Can the future of TV be seen on the Web?
By David Lieberman, USA TODAY

July 13, 2005
NEW YORK — CBS News sat on the sidelines during the cable TV revolution, allowing rivals led by CNN, Fox and NBC to dominate the world of 24-hour news.
But determined not to make that mistake twice, CBS plans to launch a 24-hour, Internet-based video news service that will let visitors pick reports they want to watch.

"Internet news is in its infancy," CBS News president Andrew Heyward says. "We're making the bet that the most desirable news consumers (to advertisers) want to take it into their own hands." (Related story: Changes ahead for CBS)

Virtually every major media company is recognizing that as people begin to feed Internet signals to TV sets as well as computers, millions may want to pick news, entertainment and sports they want to see off the Web rather than from packages of conventional TV channels offered by a cable, satellite, or phone company.

"We're right at the cusp" of the Internet TV revolution, says Sanford C. Bernstein analyst Tom Wolzien. "I have talked about this with multiple network presidents and multiple of their big-time producers. All of them are thinking about this."

They aren't just thinking. Programming powers including ABC, ESPN, CBS, Fox News, MTV, the BBC, Telemundo and Major League Baseball already are investing in subscription and ad-supported ventures offering TV-like video online. In recent weeks:

• Scripps, which owns Home & Garden Television (HGTV) and the Food Network, said it will launch 10 Web channels by the end of 2006, beginning with one for kitchen design.

• AOL, which recently served live video from Live 8 concerts, will partner in a joint venture announced Tuesday to offer live music and comedy online, as well as via satellite and other platforms. Also in the Network Live venture: XM Satellite Radio and Anschutz Corp.'s AEG, an arena owner and event promoter.

• At Viacom, cable channel Nickelodeon launched TurboNick, a Web site with episodes of cartoons including SpongeBob SquarePants and Rugrats. Viacom's VH1 also introduced VSpot, which will show the season opener of The Surreal Life before the TV channel.

• CNN ditched its nearly $5-a-month subscription fee to rely on ad support for a site with beefed-up programming. It plans a broader subscription service this fall.

Content owners love the idea of a medium without gatekeepers who can kill shows or reject channels.

"There's going to be television out the wazoo," CNN/US president Jonathan Klein says. He ran online video service The FeedRoom before CNN hired him last fall.

"It'll be pausable, searchable, with all the customizable on-demand advantages of the Internet. It's a future that's not very far away."

Enthusiasts bet that consumers — particularly affluent, tech-savvy ones who are cable and satellite companies' best customers — will take to Internet video. PricewaterhouseCoopers forecasts sales of necessary high-speed connections to rocket past today's 35 million homes to 62 million in 2009.

There are already 10 million more broadband homes than satellite subscribers. By 2009 broadband still will be far more prevalent than such other growing technologies as digital video recorders, video on demand and high-definition TV.

Some in the media industry, however, say there's reason to take a breath and be skeptical.

Cable and phone companies — the leading suppliers of broadband access — probably won't stand idly by while programmers use the Web to make an end run around the video side of their businesses.

And Hollywood has a big stake in the status quo with its thicket of global deals designed to maximize profits for actors, studios, theaters, national TV networks, local stations, cable and satellite companies.

"A lot of the industry was built on this notion of exclusivity for geographic regions. The Internet has turned upside down what a geographic region is," says Blake Krikorian, CEO of Sling Media, a company that enables users to send TV signals they get at home over the Web for viewing anywhere.

Defining rights and responsibilities in Internet video "will be like putting Humpty Dumpty back together again," says RealNetworks CEO Rob Glaser. He expects "more of a 'Shootout at the O.K. Corral' kind of story ahead than 'here's what technology makes possible.' "

One of the gunslingers who sees no need to slap on a holster yet is Comcast COO Stephen Burke. Web video watchers "want short, five-minute clips that are educational or entertaining," he says. "We don't see any sign that it will be a threat to our core cable business."

Still, Comcast and other big distributors are taking no chances: In contract talks, most now insist that programmers agree not to simulcast their shows on the Internet.

While the debate rages, here's what media executives see as they try to assess whether the Internet is ready for prime time:

• Improving technology. Video via the Internet is finally watchable — and getting better.

"We're now approaching TV-like quality," says Paul Sagan, who's CEO of Internet service company Akamai and earlier helped to launch Time Warner's Road Runner high-speed service. "It's not high-definition. But it's pretty good."

That's what David Warwick, a 32-year-old software developer in Austin, decided a few months ago when his VCR broke.

Rather than add to his $120-a-month cable bill for a digital video recorder (DVR), he cut it in half by taking broadband and bare-bones TV service with mostly local stations. He turns to Internet sources for other shows, such as music videos, Comedy Central's South Park and Showtime's Penn & Teller show. "It's a good example of video on demand," he says. "I don't have a schedule that allows me to get home by 7 to watch a particular show."

• Growing audience interest. While Web video is in its infancy, it's getting a foothold in the workplace among people without TVs but with high-speed Internet. Prime time in this new medium: 10 a.m. to 3 p.m. "They check whether the world is OK or some water-cooler thing," says CNN News Services' Susan Grant.

That's not all, as Major League Baseball found after it launched a subscription service offering non-local games online. "Most everyone watches our games while they're at work," says Robert Bowman, CEO of Major League Baseball Advanced Media. "About 70% of our traffic is off the site by 7 p.m. When the Chicago Cubs are playing in the afternoon it gets a tremendous following, because it's during the day on the East and West coasts."

But now the sports audience is spilling into the evening. Internet video is becoming popular with fans of foreign soccer or cricket or U.S. college games. "Sports is probably the killer ap for streaming to your computer," says PricewaterhouseCoopers' Michael Kelley.

• New business models. Internet video already makes sense for programmers whose material has a short shelf life (such as news and sports), for music videos and movie trailers, and for esoteric programs.

Transmission costs are down to about 9 cents an hour per viewer to stream material — and that's dropping as storage costs fall.

Up to now, most of the major players have sought to recoup their costs from subscription fees, but that model has limits. "People are not willing to pay for things on the Internet," Comcast's Burke says.

Hard numbers are in short supply. ABC News Now won't say how many people pay about $5 a month, or $40 a year, for its live reports and archived features. Starz Encore also won't say how many people pay $13 a month to download some of the 300 movies it has to offer. Major League Baseball's 2-year-old, $15-a-month service has about 250,000 customers; 400,000 are expected by season's end.

Living on ads alone

Several programmers say that as total Web ad spending leaps to an expected $17.2 billion in 2009, from $11.5 billion this year, it appears possible that video services could survive on just ad sales.

That's why CNN switched its business model on June 20. "Advertisers are much, much more interested in supporting broadband," says Grant. "We are focused on ... a mass-reach product."

Internet video's ad sweet spot, though, is programming for people with specialized interests. Companies that want to reach them often pay about three times the per-viewer rate they pay on cable.

"There's very little waste," says Scripps Networks president John Lansing. "The dirty little secret is we have no gardening on HGTV. But with broadband we can serve specific audiences with programming that couldn't carry its weight as a cable channel."

ABC News president David Westin says that "as a practical matter there'll be lots of packages" combining free and subscription models as companies see what works best. "This is all very fluid."

Piracy fears

The big question is when the new medium will be secure and profitable enough that mainstream programmers offer their best movies and shows online.

Fear still is pervasive that once a movie or show is on the Web it will spread worldwide without ads or fees, losing its value forever.

"There aren't good digital-rights management standards going from PCs to televisions," says Glaser.

Studios also don't quite know where the Internet fits into their relationships with theaters, DVD retailers, video on demand, premium cable and broadcast networks.

Netflix, the subscription-based DVD rental firm, is running into that as it negotiates with Hollywood over a service to offer films online that it hopes to test this year.

At issue: Is Netflix a DVD service that should be able to transmit videos at the same time a disc is released? Is it offering video on demand, where movies typically are offered about 45 days after the DVD release? Or is it a subscription service akin to HBO and Showtime, which entails an even longer wait?

"Everyone is feeling their way through this," says Netflix's chief product officer Neil Hunt. "The technical hurdles are straightforward and will fall. The content is key to making this work."

But pressure is growing on producers to offer quality mainstream programming on the Internet. "The lack of content on legitimate outlets results in the consumer going out and getting it for nothing — basically stealing it," says Wolzien.

And after seeing how pirates have crippled the music business, nobody takes the Web for granted.

"It's in the workplace and it's at home in a way that's directly competitive with television," Sagan says. "It's setting up the next great battle in media, and the customer is going to be the big winner with more choices than ever before."

Change ahead for CBS
By David Lieberman and Peter Johnson, USA TODAY
NEW YORK — After years of watching its TV ratings fall while rivals took the lead in new media, CBS News said Tuesday that it's making a major commitment to the Internet in ways that could significantly enhance consumers' ability to watch stories on demand.

"We're going to a 24-hour mentality," says CBS News chief Andrew Heyward. "This represents a philosophical shift for CBS News." (Related story: Can the future of TV be seen on the Web?)

Executives say CBSNews.com will have far more original reporting than other broadcasters that also post video reports online, including CNN, ABC News and Fox News.

"We're talking about having the A-team produce for the Web," says CBS Digital Media president Larry Kramer. "I don't see anybody doing anything like this."

Because stories will be prepared for the Internet, they also won't necessarily look or sound the same as conventional TV stories. "We have no desire to do broadcast-like programming," Kramer says. "There's no point."

Visitors to the ad-supported site will be able to create a playlist of news reports on a video player called The EyeBox. There also will be a blog, called Public Eye, providing insights into the news process.

CBS had to do something to adjust to a world in which people are beginning to get news just about anywhere, from high-definition TV sets to cell phones.

It sat on the sidelines as CNN, Fox, and MSNBC charged into cable news. And it hasn't made a big impression on Web surfers. In June, CBSNews.com was No. 17 among current events and global news sites, according to data from Nielsen/NetRatings.

That has been a problem.

"A news organization has to operate on a 24-hour basis, and if you only have 2½ hours a day to fill, you're not working efficiently," says Sanford C. Bernstein's Tom Wolzien, a former NBC News producer. But ABC Digital Media Group general manager Bernard Gershon says, "Content creators are discovering that broadband and wireless are great ways to reach the next generation of consumers."

CBS News correspondent Richard Schlesinger welcomed the announcement. "I don't think anyone here feels threatened," he says. "There were a lot of questions, but like any new technology, it's a new way of doing business. If all I have to do is learn different ways of transmitting stories to reach an enormous new audience, put me down as eager."

Podcasting goes from indie to mainstream overnight
By Michelle Kessler, USA TODAY
Mainstream media companies are starting to dominate podcasts — topping in popularity the quirky independents that created the trendy online radio genre. Podcasts from ESPN, CNN, ABC News and the TV show Queer Eye are among the most popular this week on iTunes, Apple's download site.

That's a huge change. Until recently, podcasts were largely pirate-radio-style broadcasts, often produced by one person on a home PC. Now, podcasts are anchored by such staid celebrities as Rush Limbaugh and Ted Koppel.

Podcasting "went from underground to mainstream overnight," says Ted Schadler, digital media analyst at Forrester Research.

Customers signed up for more than a million free podcast subscriptions in just two days when iTunes started featuring them last month. That includes independent podcasts, such as The Dawn and Drew Show. But the soaring popularity of mainstream podcasts on iTunes may make it tough for indies to find an audience — and profitability.

"Apple and the mainstream media are making a monumental mistake," says Richard Bluestein, who podcasts on YeastRadio.com. They're "repackaging the same boring, heartless and anti-human garbage" instead of focusing on alternative programs, he says.

Podcasting began appearing last year, when its pioneers figured out that talk radio programs could be downloaded with a click of a mouse, just like digital music files. Podcasting gets its name from Apple's iPod digital music player.

Some early podcasts, such as Rob Greenlee's WebTalk Radio, were digital versions of existing radio shows. But most were new. Podcasting is open to anyone "with a laptop and a $6 microphone," Greenlee says. Now the low costs have attracted:

• Los Angeles public radio station KCRW, which podcasts 22 shows it already produces, says General Manager Ruth Seymour. The podcasts are attracting new listeners, which could lead to more donations for the publicly supported station, Seymour says.

• Bravo, the network behind makeover TV show Queer Eye. It strips audio from TV vignettes and turns them into a popular podcast called Hip Tips.

• Disney, which has taken some of the videos on its Web site, stripped out the audio, and repackaged them as podcasts. It also plans to offer podcasts from its regular radio stations, called Radio Disney.

The conflict between big and small podcasters is expected to intensify as interest grows in advertising, subscription fees and other ways to make money. But Michael Rundle, a Cambridge University student who hosts a music podcast, insists there is room for everyone. "Just because some shows might end up with a smaller audience than ABC News, the genius of podcasting means they can still survive," he says.