VOD Weak Player at Upfront

May 29, 2006  •  Post A Comment

More than ever, the demarcation between what new media means to broadcast networks and what it means to cable networks crystallized during their recent upfront presentations.

At NBC’s upfront two weeks ago at Radio City Music Hall, NBCU Television Group CEO Jeff Zucker rattled off an array of new media extensions for the network-webisodes, broadband premieres, online games, video downloads.

What was noticeably absent from his laundry list, and those of his counterparts at the other five broadcast networks, were video-on-demand offerings for network content.

By contrast, when Mark Lazarus, president of Turner Entertainment Group, took the stage in Madison Square Garden in April, he too touted alternative platforms for TNT and TBS, but Turner’s panoply of digital annexes did include VOD, such as VOD/broadband deals for show premieres and movies.

That slim difference between the two media conglomerates’ show-and-tell events for the ad community suggests that in the new media world, broadband is for everyone, but video-on-demand is not.

“The cable networks are bringing basically all the screens, and the broadcast networks are bringing all the screens except for VOD,” said Tracey Scheppach, VP and video innovations director for Chicago-based media agency Starcom USA. “The reason why is the business model.”

VOD is a more complicated proposition. It requires negotiations between content providers and each of the cable operators, who don’t usually pay license fees for VOD content.

While programmers have aimed to generate ad money with their free on-demand fare, those ads are still largely limited to evergreen or branding messages that live with the content for a few months. That should change in the next year as dynamic ad insertion technology rolls out, enabling VOD ads to be refreshed regularly. But programmers and multiple system operators must haggle over how those additional ad dollars generated through dynamic ad insertion are shared.

Broadband, by contrast, requires fewer hoops. There is no gatekeeper; a network just posts its content online and consumers see it. The broadband footprint is national, ubiquitous and consistent, said J.B. Perrette, senior VP of new media and chief financial officer of NBC Universal Cable.

Broadband is hot right now with consumers and advertisers. The Internet video marketplace is poised to grow from $225 million in ad spending in 2005 to $640 million in 2007, according to market research firm eMarketer, which specializes in the Internet, online marketing and emerging technologies. That’s comforting to broadcasters that are accustomed to making money primarily through ads, whereas cable networks have relied on ads and license fees.Broadcasters insist they are interested in VOD.

“I don’t think it was a purposeful omission [at the upfront],” said Jeff Gaspin, president of NBC Universal cable entertainment, digital content and cross-network strategy. “We were trying to focus on what was new.”

Mr. Gaspin pointed out that NBC Universal has struck VOD deals with Time Warner, Comcast and DirecTV earlier in the year for content from NBC, Sci Fi, USA and other networks.

Despite the obstacles, other broadcasters also are experimenting with VOD. CBS has offered some prime-time shows on VOD for 99 cents since January; earlier this month it began offering some “Survivor” episodes for free, sponsored by General Motors, in four Comcast markets.

“VOD is in its infancy with advertising compared to broadband, which could explain the weighting difference at an advertising function such as the upfronts, but it certainly doesn’t signal less interest,” said a spokesman for CBS, whose upfront presentation included a mention of the network’s GM-“Survivor” VOD deal. “We want our content to be everywhere the viewer is and everywhere the advertiser wants to be-that means broadcast, broadband, wireless and VOD.”

Mr. Gaspin said he expects NBC to continue to experiment with various models for VOD-pay-per-view, subscription and ad-supported.

“Broadcasters haven’t cracked the model yet in terms of how they want to use and monetize VOD,” said Mike Bologna, partner and director of emerging communications for Mediaedge:cia. “There is a lot of cable content on VOD, but I am not so sure how much incremental revenue cable networks are making. Clients and agents are happy, but I think broadcast networks are waiting to figure out what the right business model is,” he said.

They’re willing to do so because consumers are using VOD, now in 25 million digital cable homes, according to Leichtman Research Group. Comcast said VOD generated 141 million views for the operator in March, up from 103 million in March 2005.

Advertisers Interested

Meanwhile, advertiser interest in VOD is rising.

In addition to the CBS/GM deal, Comcast’s ExerciseTV VOD network inked a deal earlier this month with Gatorade.

Mr. Bologna said Mediaedge:cia clients Cingular, Cadbury and Paramount added VOD to their media mixes this year.

Time Warner Cable has added new VOD ad opportunities, such as an American Express-sponsored movie trailer VOD channel, said Larry Fischer, president of Time Warner Cable Media Sales.

VOD’s attributes are engagement, personalization and targeting, Mr. Perrette said. That’s why broadcasters are exploring VOD, though most of that work is behind the scenes.

ABC, for instance, is engaged in “ongoing discussions” with distributors about VOD, said Albert Cheng, executive VP of digital media for the Disney-ABC Television Group.

But broadband is still the topic du jour.

“We talk about broadband and other digital delivery methods frequently because not only are we actively doing things right now on those platforms, but those are the areas where there is lot of consumer activity and interest, particularly with the Millenial demographic [the generation born in the 1980s and ’90s],” Mr. Cheng said.

Indeed, broadband appears to be the preferred new media play for broadcasters, said Paul Rule, president of VOD research firm Marquest Media & Entertainment Research.