its profitability has yet to
impress investors.
Sanford Bernstein estimates that a show like "The Simpsons" in
prime-time on Sunday night generates about 54 cents per user for
Fox Broadcasting, which like this newswire is owned by News Corp.
(NWSA). The show packs in 18 commercials at a rate of about $30 per
thousand viewers.
By comparison, "The Simpsons" on Hulu makes one-third of that
amount even though it charges advertisers at a higher rate because
it only has three commercials.
Broadcasters hope to add more inventory to their online
programming and use online ad targeting techniques to bring the
business into parity with its TV business as digital video becomes
mainstream. But getting there could prove difficult, and Hulu is
already mulling a subscription model of its own.
"We think that if Web usage of broadcast content increases,
content owners will need to improve their economics by shifting to
a subscription model or by increasing the advertising loads," said
Michael Nathanson, analyst at Sanford Bernstein.
In the meantime, broadcasters say digital video recorders, which
are sold by pay-TV providers and allow viewers to skip through
commercials, are a greater threat to their ad business than the
growth of online video.
Many broadcast companies express support for "TV Everywhere,"
but haven't said whether they'll participate. If popular broadcast
content continues to be available for free, some consumers could be
increasingly tempted to go without a cable TV subscription.
Some of the largest media conglomerates - like News Corp., NBC
Universal and Walt Disney Co. (DIS) - own both cable networks and
broadcast networks, complicating the issue. A spokesman for News
Corp. declined to comment for this story, while Karen Hobson, a
spokeswoman for Disney, said the company was learning more details
about the industry's authentication plans.
"We remain open to the adoption of a consumer-friendly
authentication system that could provide enhanced offerings, such
as a simulcast network or more robust content," said Hobson in an
emailed statement.
NBC Universal spokesman Joe Libonati also emailed a statement
saying it's interested in authentication plans.
"We believe in providing opportunities for consumers to enjoy
content on the Internet, while maintaining and continuing to grow
the dual revenue business," said Libonati.
Time Warner Inc. (TWX) Chief Executive Jeff Bewkes, who oversees
a host of cable networks and announced an early test of the "TV
Everywhere" concept with Comcast Corp. (CMCSA) this week, told
reporters that the proliferation of broadcast content online isn't
a concern for the cable industry.
He noted that the vast majority of viewers subscribe to a TV
service and predicted that "TV Everywhere" usage would surpass
broadcast offerings on Hulu and elsewhere.
-By Nat Worden, Dow Jones Newswires; 212-416-2472;
nat.worden@dowjones.com