Fox Broadcasting Co. is in the early phase of discussions with its program suppliers to obtain rights to experiment with distributing Fox Network shows in a promising new after-market being created by video-on-demand technology.
In exchange for those rights, Fox is offering to shorten the window for the release of the same shows on DVD, which is another rapidly growing new market that is already producing significant ancillary revenue.
“People are acknowledging that video-on-demand is an area that has to be pursued,” said Ira Kurgan, president of network business operations at Fox Broadcasting Co. “We’re just dipping our toe into this as we look at the changing landscape. Hopefully, we’ll all start experimenting and learn from it.”
VOD, which is built into most of the new digital cable and satellite TV systems, allows viewers to choose movies or TV shows at any time of day or night by using an on-screen menu. It is controversial because like TiVo, VOD allows viewers to watch shows out of their normal time schedule.
Fox and 20th Century Fox Television are already experimenting with the new technology. They are in talks to extend for a third year the deal with Cablevision Systems in New York to use the drama “24” as part of the multiple system operator’s field testing of VOD. The FX cable network, a sister channel to Fox, has also licensed its hit show “The Shield,” produced by Fox TV Studios, to be used as part of the tests. The first year of the test the two shows were offered to viewers for free. The second year viewers had to pay $19.95 for a full season of either show or $1.95 for individual episodes.
Rights deals are easier to iron out when the studio producing the show and network airing the show are part of the same corporate family. But studios are interested in the potential of video-on-demand, so they are showing an increasing willingness to work with outside companies to develop an economic model that would benefit everyone.
“VOD is more of a speculative business at this point,” said David Kissinger, president of Universal Television Productions. “There is no proven market for television series VOD, but everybody wants to make sure that should that turn into a real market, they will get their fair share of it.”
Part of the problem is that only about 11 percent of homes have VOD capabilities today, and no one can predict how fast, or if, it will become as common as VCRs and DVD players.
Another issue is that more than two parties are involved in any VOD deal. The producer, the network, the cable operator and the show’s profit participants all have to agree to add this as a distribution window and then agree on how to share VOD revenue.
“I understand that there are conversations going on with various studios about figuring out how to experiment with VOD,” said Bruce Rosenblum, executive VP, Warner Bros. Television Group. “The problem today is that we have no idea how big the revenue pot will be. Until you have some testing out in the marketplace that shows you what your buy rates will be and will show you what price point the consumer will accept, you can’t apply your model to figure out how much potential revenue there is three, five or seven years from now.
“Until you can model this out with a reasonable guess as to buy rates and price points,” added Mr. Rosenblum, “it’s sort of premature to ask anybody to sit down and say, `I want a third, and I want 25 percent and I’m only entitled to 5 percent.’ I don’t think you can have that conversation until you have a sense of how big a pie you are divvying up.”
If the studios agree to let a network do VOD tests with their shows, most say there would be a strict time limit on how long the experiment period could last. And the studios are demanding something in return-even beyond a share of revenue. That is why Fox is said to be dangling the idea of letting its suppliers release DVDs of a TV show as soon as the end of that show’s first season, instead of waiting four years, which is the traditional window for a home video market release.
Even that is in contention. Some studios take the position that they can release DVDs immediately after a show’s first season because there is no language in the license fee agreements that specifically prohibits them from doing so. Networks take the stance that they have exclusivity of a show, in all distribution windows, for the term of the license fee agreement unless they specifically give the studio permission to repurpose the show in any way. It all depends on whether one interprets exclusivity clauses as applying to DVD releases.
“It’s a gentleman’s good-natured, good faith dispute,” Mr. Rosenblum said.
As the revenue from DVD releases mushrooms, those windows have become enough of an issue that studios and networks are now starting to include terms in license agreements for new shows.
Numerous DVDs have been released soon after the first season for popular shows such as Fox’s “24” and ABC’s “Alias,” but both are produced by sister studios, so revenue drops to the same bottom line.
But it’s not unheard of for a studio and network not in the same family to work out a deal. For example, 20th Century Fox worked with The WB to release DVDs of The WB series “Angel” sooner than four years. 20th put a sticker on the DVD packaging telling buyers to watch “Angel” on The WB.
Some argue that it would be hypocritical for a network to allow its sister studio to release a DVD after season one, but not allow a nonrelated studio to do the same.
“The precedent generally creates the standard practice,” Mr. Kissinger said. “There have been a number of examples of television shows being released on DVD at the end of their first season. As that becomes increasingly industry practice, you’ll see that that being recognized in the deals.”