IPod Deal Rocked TV’s World

Oct 9, 2006  •  Post A Comment

In the summer of 2005, Apple Computer CEO Steve Jobs came to Disney-ABC Television Group President Anne Sweeney’s Burbank office to show her a new device that he claimed would revolutionize the television industry.

The device was a beta model of the video iPod, and Mr. Jobs had pre-loaded the player with an episode of “Lost,” according to Ms. Sweeney, who also serves as co-chair of Disney Media Networks. For a few hours, Mr. Jobs walked her through the features of the device and explained how shows could be promoted and sold on iTunes, just like music.

As Mr. Jobs demonstrated the iPod playing her hit show, Ms. Sweeney had a “Lost”-style flashback of her own-to a staff meeting the morning after the first-season finale of “Desperate Housewives.”

The mood at the ABC meeting was euphoric. After a multiyear ratings slump, the network rebounded with two breakout hits-“Lost” and “Desperate Housewives”-that gained both critical acclaim and chart-topping Nielsens.

Then Vince Roberts, head of operations and engineering for the ABC cable networks group, played a DVD for the staff. It was the “Housewives” finale, with great picture quality and no commercials. Mr. Roberts said he downloaded it for free off the Internet an hour after the finale premiered.

“At that moment we realized that it’s one thing to look at our competitors; it’s another to look out there and realize there’s a competitor you can’t see, and that’s piracy,” Ms. Sweeney said.

Looking at the video iPod Mr. Jobs gave her, Ms. Sweeney knew she didn’t face a choice of whether to makes episodes available online, but a choice of whether to try to monetize online distribution of ABC content.

Assembling the deal that Mr. Jobs and Ms. Sweeney’s boss, Walt Disney Co. CEO Robert Iger, ultimately announced in October 2005 was tricky. Due to Apple’s secretive development process, Ms. Sweeney was allowed to involve only a handful of people. Everyone signed nondisclosure agreements.

At the time, the secrecy seemed merely an annoyance. But after the announcement, angry reactions by station owners and advertisers left out of the loop gave the Disney-iTunes deal a worrisome spin.

Partly in an effort to compromise, ABC launched with its affiliates a two-month trial this summer in which shows were made available online. The company followed the trial with the launch of a broadband player last month that streams entire episodes of select shows at ABC.com, with national and local ads included.

Ms. Sweeney spoke with TelevisionWeek last week about the architecture of the Disney-iTunes deal. An edited transcript of the conversation follows.

TelevisionWeek: What reaction did you expect when the announcement went out?

Anne Sweeney: My inclination in doing it without a [non-disclosure agreement] would be to call stations and advertisers and tell people. It broke a lot of china. For all of the talking we had been doing the year prior about digital media and what it could mean, suddenly we knew what it would mean. We could see it. There were many people who were upset about it, and couldn’t understand it. I went and put video iPods into as many hands as I could.

TVWeek: Has it surprised you that the deal became a frequently referenced sea change moment?

Ms. Sweeney: No, because it truly was. People had been talking about digital media for so long, but nothing had happened.

TVWeek: You made a speech at the National Association of Broadcasters conference this year about reaching out to affiliates more, and now that you’re doing local ad insertion on your broadband player. Is your sense that affiliates are mollified?

Ms. Sweeney: We’re now all figuring this out together. We started with ABC.com tests in May and June and five of the affiliates came in. … Everybody is engaged with the success of this player.

TVWeek: How does ad revenue per viewer compare online to broadcast?

Ms. Sweeney: When we did this test, we learned that 84 percent of the people who used the player felt that watching the shows with ads was a very good deal. But an even better statistic was that 87 percent recalled the ads they watched. And we didn’t see any cannibalization of our first two platforms by adding the player or by adding iTunes.

TVWeek: There’s been lot of discussion about which new distribution model will become standard. Which would you bet on?

Ms. Sweeney: We’ve been looking at it as the different ways we serve our viewers. The average viewer of a hit TV show sees only six to eight episodes per year. So by providing them a way to catch up, or a way to own and watch on their computer, superserves them the same way the Internet serves them with pirated versions of our shows.

TVWeek: What’s the next sea-change deal coming down the pipe?

Ms. Sweeney: We’ve been very active outside the U.S. in mobile phones. … The statistics around the world about mobile phones are absolutely staggering.

TVWeek: In five years, what will be the biggest change in the digital evolution that ABC made?

Ms. Sweeney: You’ll see the wireless platform more evolved than it is today in the U.S. … Beyond that, we will certainly see version 4.0 of our dotcom player … Disney Channel has a multilanguage player, which is something you’re going to see more of.