By Brooks Barnes and Brian Steinberg
WALT DISNEY CO.'S DECISION to offer some of its most popular ABC and Disney Channel shows on the Web free of charge sent various segments of the TV business racing to their corners yesterday to sort out the implications of a move that could turn a decades-old business model on its head.
Advertisers are hungry for opportunities to reach consumers on the Web and several major marketers are embracing ABC's plan. But it is still anybody's guess how consumers will react to Disney's plan to stream ABC and Disney Channel shows with non-skippable commercials on the Internet. Although the ads will be specially designed for the Web -- and will be much shorter than traditional spots -- viewers may still find the interruption irritating enough to tune out. Advertisers that have signed up, including AT&T Inc. and Toyota Motor Co., are taking a leap of faith that this won't lessen the potency of their on-air commercials.
Disney's plan represents a significant shift for media companies as they rush to avoid getting squashed by fast-growing digital media. Until now, companies have largely sought to charge consumers for content, whether it's $1.99 for a download of "Survivor" on CBS.com or $1.99 for a cellphone ringtone of the theme song from the TV show, "The O.C." Companies have said they are trying to control piracy by teaching consumers that TV isn't free.
But the decision to aggressively pursue a free option indicates that media companies see a limit to how much consumers can be nickel-and-dimed for TV content. "Consumers cannot afford to pay for every digital offering that comes out," says Tim Hanlon, a senior vice president at Denuo, a Publicis Groupe SA consulting firm that specializes in emerging media platforms. "It stands to reason that ad messages can help keep these incremental digital content costs in check."
Studios that produce and own TV shows and films face a different quandary. The TV industry is wrestling with how to handle the disintegration of decades-old models of distributing content -- and increasingly deciding to evolve rather than cling to traditional practices. As the TV business grew up in the 1980s and 1990s with the expansion of cable, media companies generated huge profits by doling out TV content one teaspoon at a time. Broadcast networks were given exclusive runs. When ratings fell, TV studios then sold repeats of the shows to local stations and cable channels. After ringing up those sales, a DVD might hit the shelves.
Increasingly, TV companies are opting to collapse those distribution windows and abandoning the fear that distributing programs too quickly will puncture profits. Anne Sweeney, president of the Disney-ABC Television Group, says she doesn't see offering shows on the Internet at virtually the same time as they air as cannibalizing prime-time revenue. "People who missed an episode of their favorite show now have a way to see it," she says.
Analysts see the trend as a way for media companies to improve financial returns: Instead of waiting for years to monetize investments on programming, why not get the "back-end" now?
The news Monday that Disney would make "Alias," "Commander in Chief," "Desperate Housewives" and "Lost" available free of charge on ABC.com -- to be followed by five Disney Channel shows in June -- could have the most impact on local stations, which have long enjoyed exclusive rights to new shows and get a cut of ad revenue from prime-time airings. Many stations are upset that ABC hasn't included them in its online endeavors.
The network briefed station managers by phone yesterday about plans to put shows on the Web -- and promised that it is working to bring affiliates into the loop financially. "The network does seem committed to figuring out a way for us all to walk down this road together," says Deborah McDermott, president of Young Broadcasting Inc., which operates five ABC stations. "It's important that it happens quickly."
Analysts say letting people view hits such as "Lost" anytime on the Web hurts cable operators such as Comcast Corp., which are trying to woo new customers with video-on-demand services that allow viewers to watch certain programs anytime. "The on-demand aspirations of big cable companies have just suffered a devastating blow," says James McQuivey, a communications professor at Boston University.
But cable industry executives meeting yesterday at a convention in Atlanta downplayed ABC's plans, saying the move was positive for cable because it is a sign that Disney also will be open to making the same content available through new forms of distribution that cable is promoting, such as video on demand.
"The more progressive companies like Disney are at changing their (distribution) windows, the better it is for cable," says Steve Burke, Comcast's chief operating officer.
Analysts predict Disney's move will spark a stampede of networks putting current shows online. "Other networks must follow ABC's lead," says Josh Bernoff, an analyst at Forrester Research. "As of this moment, CBS, Fox and NBC are behind."
That's not how they see it. Rivals were reluctant to openly criticize Disney yesterday, but several privately said they don't share ABC's optimism that the initiative won't undercut syndication sales. Moreover, none pledged to alter their current online strategies, which include developing unique programming for the Web and making shows available on as many platforms as possible.
Advertisers say they are anxious to test consumer habits through the re-launch of ABC.com on April 30. Unilever PLC, which will advertise its Suave shampoo, says it wonders whether consumers will watch an entire episode. But the fact that consumers decide when to tune in is important, says Noreen Simmons, Unilever's U.S. director of strategic media planning. "They have chosen to watch, and then they cannot fast-forward through the commercials," she says. "That certainly has an appeal to it."
Disney's move comes just weeks before the "upfront" sales season, when TV networks try to secure ad commitments for their fall programs.
The announcement may be geared to swaying big marketers to give more ad dollars to ABC and other Disney properties, says one ad executive. "Unquestionably, it broadens the discussion" about what sorts of advertising might be possible, says Paul Woolmington, a partner with Naked Communications, an independent marketing-strategy firm.
Peter Grant contributed to this article.
The first 10 TV shows that Walt Disney Co. will be offering without charge
on the Web
-- 'That's So Raven'*
-- 'The Suite Life of Zack & Cody'*
-- 'Kim Possible'*
-- 'Power Rangers'*
-- 'Super Robot Monkey Team Hyperforce Go!'*
-- 'Commander in Chief'*
-- 'Desperate Housewives'*
-- 'I Wanna Be a Soap Star III'
*Some episodes available now on iTunes
Source: the company