By Christopher Lisotta and Jon Lafayette
Deals such as the Warner Bros.-AOL pact set to be unveiled today and the CBS-Comcast and NBC-DirecTV alliances forged last week are laying the foundation for a new syndication window: broadband.
For everyone in the syndication business, this means paying ever more attention to fine print in the deal-making process going forward, experts agreed.
However, unlike buyers’ initially adverse reactions to new windows in the past, stations and other syndie suitors say they are relatively unfazed by the new developments.
Like new syndication outlets before it, this new window is bound to contribute to the extinction of exclusivity, which has long been prized by buyers of syndicated programming as key to getting the most from their investments. But long gone are the days when studios had only the local stations as a market for their series that had hit the magic 100 episodes, securing the minimum needed for a syndication run. Cable’s interest in off-network product added the first competitor to the traditional syndication market and was followed by the popularity of DVDs, which opened up an additional after-broadcast life for series.
Buyers at this point have become resigned to the fact that there’s no stopping the death of exclusivity or the birth of new competition, said Bill Carroll, VP and director of television for Katz Television Group.
“Can the traditional means of distribution-broadcast, cable, satellite-can they be happy when there is a potential next evolutionary change? Of course not,” Mr. Carroll said. “Is it inevitable that the technology will change the way things are delivered? Of course.”
Buyers also see at least a couple of upsides to opening the broadband window. It could possibly take some of the license fee load off. And for now, at least, the most valuable, top-tier product is unaffected.
“It sounds like a lot of the shows are older productions sold on a nonexclusive basis and priced as such,” one top 10 station executive said. “Stations that own ‘Friends’ would scream bloody murder if you could get ‘Friends’ that way.”
One cable network acquisitions executive said that much as stations no longer pay a license fee for shows (it’s mainly barter) because cable foots the bill, if broadband starts paying money for shows, it could reduce the cost of programming for cable.
“What’s the point of us paying for it if it’s available anytime on VOD?” the exec said.
However, another cable network acquisitions executive said he thought the effect on license prices would be pretty minimal. “In this case you’ve got product that couldn’t be sold elsewhere,” the executive said.
“We’ll see what, if any, of the new platforms consumers may embrace in scale. It’s a bit early with unsalable product to say whether it has any impact on any linear business models,” he said. “Everyone’s looking for something new to gain growth, and hopefully in the end the sky isn’t falling.”
For studios and profit participants, the advantage of a new broadband window is clear: It offers access to another revenue stream to exploit.
Major studios sitting on libraries are doing all they can to take advantage of new distribution opportunities, one senior studio syndication executive said. “All studios are looking for a way to enhance the revenue-generating abilities of these properties,” the executive said. “Costs are going up; the cable market is diluted. It’s hard to command the dollars you once could. The very fact that they are turning to VOD and different platforms is a logical extension of that search.”
Warner Bros. Domestic Cable Distribution President Eric Frankel said: “This is just another potential new outlet for all of those programs. That’s exciting, the potential that something like this has.”
Mr. Frankel said deals like the one he completed with AOL will increase the value of shows “because of the interactive capability, the ability to watch what you want when you want.”
“As far as I know, I don’t believe I have seen or heard of the same interactive capability on cable,” he said.
What’s more, broadband deals could give older shows in particular new life, said Chuck Larsen, president of October Moon, a television distribution consulting company that represents rights holders and producers.
“We saw it when cable came along,” Mr. Larsen said. “Nick at Nite and TV Land got shows back on the air and in some cases gained great popularity for shows that hadn’t been seen in years and wouldn’t have been seen otherwise. I think you’re looking at the same kind of model again.”
In part to cover the always escalating costs of television production and partly to keep an eye toward the future, options for broadband rights are being written into some contracts in Hollywood if a show is successful.
“Everyone is waking up to it now,” one distribution executive said. “It’s changing. We’ve changed it for theatricals and we’re changing it for television.”
However, aside from Warner Bros., the major studios by and large declined to identify who in particular at their companies is pursuing broadband licensing deals. They also declined to comment or were unavailable.
Indeed, while the potential may be great, so is the level of confusion over who gets paid-and how-in these deals.
“Are the revenue models in place?” the syndication executive said. “They are being formed as we speak.”
Deals like the AOL-Warner Bros. pact are a very public test market for content providers, because no one knows which format is going to best engage viewers, said Garnet Losak, VP and director of programming at Petry TV.
“Right now everybody who has content is throwing it against the wall to see if any of it sticks,” Ms. Losak said. “They are trying to figure out what methods of distribution are conceivably the most valuable. Everyone is selling a little bit of something to different places because everyone is experimenting. Nobody knows what the American public is going to latch onto as their resource for media. This is all R&D.”
The deal for a show to appear on broadband presumably would be the same from the standpoint of the rights holders as it would be for anything they sell, whether it be to stations or home video, Mr. Larsen said.
In the case of the AOL-Warner Bros. deal, Warner Bros. would keep a distribution fee while the rest of the revenue would go toward the show and its profit participants.
Residuals, however, are paid differently in broadcast and cable.
Because of agreements struck years ago by the creative guilds, cable networks pay discounted residuals on shows compared with those paid by local broadcast stations, a bone of contention that riles station execs to this day, one station group executive said.
“What’s interesting is the great residual disparity between broadcast syndication and cable syndication is still a source of great inequity,” the executive said. “What’s the residual structure of broadband? Certainly cable has wildly favorable residual rate structures, and it will be interesting how that shakes out for broadband. At the end of the day it’s all about, ‘What’s the contract say?'”
This is one reason stations will be paying closer attention to the contracts they sign with the content providers from now on to ensure they have the exclusive window for off-network fare if they are paying top dollar. They will also ensure they’re not leaving open the possibility that the same programming will show up on some new technological platform, the executive said.
“The station community just has to be sharper negotiators and way more specific in the terms and conditions of deals,” the executive said. “The issues of exclusivity are clearly up for negotiation, so we need to sharpen our pencils.”
The lack of precedent means everyone will be treading carefully in experimenting with these deals, experts agreed.
“When you’re a cable network, you’ve
bid a price on a show, you’ve done your homework and you know how much money you’re going to make, and you spend a portion of what you make to get it licensed,” Mr. Larsen said. “But when you’re talking new stuff like this and the iPod stuff that’s been an-nounced, and the DirecTV VOD, all of these announcements, nobody knows.”
Top Five Questions About In2TV
What kind of guarantees has AOL given advertisers regarding In2TV?
Sources said AOL is projecting 4 million ad impressions in ad packages for In2TV. (Its Live 8 webcast was seen by 5 million unique viewers on July 2.)
How will the new service be marketed?
In2TV will be promoted with online media, including paid search ads, and an off-line TV and print campaign.
What is the measure of success for this effort?
What else? Whether AOL turns a profit.
Are other studios likely to start making deals like Warner Bros.’?
Yes, but not immediately. They will wait to see how this works out for AOL.
Is Warner Bros. likely to make similar deals with other Web portals?
Yes. The studio has rights to many more hours of television, but the details of the deals can require extended negotiations. The In2TV deal took two years to complete.