Media Giants’ Big Broadband Push

Major players "stream" into market with free, expanded services

Four media giants are rolling out free video- and audio-streaming products for broadband users, signaling a renewed confidence in online advertising.

“The main reason we were able to do this is the resurgence of the online-advertising market,” says CNN President Jon Klein of the network’s decision to dump the $4.95 monthly subscription fee that has been in place since 2002. “There have been huge increases in online budgets in the past year.”

Streaming-related ad spending will hit $1 billion this year and grow to $2.28 billion in 2008, according to eMarketer, a firm that tracks e-business and technologies.

Tech-Savvy Subscribers

Advertisers are only now discovering the potential of reaching tech-savvy subscribers through the Internet. eMarketer estimates that U.S. broadband Internet users currently number 86.5 million and will hit 157.3 million—about 56.3% of homes—in 2008. “The broadband audience is reaching critical mass, and online advertisers are beginning to find value for money with rich-media advertising,” says Ben Macklin, senior analyst with eMarketer.

It is that growth, which is expected to be consistently around 35% a year, that has ABC News, Scripps Networks and TV Guide rolling out new broadband products, too. This week, ABC News will be the first major-media news organization to embrace one of the industry’s biggest trends: podcasting.

Podcasting allows users to download audio files—such as newscasts or even books—to a PC to be transferred to and played on portable media players. A recent survey by the Pew Internet & American Life Project said 6 million people have downloaded at least one podcast.

Scripps will launch three broadband “channels” this year and, according to Burton Jablin, Scripps Networks executive VP of programming, will have as many as 10 within two years. First up is a channel devoted to kitchen design.

“We’ll be growing our staff a bit and shifting some resources to make these channels work,” Jablin says. “And we’ll be piggybacking the broadband channels on the thousands and thousands of hours of material we produce for the TV networks.”

The TV networks aren’t the only ones gearing up for the day when broadband customers demand more than just speed. Two years ago, TV Guide saw that more than 80% of the visitors to its site were coming in over broadband connections. Broadband video was quickly added, including extended show previews for series like Lost, 24 and The O.C.

Now the company is launching TV Guide Spot, an area on its site dedicated to broadband users, with original content called “Spot Catchups” that lets the viewer find out what happened on a program like Deadwood without having to watch old episodes. “It helps them understand the premise of the show, and we produce them ourselves,” says Dave Bovenschulte, TV Guide online VP.

While ad-supported streaming may be hot at the moment, it doesn’t mean subscription models will vanish. Klein says premium subscription products will return to sometime this fall. “The onus will be on the service to provide the kind of material you can’t get for free, and that’s what our guys are working on right now,” he says. The pay service will be offered as a more in-depth alternative to the free content., for example, still keeps all of its video content behind a pay wall. ABC News Now was created specifically for broadband users. “We were the first and only to create that type of product,” says Bernie Gershon, ABC News Digital Media Group senior VP/general manager. “And as we move forward, you’ll need more broadband-only content with special talent and interactivity.”

Hybrid Models

Most media companies have mulled hybrid models: a mix of advertising and subscription revenues. Cable operators could also pick up the subscription tab for such video streaming for the consumer and use the service as a way to outsell satellite competitors. Comcast and SBCYahoo, a DSL service, offer subscribers ABC News, for example, while a group of cable operators, including Charter and Adelphia, offer ESPN360, a broadband-only product that gives users a chance to check out exclusive interviews, previews of events and other content. Simple broadband access isn’t enough for sports fans, says Tanya van Court, ESPN Broadband and Interactive Television VP/general manager.

Growing Competition

Van Court doesn’t think relying on consumers to pay for content can be supported long term: “There are a lot of paid services, but there is only so much share of the wallet consumers can give up.” And that is just on the Internet. There is also growing competition from mobile-phone pay services—including ESPN’s own branded cellphone service, which is expected to hit the market later this year.

Both van Court and Klein mention another factor that is opening up opportunities: As compression technology evolves, the quality of the video-streaming experience continues to improve, making it more attractive to subscribers and advertisers.

“One of the big 'aha!’ moments at a focus group we recently did was how superb they all thought the video quality was,” says van Court. “We’re putting a lot of effort into making sure the stream isn’t fuzzy.”

Klein says the technology is easier to use, too: “All of the main obstacles have been eliminated. It’s the content creators who are now free to let their minds wander and capture the imagination.”

The trick now for media companies is gauging when to jump in. A premature commitment could mean millions of dollars in wasted money.

“The hard part for me is predicting the pace of change,” says Disney Internet Group President Steve Wadsworth, who is constantly evaluating interactive TV, broadband services and mobile-phone opportunities.

“I believe all these things will radically change how we engage in entertainment. But the timing is the tough one,” Wadsworth says. “Will it change radically in five years? I don’t know. But our goal is to be ready to move very quickly as we see consumer adoption and demand for these services grow.”