Online Education

Cable operators find a lesson in ABC's Web deal

There's an important lesson to be learned from ABC's planned giveaway of its top prime time shows on the Internet. It has nothing to do with Web surfers, advertisers or cannibalization of the Disney network's Nielsen scores. No, Disney's Bob Iger and Anne Sweeney are clearly indicating terms that cable, satellite and Web TV players will have to meet if they want to have the best shows from ABC.

Next month—just in time for May sweeps—ABC plans a two-month trial offering recent episodes of such shows as Lost, Desperate Housewives and Commander in Chief for free on New episodes will be available on-demand the day after they first air on ABC.

Separately, Disney's Soapnet is creating a broadband channel initially available only to Verizon DSL subscribers but soon to be offered to cable operators' own Internet service.

What's in it for operators?

Some cable executives were irritated by Disney's timing: Anne Sweeney, co-chairman, media networks, Disney, made the announcement during the National Cable Telecommunications Association's annual convention, which is largely devoted to showcasing the cable industry. Sweeney—who's in charge of both ABC and Disney's cable channels—effectively yanked the spotlight to the broadcast side of her portfolio. “She timed this to steal our thunder,” said the exasperated president of one major cable operator.

Cable will get over it. Operators are glad to see Disney laying out terms for use of the very shows they want to put on their video-on-demand (VOD) systems.

When they cut a deal last fall to put top ABC shows on Apple's iTunes, CEO Iger and Sweeney showed that they're willing to sell their best stuff for $1.99 per episode. Now they're letting cable operators see one way they might offer those shows to subscribers without additional charge.

Insight Communications CEO Mike Willner says the ABC shows are “not going to be available on one medium, and not available on the one that reaches the most households with the easiest access to programming.” The largest cable operator, Comcast, is just weeks away from securing ABC product on VOD as part of broader negotiations for carriage of ESPN, Disney Channel, ABC Family and other Disney networks.

But these are the two most important elements for TV players: First, ABC is trying to preserve its ad model by allowing online viewers to fast-forward through the program but not through the commercials. Second, ABC is keeping all the ad revenue for itself.

That presents a problem for cable operators. While they've long presumed that restricting commercial skipping will be part of any deal for strong broadcast-network programming, many system executives have sought to control ad sales, or at least get the most generous split on revenues. Disney seems to be drawing a line.

Sweeney was almost giddy about the plan. Still, standing in her booth on the convention floor, she wouldn't talk about what kind of cable deals might lie ahead of the online test. “This is a great learning opportunity for us,” she said, enumerating what Disney executives hope to learn: What patterns will emerge from Web surfing? How might Web viewing help ratings on the main ABC network? Will viewers click through on interactive commercials inserted into the feed? Will advertisers be encouraged enough to pay substantially for Web video?

I'm just as interested in how the deal will affect other outlets for ABC's programming. Will online runs crunch the value of ABC's hits in syndication? It already trimmed the price tag for Desperate Housewives' recent auction to Lifetime. Disney's Touchstone Television had been seeking $1.2 million per episode, but Lifetime is paying around $500,000, which includes the right to repurpose new episodes shortly after they air on ABC. That alone is worth $100,000 to $150,000 of that price. (Turner Broadcasting came in second, bidding just $350,000 per episode, but didn't want the repurposing rights.)

An executive familiar with the negotiations says that, even though Lifetime is half-owned by Disney, the cable network's bid was depressed because of anxiety over all the extra runs online and—almost certainly—cable and satellite VOD. Online exposure might also eventually affect DVD sales.

Sweeney dismissed talk of friction with other distributors. “Everything that we do in the technology space is additive to the television platforms,” she insisted. “That's where we put our programming dollars; that's where we put our marketing dollars. If we venture into the broadband market, it's critical that we not only make smart deals but figure out how to market back to our primary platform.”

What about station affiliates? After all, a viewer watching Lost on is probably one less viewer of an ABC station owned by the likes of Scripps, Hearst-Argyle or ABC itself.

Sandford Bernstein & Co media analyst Michael Nathanson notes that Disney can afford to experiment with new TV models more freely because its owned-and-operated station group is smaller than that of NBC or CBS—10 stations compared to CBS' 38 and NBC's 30.

Sweeney said affiliates should not expect payments as they lose exclusivity. “It's a brand-new world. Old business models do not apply,” she said. “Not everybody likes old business models. There are a lot of people who are up for the future.” She believes that the online run will bolster affiliates by letting occasional viewers catch up on episodes they missed on the first run.

A few steps away on the floor of the convention center, the president of a cable-network group shook his head over the online plan. He believes that Iger's primary motive is not financial but “to be seen as a pioneer.” For years, Iger was regarded as a highly paid underling to imperial Disney CEO Michael Eisner. Now he's casting himself as a bold decision maker, a role for which few in the industry thought he was suited.

More than just a program supplier

Sweeney called the cable president's characterization of Iger as “untrue and unfair.” Disney is particular about who it will partner with on new-media projects, she said, it and wouldn't rush into all sorts of deals. “You haven't seen anything between the iPod deal and today for a reason,” said Sweeney.

She wouldn't say who didn't make the cut and why, but it's easy to see how Google Video and Yahoo! TV failed to measure up.

This experiment will surely end in the summer when ABC's big shows go into rerun mode. But expect the prime time-online plan to be firmly on's fall schedule. Because the real lesson for everyone—particularly any irritated broadcast-station affiliates—is that once TV goes online, it'll never go off.

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