The Programming Edge — Over the Air, Cable or Internet

Part of the NAB 2001 Coverage series
By Sean Chercover

Away from the anarchic din of the slot machines, the frantic flashing of lights and the half-naked women bearing free drinks, a sober crowd of more than 1,000 gathered to listen to ABC newsman Sam Donaldson and a panel of experts at an NAB Super Session called "The Programming Edge — Over-The-Air, Cable or Internet."

The general consensus was that, with advertising revenues down and production costs up, television programming is in a state of crisis.

Fragmentation fallout

Sam Donaldson sees the issue of the proliferation of media outlets, including the Internet, as the driving force behind the major shift in television programming, and throws the question to the panel for discussion.

Garth Ancier, executive vice president of programming for Turner Networks says that, even without the Internet, the recent fragmentation has been extreme. "When I started in this business, the three networks would routinely split a 97 share. Now, the average person has 85 channels to choose from... those three networks would be lucky to split a 40 share."

"We are evolving from a world that was once pure broadcasting to a world that will include a great deal of narrowcasting," says Creative Artists Agency's David Tenzer. "It poses great financial and business challenges... there is pressure on the business models that came out of a world of pure broadcasting."

Caryn Mandabach, of Carsey-Werner-Mandabach, suggests that this doesn't have to be a big problem for producers, as long as they're flexible and willing to produce for any media, including the Internet. "We see ourselves as content producers, irrespective of the medium," she says. "Whatever it is, television, cable or Internet, I'm a content provider, pure and simple."

"[FCC Chairman] Michael Powell has said publicly that over-the-air broadcasting is going to be a thing of the past," says Donaldson, which causes a murmur throughout the audience. "Do you believe that?"

"I don't believe that," answers Ancier. But he points to a recent prime time casualty to illustrate the gravity of the current situation. "We just lost an hour drama today, Buffy The Vampire Slayer. It cost $1.8 million [per episode] and our revenue for that show was $1.8 million. We weren't willing to go above our revenue to keep that show on the air."

Ancier explains that, for the last decade, the cost of programming has continued to escalate while the television universe has become increasingly fractionalized. Now, advertisers are not willing to pay as much, and broadcasters simply can't afford to spend as much for programming.

"I absolutely believe that there will always be over-the-air broadcasting and cable networks," says Tenzer confidently. "The history of the media business suggests that new media doesn't eliminate old media... television didn't push radio off the map; it didn't get rid of movies."

"Okay, but with fragmentation today, there's not an audience of 20 million people available every night," interjects Donaldson. "How are you going to make any money?"

Ancier suggests that broadcasters are going to have to tier their programming and sell cumulative ratings figures to their advertisers. "When TNT runs a movie, they run it twice in a 24-hour period to get enough audience that will generate enough ad revenue."

TiVo trouble

Sam Donaldson asserts that, with the proliferation of PVRs, (Personal Video Recorders) the tiered-programming business model will soon not make sense. "If I can set my TiVo to record a movie on TNT, why run it again?" he asks. "I'm not going to watch it."

Ancier insists that PVRs have not reached enough market saturation to change viewing habits, but admits that, "when they reach critical mass, then we're going to be looking at a very different set of facts."

The other disconcerting thing about PVRs is that they give users the ability to time-shift. Not only can viewers record shows to watch whenever they like, they can also skip commercials entirely.

Donaldson points out that commercial breaks have always been accompanied by a sudden surge in toilet-flushes across the nation, "yet we said to the advertisers, 'look at the ratings we had for that show.' But the efficiency of PVRs in screening out commercials will not go unnoticed by the advertisers."

Caryn Mandabach sees a return to the old style of sponsored programming, where the sponsor's message is built into the show. "They're going to have to find a way to beat [these challenges] and they're going to have to put more money into marketing, than in advertising," she says. "And I think that's a great thing."

In the interest of full disclosure, David Tenzer announces that TiVo is one of CAA's clients, but he concedes, "the entire financial underpinnings of the television broadcasting business is eyeballs in front of a set. The quality and quantity of the eyeballs isn't quite what it used to be."

But Tenzer declares that advertisers are "smart people" and will figure a way to get their message across.

"I'll be the one person who says that it scares me to death," says Garth Ancier. "I think it's extremely terrifying... I think we have to re-examine how we make and exhibit television programs... programmers will have to find additional windows to exploit the product." He suggests that, in the very near future, broadcasting revenue alone will not be able to support shows like Third Watch and The West Wing.

The Internet and iTV

David Mandelbrot is the general manager of entertainment for Yahoo! He sees the PVR phenomenon as another reason why broadcasters should stream their content over the Internet.

"We control what the viewer sees, back at the server," Mandelbrot says. "There's really no limit to what we can make available; the technology is there. The only hurdle is to get the folks who are creating content [for broadcast] to cross over the fence and make it available on this medium."

Mandelbrot adds that the level of interactivity offered by the Internet will make the content more compelling and will draw advertisers. "Television is more of a passive, 'lean back' experience. The Internet is more of a 'lean forward', more engaging thing," he says. "We're going to continue to rely on traditional broadcasters and production folks to create the top-quality content that we're making available through this medium... but we're going to alter that content in ways that it's never been altered before."

Donaldson points out that the Internet has yet to come up with an advertising-based business model that works.

Mandelbrot admits this, but insists that it can work. "By distributing content over the Web... we know, on a one-to-one basis, who our users are and we learn a lot about them as they interact with us," he says. "So we have the opportunity to allow our advertisers to reach a much more targeted audience."

"I try to do a Webcast, which I freely admit, is patterned after a television show," says Donaldson, "and I'm still trying to learn what works for us. I did a show with Willie Mays, one of my idols. It was a great show, but it drew flies."

Donaldson says that when he does a show with some obscure figure from the tech world, it draws a large audience. "Clearly, at the moment, we have a specialized audience online... we do not have the generalized audience of television."

Garth Ancier suggests that the Internet may not be the answer, especially with digital television's capacity. "With digital cable and satellite television, spectrum scarcity no longer exists... the only thing that holds you back is really the economic boundaries of what you can afford to make."

David Tenzer concurs, and adds that with the arrival of iTV, the Internet will no longer have a monopoly on interactivity. "Right now, television is a one-way medium and the Internet is a two-way medium," he says. "But 10 years from now, I don't think that will be the case."

Regardless of whether the future is in iTV or the Internet, Caryn Mandabach says she sees the role of the programmer changing in the same way, and asserts that the future is in niche programming.

"In my opinion, it will start with communities of interest," says Mandabach. "A bunch of people who like one thing will be talking with each other and be looking at the programming they want, whenever they want to look at it."

The key to this new paradigm, according to Mandabach, is VOD (Video On Demand), which can be offered by both the Internet and iTV. "It's like what cable is doing now, but it's going to get more and more specific," she says. "There are, for example, 45 million scuba divers, globally. So there will be scuba programming, it will be sponsored, and you will be able to see it whenever you want."

Mandabach believes that the revenue model for such specialized programming will come in the form of sponsorships by companies that sell scuba-related products and services. And the ability to 'hyper-target' your audience will make up for the lower ratings of niche programming.

Naked News

David Mandelbrot is adamant that the Internet is the best place for niche programming, which prompts Donaldson to raise the ugly side of niche programming on the 'net.

"The most popular news Web site right now is NakedNews.com," says Donaldson with a sigh. He then explains that the site is a Webcast of the day's top headlines, with the obvious distinction that the young female newsreaders completely disrobe while reading their TelePrompTers.

"How do we deal with the fact that, over the Internet, that's the most popular news show, and that's what's making money?" Donaldson asks.

Mandelbrot is unfazed. "I think... we look at it as an opportunity."

Donaldson's jaw drops, but Mandelbrot presses on. "Here we have a show that would not have been able to make it on traditional network programming, because—"

"We're talking about NakedNews.com," Donaldson reminds him.

"Yes, NakedNews.com." Mandelbrot continues without a trace of irony. "It would never make it on network television because of standards and other things. But on the Web it is able to draw a very large audience."

The entire room seems as stunned as Sam Donaldson. It seems his discomfort is not with the nudity, and he reminds us that he is not the public censor. But for a man who has worked in journalism his entire life, this has got to be hard to take.

David Tenzer reminds us that quality shows like HBO's The Sopranos also couldn't get on over-the-air networks. "With the proliferation of outlets, you get extremes... both highbrow and lowbrow.

Nice niche

Whether iTV or the Internet, cable, or over-the-air broadcasting, the days of monster ratings and monster advertising rates are over, according to this panel of experts. They all agree that the future lies in lowering production costs, finding multiple outlets for content, generating multiple revenue streams and finding your niche.

Many challenges lay ahead, they say, and many opportunities. Programmers and producers will be coming to terms with this new paradigm for years to come

Sean Chercover sean@chercover.com is a freelance writer and non-linear editor. He has never seen NakedNews.com.

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