Stream 2

Old media may have survived Round One of its battle with new media, but the sequel promises to be more challenging
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It wasn't very long ago that"new media" struck terror in the heart of the established media business. Despite enjoying great success, it was suddenly "old media." Untold millions (maybe even billions) of dollars later, as old media attempted to get a foothold in new media and new media simply attempted to get a foothold, the phantom menace of new media seems to have become a real-world mess.

There are several sequels left to this saga. What's the next episode? The high-speed Internet future is coming. And its arrival will usher in a new era of uncertainty and a potential threat to the business models that have defined traditional media. For example, what happens when the vast majority of U.S. households have access to high-quality, low-cost streaming media that is available for viewing not on a PC but on the TV? The familiar boundaries between broadcast, cable, satellite and programming will shift, creating a new landscape. And many of the partnerships that are built around the concept of content owners and distributors could be fractured as the Internet provides content owners a way to reach the television sets of viewers without the help of traditional distribution methods.

The advent of broadband distribution seems little different from when cable and satellite came on the scene. But broadband distribution may mark a fundamental shift in the core broadcasting business model, according to Geoff Reiss, senior vice president of programming, production and operations for ESPN Internet Group.

"Traditionally, the National Football League has been a wholesaler," he says. "They sell rights to their product to retailers, over-the-air or cable. Those networks retain the consumer relationship."

Broadband, however, opens other opportunities. "What this new distribution theoretically allows is for these content providers to create hybrid business models where they're both wholesalers and retailers."

By this analogy, ESPN is something like a value-added reseller. On June 10, the company announced a new Internet streaming service tentatively named ESPN Broadband. The value added here for the audience is raising eyebrows with cable affiliates concerned about losing eyeballs online (see box at right).

When it comes to investigating the revenue opportunities broadband may provide in the future, it's the professional sports leagues that are taking the lead. No doubt, they have an opportunity to capitalize on sports fans' passions, which can result in fans' being more than happy to pony up $9.95 for the right to listen to Major League Baseball games when they're away from their home market. MLB reports that they have signed up 80,000 subscribers, with additional subs signed by Real Networks (that number is not public). Sports has a "miss it and you've missed it forever" quality that entertainment programming can't match and that sports-content providers can exploit.

But don't expect any serious movement to the Internet to happen overnight, says Joe Ferreira, vice president of programming for SportsLine.com. "It's going to be very difficult for a content provider to completely switch off of large revenue streams like those from network television to this new medium," he says. "The business infrastructure based on advertising, subscriptions, whatever, will have to be completely in place so that there's no loss of revenue for a year or two."

Testing the waters

Are the sports leagues eager to make a move towards distributing content via broadband, without the help of traditional networks? "We've been testing the waters, exploring the marketplace," says Peter Brickman, senior director of broadcast operations and technology for the NFL. "Traditional models of distribution still work very well. We always want to be ready if there's a shift."

The National Basketball Association has pursued a more aggressive strategy. For several years, NBA.com has offered the Audio League Pass, a subscription service for live audio feeds of games. A deal with RealNetworks last January makes that and the content from NBA.com TV, the league's digital television network, available to RealPlayer GoldPass subscribers.

Gregg Winik, executive vice president, programming, and executive producer, NBA Entertainment, says this all remains experimental. "Yes, we're interested in testing a lot of different things," he says. "But until we understand a direct-to-the-consumer business model, we're not making any drastic decisions. The networks are still the greatest way to reach the largest number of people in a cost-effective way."

The NBA's most ambitious test came in April with a free live video stream. Isn't that giving away the store while broadcast partners are paying for the rights to the game? "Almost 40% of our Internet hits come from out of the country," says Winik. "We thought it would be a great way to reach the global audience with this test."

Winik says that, so far, no one has cried foul. From the NBA's view, adding additional distribution ultimately benefits the audience. "The more competition out there [among distribution channels], the more everyone pushes to find ways to get fans closer to the game," he adds. "We have to make sure we're available on whatever platform people want to engage."

Tradeoffs

Competition among distribution channels may be good, but there are tradeoffs. "Exclusivity is what drives the price up. Once you undermine the exclusivity of the broadcast rights, you've changed the business model entirely," says Gary Zenkel, senior vice president of business development and marketing for NBC Olympics. One of the problems is that Internet streams cross the national boundaries that define the IOC's broadcast agreements.

"Unfortunately, until there is some kind of geographic limitation to such signals, no one's going to be streaming anything of the games competition," says David Aikman, the IOC's marketing and business development manager. "We've kept that off the table until the day there are some solutions."

The IOC has, however, experimented with broadband distribution, which does provide the necessary geographical limitations that Aikman mentions.

"We don't see [today's broadcast model] as the correct and long-term solution," says Aikman. "We see it as a stop-gap. We've signed agreements with our broadcasters through 2008, and after that, all bets are off."

So far, most of the maneuvering has been posturing and positioning. But the real game is about to begin. "The first big contract reflecting this new world will be the NBA deal that's currently up for negotiations," says ESPN's Reiss. He doubts that negotiations will create a one-size-fits-all resolution for other sports, but some patterns will emerge. For example, it's unlikely that the leagues will ever "go direct" with top-tier properties. That's because the networks do not justify blockbuster events like the Super Bowl strictly on a profit-and-loss basis.

Outside of the sports arena, broadband is beginning to exert an equally powerful influence on the entertainment industry. "It's an opportunity for content creators to totally circumvent traditional distribution," says Rene Balcer, executive producer of Wolf Films' Law & Order: Criminal Intent.
"Studios USA could just park a big computer in the basement and hook up the whole library to the Internet. People wouldn't have to go through the network or A&E or anybody."

Making that profitable is another matter. "A show like Law & Order
costs about $2 million an episode to produce," she explains. "You'd need at least 2.5 million people paying $1 each just to make it practical."

Given the economics, producers aren't likely to abandon partnerships with TV networks anytime soon, according to Peter Jankowski, co-executive producer of Law & Order: Criminal Intent, Law & Order: Special Victims Unit
and Arrest & Trial. "You put up $10 million for 13 episodes of a television program, and you've got to know you'll get a large portion of your investment back," he adds. He sees the real opportunity for Internet distribution cropping up after the first run on the network. "I think syndication is the place it will take hold first. Once the show is out there, then your investment is more controllable. You have more room to experiment."

Attention warranted

Dennis Williamson, senior vice president for Belo's Television Group, sees concern about online intrusions starting to surface at the station level.

Since Belo's TV properties are mostly network affiliates, this hasn't been a major issue. Contracts for the first-run programs carried are relatively short-term.

"If we were signing up Friends
on a five-year deal, clearly there would be some discussion as to what exclusivity we would have in our market for that contract," he says. For Williamson, the real opportunity afforded online is leveraging localism.

As for whether broadband will provide an outlet for content that doesn't make it on the TV networks, David Grant, president of Fox Television Studios, doesn't see this as likely. Those talented enough to make quality television for a middle market will not stop short of the big time. "The system is set up to drill for oil," he says. "Nobody likes to go out and just dig 5 feet deep. They bring out the big rig and drill all the way down. They're willing to deal with a dry well to hold onto the promise of hitting a gusher."

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