Nielsen: On-Demand Deals Mean Money To Be Made Right Now

At the close of this year, on-demand programming deals have surely become in-demand.

With so many high-profile on-demand business deals made at the close of this year, few have been able to catch their breath when it comes to analyzing the economics of the suddenly hot business.

In making these deals, TV and media executives talk about how they really don't know what shape the market will take. But a report by Nielsen Entertainment says on-demand deals are, in fact, based on existing media businesses--such as DVD--and thus are a lot closer to making real money for media companies.

The first of these major deals--the ground-breaking Walt Disney Co.-Apple iTunes Music Store deal--shows that its economics are similar to what content owners receive for DVD sales, around $1.36 per episode. That deal is to have the iTunes Music Stores sell already-viewed Disney network and cable programming to be seen via downloading on portable devices like the new video iPod. Content owners, such as Disney--and NBC Universal, which subsequently made a more extensive iTunes deal--probably get a 70/30 content/distributor split of revenues from the $1.99-per-episode retail price for a commercial-free episode, according to Nielsen. This is better than the near 50-50 split record labels get for downloading a 99-cent song.

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According to Nielsen, right now there is no evidence that program downloading has led to any loss of viewership for those shows that run on Walt Disney's broadcast or cable channels. In fact, ratings have risen somewhat on ABC since the time of the deal.

Concerning video-on-demand--for which CBS has made a deal for some of Comcast Corp.'s cable systems--Nielsen says strong-performing movies at the box office perform at the same level in VOD and pay-per-view windows--with each individual movie title topping out at around $10 million. VOD and PPV split this revenue 50-50--although PPV's universe is three times that of VOD (60 million for PPV; 18.5 million for VOD). This suggests that VOD is the faster-growing media tool, says Nielsen.

Free VOD channels--like the ones Comcast has running now--can also be a money-making medium, says Nielsen. Right now, a VOD channel with 10-hours programming can generate $5 million in advertising revenue per year. Nielsen recommends that $2 million per year be spent on programming. This anticipates existing data that has more successful shows generating at least one view per month for every 10-12 VOD households.

Nielsen says that the foundation of the on-demand world was created some years ago when media companies began selling DVDs of popular shows--all this to more quickly bring down the typical deficit financing that producers went through when traditionally launching a network show. Those programs typically ran deficits throughout their network TV runs, only to get profitability for their producers from syndication and/or cable runs years later.

Now, any iTunes Music Stores' or VOD or DirecTV deal will give consumers quicker access to shows that have already had their initial airings on network. Instead of waiting years for reruns, now with on-demand deals, consumers only need to wait until the next day after a program's network airing.

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