Play To Win: TV Nets Test New Compensation Models

The development and trial of new business models that utilize digital interactivity to generate revenues is becoming sport at many media and entertainment companies. And everyone is playing to win. Even as television network and film studio executives wrestle with striking writers over payment for scripted material used in streaming, downloaded and other new media video, they are testing promising compensation models.

A series of up to three-minute shorts detailing background about the stranded characters of "Lost" are streaming for free at Created by the series' regular writers before the strike, it took five months of negotiations to determine how they would be paid for the "Missing Pieces" vignettes, in addition to their established residual income from broadcast programs. Although ABC and Disney management said the new arrangement would not be binding to other new media deals, it most surely will be considered as a template for creative content pacts made for future new distribution platforms and devices.



The movement to create original product for the Web, in hopes that some of it might migrate to television, is slowly catching on. Former Disney CEO Michael Eisner was among the first to successfully explore this option with the creation of the 90-second episodes of "Prom Queen" by his Vuguru virtual production house, which has attracted more than 15 million online views. The eight-minute series "Quarterlife" on MySpace is headed for NBC prime time regardless of the writers' strike, where it will continue to be supported by streaming video and social networking support. While they are not intended or expected to displace television profitability of hit programs, short online formats can "dramatically improve the ad to content ratio and facilitate product placement interests (by lowering entry points)," according to UBS analyst Matthew Coppet.

Common to new business models is concern about their mechanics, measurement and methods. They include such sticky issues as configuring payments based on advertising revenues, user impressions and fees. Although many media companies contend it is too soon to know what most new media businesses will be worth, more metrics become available every day. Just this week, the media buying agency Starcom estimated that the four broadcast television networks will realize $120 million in ad revenues from their nascent online video ventures in 2007. Their corporate parents, including Walt Disney and News Corp., have acknowledged that each will make more than $1 billion in revenues from a variety of new digital ventures this year.

Since the digital universe thrives far outside the networks' realm, lesser-known individual new business models have already demonstrated their viability., Brightcove, Revver and Veoh are among the well-oiled online video-sharing sites with proven business models for facilitating homegrown content. They generally entail 50/50 shared advertising revenues for their creators, who work virtually unrestricted.

The notion of hosting innovative and fresh content does not have to be the radical, unpredictable departure it may have seemed at the outset. If advertisers are willing to bet on some of it, grassroots content may even have a place on broadcast and cable networks looking for new talent. (Isn't that what "American Idol" theoretically is all about?) The new venture by NBC Universal and News Corp.'s Fox is aimed at providing a protected walled garden for the companies' television content. Although the launch of this service has been disrupted by the writers' strike, some analysts are assuming a 75% revenues royalty payment to NBCU and Fox, and advertising CPMs ranging from $10 to $50. The co-owners are offering to pay 10% of revenue distribution fees as an incentive to other content providers to participate, and are making their own video selectively available to other sites. (CBS reportedly has been seeking a 90/10 distribution split, although none of the major players will detail their new business economics.)

Gross margins of only about 15% even under the best of circumstances do not assure profitability at the start, particularly if new product runs dry during a prolonged strike. But overall, the Hulu model has been getting good reviews as a well-thought-out and executed ad-supported distribution alternative to cable, satellite and telco company pipelines.

In recent months, Google has indicated it could become a much bigger player in devising new business models for video sharing and advertising sales. Its announcement this week to provide storage capacity to users was easily overlooked as a ho-hum development. But as video and data mount, both providers and users will need to store it somewhere. A massive storage and display platform, coupled with Google's revolutionary changes in the way advertising is priced, sold, placed and monetized will likely generate new universally applicable business models.

By establishing a Web-based system that allows advertisers to buy ads (as unconventional as a text hyperlink) directly through a keyword search auction, Google has begun to revolutionize the content monetization process and extend online advertising to much smaller, specialized businesses. Google's plans for an open Android operating system for mobile phones extends its voracious ad platform beyond the Internet, television and radio to the so-called fourth screen.

Only now are we beginning to see some of the more constructive applications of Google ingenuity applied to such media sectors as beleaguered newspapers. Just this week, Hearst-Argyle became the first television industry reseller of the Google AdWords advertising program, which its Web sales force will provide to marketers in 26 local markets to help small and medium business connect with new customers through specific product and service searches. This compares with a more conventional approach by Gannett, which has begun targeting advertising to specific Zip codes as part of a Sunday Select section that pairs national and local pre-print advertising paired with select shopping-related editorial content. The new effort does not have an application online, where spending at U.S. newspapers has increased 21% in the most recent quarter, while print advertising continued falling by 9%.

In any event, many traditional media executives, advertisers, content creators and distributors finally appear resigned to make it up and revise as they go. They're betting that comparatively modest revenues from online video downloads and ad-supported distribution models will mushroom into economic staples.

Earlier this week, Goldman Sachs analyst Anthony Noto reaffirmed his forecast for a larger-than-expected economic slowdown in 2008; at its extreme, it could trigger a 10% reduction in advertising next year. Companies willing to push the envelope on new content and advertising creation and distribution could surprise themselves in these precarious times while advancing the digital cause.

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