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Dissertation submitted in partial fulfilment of the requirements for the degree of MA in Cultural & Creative Industries of King’s College London in 2008. APPROVED TITLE The New Box in Town: The impact of online video on the US broadcast networks FULL NAME OF CANDIDATE Jennifer H Chang College King’s College London, School of Humanities Supervisor Dr. Hye-Kyung Lee Candidate’s Declaration I confirm that this dissertation is entirely my own work. All sources and quotations have been acknowledged. The main works consulted are listed in the bibliography. The total length of the dissertation (text and footnotes) is … words. Candidate’s signature:
Note: This dissertation is an unrevised examination copy for consultation only, and may not be quoted or cited without the permission of the Chairman of the Board of Examiners for the MA in Cultural & Creative Industries.
Abstract Thanks to recent technologies, online video has become a prevalent part of American entertainment and has presented a new challenge to already struggling US broadcast networks. However, the major broadcast networks—ABC, CBS, NBC, and FOX—have learned from the mistakes of the music companies in the late 1990’s and have made efforts to embrace and control the beast that is online video. This paper will explore the new challenges presented to the establishment that is American broadcast networks and evaluate the aggressive actions that they have made to go on the offensive towards this emerging industry.
Introduction “Television! Teacher, mother, secret lover.” Homer Simpson, The Simpsons1
In 2005, Ben Silverman, then president of Reveille Productions and now co-chair of NBC Entertainment, got a big laugh when he said at the Madison & Vine conference, “I don’t go home, sit with my dad and watch my Google.”2 However, only two short years later, 66 million Americans were going home and watching videos on YouTube, a Google subsidiary.3 For the first 50 years of the US television industry, the broadcast networks owned the medium as they accounted for nearly all of the content available on television and provided advertisers with the largest potential audiences. In 1976, at least 90 percent of the 85 million American television owners watched a show on one of the three major networks, and as a result, advertisers wishing to reach a mass audience were held hostage to the networks whose revenues increased by double-digit percentages every year.4 However, over the past couple of decades, the broadcast networks have lost their monopoly over television. First, it was due to the growth of cable networks, and now the introduction of online video industry. Increasingly more audiovisual content, including webisodes and user-generated content, is becoming available on the web through video destination sites such as YouTube and MySpaceTV, and their audiences are growing.
The Simpsons. Episode S02E03 “Treehouse of Horror,” first broadcast 25 October 1990 by FOX. Directed by Wes Archer, Rich Moore and David Silverman and written by Matt Groening. 2 Shelly Palmer, Television Disrupted: The Transition from Network to Networked TV (Burlington: Focal Press, 2006), 50. 3 comScore (12 September 2007). “US Viewers Watched an Average of 3 Hours of Online Video.” Press release. http://www.comscore.com/press/release.asp?press=1678 (Accessed 5 April 2008). 4 Ken Auletta, Three Blind Mice: How the TV Networks Lost Their Way (New York: Vintage Books, 1992, 2425.
Due to recently available technologies, the number of people watching videos online is increasing at an alarming rate. During the month of July 2007, 134 million Americans said they viewed 9 billion videos online. A significant portion of these videos was viewed on YouTube and other online video destination sites as opposed to on network sites.5 Seeing potential opportunities available through online video destination sites, independent web producers have emerged to create innovative new content for these audiences. Having seen the impact of the Internet on its music industry counterparts, the networks have gone on the offensive to protect their dominance within the continuously expanding television industry. Press releases have been numerous to declare the networks’ many new strategies, including sales on download sites, ad-supported online streaming, and new business ventures. However, the online video industry has unique characteristics that differentiate it from traditional television viewing, providing both challenges and opportunities for the networks. According to the study by the IBM Institute, “This is the beginning of the end of television as we know it.”6 As the television environment continues to change and the power over content is now shared with new players, it leaves us to think, what is the future of the good old American TV networks? Methodology The current nature of my topic was reflected in my research methodology. Because online video has only emerged as a significant source of entertainment in recent years, there are few books that deal with the topic. As a result, to be relevant to my topic, I relied largely on recent newspaper, magazine and journal
comScore. Saul J. Berman, Niall Duff and Louisa A. Shipnuck, “End of Television as We Know It,” IBM Institute, 27 March 2006. http://www-935.ibm.com/services/us/imc/pdf/ge510-6248-end-of-tv-full.pdf (Accessed 5 April 2008)
articles as well as reports conducted by marketing and new media research organizations. Another significant portion of my research came from observing the recent online industry and the networks’ responses through their websites and numerous press releases. Online video, in addition to being the topic of my dissertation, also served as a research mechanism that aided me during my research. As a result of the prominent usage of the Internet and online video, particularly within the television and Internet industries, I was able to find video of interviews and discussions with leaders in the industry. Structure To truly understand how the online video industry has impacted network television, one needs to understand the historical and structural context in which the US television industry operates. In the first chapter of this paper, I will explain the origins of network television and how it exists today. The second chapter will introduce the recent technological innovations that led to online video and what this industry currently entails. The third chapter will analyze how the new industry challenges the network television model. Finally, in the fourth chapter, I will examine the strategic measures networks have taken to embrace this new frontier and their attempts to stay on top despite the expanding definition of television.
Chapter One: The Major Broadcast Networks “More than jazz or musical theatre or morbid obesity, television is the true American art form. Think of all the shared experiences television has provided us; from the moon landing to the Golden Girls finale, from Walter Cronkite denouncing Vietnam to Oprah putting that trash bag of fat in the wagon.” Kenneth the Page, 30 Rock7
In this paper, I have chosen to focus primarily on the impact of the online video industry on the major broadcast networks—ABC, CBS, NBC, and FOX. While the American television industry in its current state in significantly more complex, I have chosen to focus on the broadcast networks because they are at the forefront of the industry and as a result, these networks have been the first respondents to the emergence of online video. Additionally, as these networks are each a part of larger multinational entertainment conglomerates that own most of the prominent cable networks, they tend to set the tone for their sister cable networks. The major broadcast networks exemplify the unique nature of the US television industry. While public television does exist and operates on partial funding from the US government, it plays a much smaller role in the US than in other nations in Europe and Asia. The industry is primarily one based on private enterprises, and as a result, one motivated largely by profit. The government, however, does participate in the form of its regulatory body, the Federal Communications Commission (FCC). In this chapter, I will discuss the four major broadcast networks and the industry in which they thrive. Background
30 Rock, Episode S01E11, “The Hair and the Head,” first broadcast 18 January 2007 by NBC. Directed by Gail Macuso and written by Tina Fey.
American television industry, like its British counterpart, has its roots in radio. However, unlike its British counterpart, it began as a private enterprise. In 1927, the Radio Corporation of America (RCA), AT&T and Westinghouse stations came together to form the National Broadcasting Company (NBC). The network provided entertainment programming without cost to audiences. The programming was paid for, or “sponsored,” by companies that wanted to be associated with these popular programs. By the end of 1927, NBC was operating both of the nation’s largest and most popular radio networks: NBC Red and NBC Blue. In 1928, William S. Paley heightened the competition when he formed the rival Columbia Broadcasting System (CBS). In 1943, Federal Communications Commission (FCC) forced NBC to sell one of its networks, resulting in another competitor network called the American Broadcasting Company (ABC).8 During the 1930’s, the technology of television became viable and experimental stations began to offer programs to the small number of savvy individuals who had television receivers. In 1936, RCA invested $1M (a huge sum in the 1930’s) to conduct field tests on television. Television made its official US debut with NBC’s public broadcast of the 1939 World’s Fair Opening Ceremony in New York.9 This also marked the radio giants’ entry into the new medium. Today, the Big Three networks - ABC, CBS and NBC - continue to dominate broadcast television. They are, however, now joined by FOX, which was formed by Rupert Murdoch in 1985. The ABC network began when Edward J. Noble purchased NBC Blue in 1943. Limited in resources, Nobel focused on building the network in five major markets: New York City, Los Angeles, Chicago, San Francisco and Detroit. In
Howard J. Blumenthal and Oliver R. Goodenough, This Business of Television, 3rd ed. (New York: Billboard Books, 2006), 129-131. 9 Robert L. Hillard and Michael C. Keith, The Broadcast Century and Beyond: A Biography of American Broadcasting, 3rd ed. (Boston: Focal Press, 2001), 86.
1951, he turned around and sold his station to United Paramount Theatres. Over the couple of decades, ABC struggled to build a national affiliate network as large as its competitors, CBS and NBC. In 1984, ABC purchased fledging sports network ESPN. In 1986, ABC was acquired by Capital Cities for $3.5B, and then, in 1995, Disney acquired Capital Cities/ABC for $19B.10 Disney-ABC Television Group is now comprised of the ABC network (including daytime, primetime and kids) as well as cable networks, the Disney Channel, SOAPnet, ABC Family, ESPN and equity stakes in A&E and Lifetime. CBS went on the air in 1927 and was purchased the following year by William S. Paley who, over the next several decades, built the network into NBC’s strongest competitor. In 1986, investor Laurence Tisch took over the company and sold off its non-broadcast assets, which included Columbia Records. In 1995, CBS was sold to Westinghouse for just over $5B, and in 1999, CBS was sold to Viacom for $37B. In 2000, Viacom acquired another network, UPN, adding to a media kingdom that already included MTV Networks (MTV, Nickelodeon, VH1, Spike, etc.), several powerful television syndicators (CBS Enterprises, Paramount and King World), Paramount motion pictures and television studios, Showtime premium network, Blockbuster Video, movie theatres, a major outdoor advertising company, and Infinity Broadcasting radio stations.11 In 2005, Viacom split itself up into two separate publicly traded companies - the CBS Corporation and the “new” Viacom. Media mogul Sumner Redstone continued to serve as chairman and controlling shareholder for both companies.12 The CBS Corporation is comprised of what some may call the previous conglomerates’ slower-growth businesses including the CBS network, UPN (which merged with the WB network to form the CW network in 2006), and the Showtime cable network.
Blumenthal, XX-XXI. Blumenthal, 134-137. 12 CBS Corporation (14 June 2005). “Viacom Board of Directors Approves Creation of Two Publicly Traded Companies Following Spin-off.” Press Release. http://www.cbscorporation.com/news/prdetails.php?id=62 (Accessed 10 April 2008).
The NBC network was founded in 1926 to resolve disputes between radio pioneers General Electric (GE), RCA and Westinghouse. NBC operated two networks until the FCC forced the sale of NBC Blue in 1943. Despite this, NBC continued to be the leader in network television for most of the twentieth century due to its role as an innovator achieving significant milestones such as the first colour television broadcast. NBC was solely owned by RCA from 1932 until 1986 when GE acquired RCA. In the mid-1980s, it became clear that cable television and international expansion were essential, resulting in the launch of CNBC, a consumer news and business channel, and MSNBC, a joint venture with Microsoft. In 2004, NBC and Vivendi Universal formed a complicated merger that resulted in NBC Universal, which includes the NBC network, Universal Television, the USA Network, and the Sci-Fi Network. The company is 80 percent owned by GE and 20 percent owned by Vivendi Universal.13 In 1985, Australian media mogul Rupert Murdoch bought Metromedia, a midsized television and radio station company that was comprised of the remnants of DuMont Network, which had been the fourth network until 1955. Initially, FOX was very much a “part-time network” as it did not have a programming for some weeknights or a daytime schedule. However, by 1997, FOX had a near-complete schedule. FOX has been able to build a significant presence despite its late entry into the game by being innovative. It got the rights to the Major League Baseball’s World Series and NFL Football through aggressive negotiations and positioned FOX News among cable news networks that were gaining ground. The network also aired some edgy programming including The Simpsons and Married...with Children. Also, the network is less interested in the “all viewing” audience of the Big Three, choosing to focus on the more lucrative “teen and twenties” age group.14 FOX is currently a part of Murdoch’s News Corporation, which also owns cable networks FX, National Geographic, Fuel and Speed.
Blumenthal, 129-131. Blumenthal, 140-142.
For purposes of this paper, I am focusing on the national broadcast networks as in the four major networks - ABC, CBS, NBC, and FOX. However, there are several other broadcast networks in the US catering niche audiences. The most notable are the following: The CW network resulted from the merger of the two “baby-nets,” the WB network and UPN in 2006.15 Both networks debuted in 1995, and neither network, despite managing to get nearly national coverage through affiliate stations and cable outlets, had a full prime-time schedule to rival the larger networks nor did either network have a national news operation.16 The CW is owned 50-50 between Warner Bros. and the CBS Corporation and airs programming geared towards the 18-to-34-year-old market.17 Following the CW merger, FOX launched MyNetworkTV through an affiliate network of the UPN stations that had been left out of the merger (which included several large FOX-owned stations). The network has yet to find a strong following. The US also has a national public television network called the Public Broadcasting Service (PBS), which receives federal funding and broadcasts educational programming such as Sesame Street and Masterpiece Theatre. Additionally, there are two large Spanish-language broadcasters that have achieved notable success in regional markets where there are large populations of Hispanics. Univision, the larger of the two, is carried to 92 percent of Spanishspeaking households in the US, and Telemundo, owned by NBC Universal, claims the number two spot. The two networks have at times, despite their limited distribution, outperformed UPN and the WB nationally.18
The CW, “About the CW,” CWTV.com. http://www.cwtv.com/thecw/about-the-cw (Accessed 10 April 2008). 16 Blumenthal, 137 & 140. 17 The CW. 18 Chris Forrester, The Business of Digital Television (Oxford: Focal Press, 2000), 27.
Structure Because the television industry derived from the existing radio industry, the structure of the analogue versions of the both industries is similar. The big networks create linear programming schedules for specific time slots such as daytime, primetime, and late night. These programs are then distributed to national audience through local stations that broadcast out to a designated market area (DMA). Networks are allowed by the FCC to own and operate a limited number of stations, most of which are in the major metropolis areas. The remaining DMAs are served by local affiliate stations, which carry their affiliated network’s scheduled programming in exchange for part of the advertising revenue. The number of owned and operated stations (O&Os) a network is allowed to own is determined by a complicated set of regulations by the FCC. The FCC is the federal regulating body of the airwaves and grants licenses to stations to utilize these airwaves to broadcast television. As such, the broadcast networks and their affiliates are subject to higher levels of regulation from the FCC compared to cable networks, which utilize privately-held cable lines, and the Internet, which has been more difficult to regulate. Currently, the continental US, Hawaii and parts of Alaska are covered by 210 non-overlapping DMAs, providing a reach of 99 percent of the US population.19 Each of the major four networks has at least some type of presence in each of these DMAs, whether through O&Os, affiliates and local stations. All of the networks also extend their reach beyond the 210 DMAs through affiliate stations in US territories such as Guam, Puerto Rico and the US Virgin Islands.
For example, ABC owns and operates 10 of their stations in the US, reaching 23.5 percent of the US population. To broadcast to the remaining population, ABC also has 218 network affiliates throughout the US and its territories that distribute its popular primetime network.20 Therefore, a viewer in Columbus, Ohio, watches Desperate Housewives on WSYX6, the local ABC affiliate station owned by the Sinclair Broadcast Group, at 9pm on Sunday evening between Extreme Makeover: Home Edition and Brothers & Sisters, as does another viewer in some other part of the country. Some of the advertising inserted in the program are national, which were sold by the network, and some of the advertising is local, which was sold by the affiliate. Business Model The network business model is very unique. Unlike manufacturing, revenue is not based on output, nor is it based on selling inventory like in retail or based on hours of service. The network business model, at its simplest, is two-fold. First, the networks are content and audience aggregators, meaning that they bring together content that they believe people will enjoy and then make it accessible to these audiences by broadcasting it for free. If the networks were right on what content the people would enjoy, they would have high numbers of viewership, or what the networks refer to as “high ratings.” The second half of the equation is how the networks cash in these ratings to create revenues through advertising. Networks charge companies to place commercials in the breaks before, during and after programming. The more popular the programming, the more the network can charge advertisers. Theoretically, the business model appears to be a win-win-win situation. Audiences get free high-quality content, consumer businesses are effectively
Disney-ABC Television Group, “Overview,” DisneyABCTV.com. http://www.disneyabctv.com/division/pdf/ABCTelevision.pdf (Accessed 5 April 2008).
able to establish their national brands, and the networks, as the matchmaker, generate more than $20 billion in advertising revenue per year.21 This business model relies on the ability to measure what audiences are viewing to ensure advertisers that their message was being viewed. In the 1930s and 1940s, companies relied on a company called Hooperatings who called random households and asked about what they listened to on the radio. Another company called The Pulse surveyed people on the streets. This type of random sampling was replaced by the diary system, which paid a nominal fee to several thousand selected households to keep a diary of what they were watching. This system was often criticized because families would forget to write down things, wrote down incorrect information, or simply wrote down what they felt they should be watching rather than what they were actually watching. In the 1990s, the technology became available to automate this process through the People Meter, an electronic device attached to the television set that notes what is being watched and reports the information to a central database. Like with the diary system, the People Meter is distributed to a selected number of households through statistical sampling. These households are often referred to as “Nielsen families” because the system is operated by Nielsen Media Resource. Currently, there are approximately 5,100 Nielsen families to represent the nearly 100 million actual households.22 Regulation The FCC was formed as a result of Congress adopting the Communications Act of 1934. The new organization took over responsibilities previously held by the Radio Commission and the Interstate Commerce Commission, an organization
Bill Carter, Desperate Networks (New York: Broadway Books, 2006), 4. Blumenthal, 68-69.
that had jurisdiction over interstate telephone and telegraph communications. In 1941, the FCC extended their jurisdiction into the new medium of television. The aim of the FCC is to require broadcast stations to operate with the purpose of “public interest, convenience and necessity.” To achieve this goal, the FCC performs the following functions: rulemaking, licensing and registration, adjudication, enforcement, and informal influence. Rulemaking refers to the set of rules and regulations set force by the organization in governing the broadcast networks and their affiliate stations. Licensing and registration is the process by which the FCC allocates licenses to utilize the airwaves to deliver television programming. Adjudication refers to the role the FCC plays as a mediator between different parties. Enforcement involves the FCC’s ability to penalize licensees for wrongdoings. Finally, informal influence describes the FCC’s position of power through which they are able to affect the television industry without formal action and simply though telephone calls and letters. The FCC is an agency of reaction, more than one that takes proactive measures. Traditionally, the agency has taken the laissez-faire approach and sided with the accepted practices of the free-market. By far, the biggest current challenge to the agency is dealing with the rapid technological changes occurring in communications. Thus far, the government has yet to become very invasive in terms of regulating the Internet, preferring to take, once again, a laissez-faire approach.23
Blumenthal, 28-46, 65-66.
Chapter Two: Online Video “A web show? She has her own web show? I cannot believe she has her own web show! What’s a web show?” London Tipton, Suite Life of Zack and Cody24
The concept of an online video industry is relatively new and has yet to have a clear definition, but for purposes of my paper, I have defined the online video industry to encompass producers and organizations that create and promote videos created specifically for online audiences and distributed to the public with the purposes of entertainment. This definition includes user-generated content published on online video destination sites, produced content from independent video producers, and the online video destination sites that users view them on. New Technologies Three recent technological advancements are responsible for the emergence of the online video industry: the digitization of media, the mass availability of broadband Internet and the achievements made in streaming technology. Digital media refers to video and audio that is encoded into ones and zeroes and stored as an electronic data file. Once in this format, the file can be transmitted and converted easily by computers. Over the past decade, broadcasters have begun implementing the use of computer video servers, instead of videotape machines, to feed their transmitters. While their primary intent was for efficiency and convenience, the digitization of content meant that it was no longer limited to the strictest form of broadcast television.25 Also during this transition the FCC, in
Suite Life of Zack and Cody, Episode S03E16 “Tiptonline,” first broadcast 15 December 2007 by the Disney Channel. Written by Jim Geoghan and Danny Kallis. 25 Palmer, xvi.
an attempt to free up airwaves, mandated that all broadcast signals in the US be converted from analogue to digital by 2009.26 Although content was now digitized, it needed a way to move from location to location, which is where broadband Internet comes in. The term broadband comes from “broad bandwidth” and refers to an “advanced communications systems capable of providing high speed transmission of services such as data, voice, and video over the Internet and other networks. Transmission is provided by a wide range of technologies, including digital subscriber line and fibre optic cable, coaxial cable, wireless technology, and satellite.”27 Digital video files, even those of short lengths, tend to be large files that prior to broadband technologies were difficult to transmit via the Internet. However, a video file that would have taken hours to download through a dial-up connection can now be downloaded on a broadband connection in a matter of minutes. According to a September 2007 survey, as many as 50 percent of respondents had broadband Internet at home.28 This is up from 30 percent of respondents in March 2005.29 High-speed Internet access is also increasingly available to Americans at their offices, local libraries and even Starbucks. This increase in broadband availability is directly correlated to the increasing number of Americans watching and downloading videos online. According to another study, 74 percent of Americans who have high-speed connections at both home and work watch and/or download videos online. Among those with only dial-up access at home and work, only 31 percent watched and/or downloaded videos online.30
Palmer, 7. Federal Communications Commission. “Strategic Goals: Broadband,” Federal Communications Commission. http://www.fcc.gov/broadband/ (Accessed 5 April 2008). 28 Mary Madden, “Online Video,” Pew Internet & American Life Project. 25 July 2007, i. 29 John B Horrigan, “Home Broadband Adoption 2006,” Pew Internet & American Life Project. 28 May 2006, i. 30 Madden, i.
Streaming technology refers to a live and on-demand audio/video delivery system over the Internet, which, like traditional television, enables viewers to temporarily view content without downloading large data files. Streaming technology was first introduced in 1995 by Xing Technology Corporation (acquired by RealNetworks in 1999) under the name of StreamWorks. Since StreamWorks, other streaming players, such as Windows Media Player, Apple QuickTime, and Real One Player, have developed and contributed to streaming technology.31 Around these three technologies, an entire industry has formed dedicated to creating and delivering content through this new medium. Online Video Audiences As of July 2007, 57 percent of adult Internet users watched or downloaded videos online.32 Additionally, 53 percent of teen Internet users watch or download videos online.33 Who are these viewers? What are they watching? And how are they watching? Online video audiences skew towards men, with although this may be a result of the available programming. The gender gap, however, does eliminate among younger viewers, with no observed significant difference among teens 13 to 18years-old or young adults 18 to 24 years old. The gap does exist among the 25 to 44 year old demographic.34 However, as programming of interest to women ages 25 to 44 becomes available, viewership in this age group should increase.
Palmer, 39-40. Madden, i. 33 Joseph Laszlo, Amanda Guzman and Zia Daniell Widger, “Teens and Online Video,” Jupiter Research, 4 January 2007, 2. 34 Joseph Lazlo, Amanda Guzman, Corina Matiesanu and David Card, “US Online Video Consumer Survey, 2007,” Jupiter Research, 24 October 2007, 4.
The way that viewers watch television on the Internet is different from how they view traditional television. The primary difference is the “lean-forward” vs. “leanbackward” experience. When watching on a computer, the viewer is usually leaning towards the screen while sitting at a desk. Viewers are also more likely to engage with the contact beyond just viewing, like opening a separate browser window and looking up the video’s stars on IMDB.com or playing games online while watching. Also notable is that because computer screens are small and the user is sitting so close to the screen, it is viewed alone and sometimes even heard alone with headphones. Televisions, on the other hand, are the favourite boxes of the “potato coach.” It is viewed while leaning back and lying down on a comfortable sofa. The television only displays television programs, and on most part, one channel at a time. Because they are often placed in communal spaces and the distance between the viewer and the box, there is less privacy. Online video and the new viewing style it has introduced have redefined the concept of community viewing. Since the prices of television sets fell during the 1950s and became increasingly affordable by all households, the television has been the central feature of the American living room. Traditionally, community viewing referred to a group of friends and/or family members gathered together around the household TV, physically in the same place and communicating with one another about the content. Another type of community viewing was the concept of watercooler television, referring to the act of colleagues gathering around the office watercooler and discussing the previous night’s programming. Due to the lean-forward, private nature of online video viewing, viewers are viewing alone. Also, because the Internet allows for time shifting, the viewer is in the position to watch at their convenience, which may not be the same night that the program aired. The Internet does, however, provide numerous alternative
ways for viewers to interact with one another. Links to videos can be shared via instant message and emails. They can be posted on other sites. Additionally, several video destination sites, including YouTube, allow users to embed videos directly onto their personal sites and share them with their social networks. Fiftyseven percent of online video viewers share videos they watch online with others,35 proving that in place of “watercooler TV” and “living room TV,” the Internet has brought forth “shared TV.” YouTube and Video Destination Sites Undoubtedly, the current big name in the online video industry is YouTube. Founded in February 2005 by three former PayPal employees, the company was acquired by Google in November 2006 for $1.65 billion.36 The site utilizes streaming technology to allow users to upload and share their personal videos with the general public. Each user’s content is aggregated into their own personal “channel.” Users can interact with one another on the site by commenting, rating on a five-star system, subscribing, or responding with their own videos. During the month of July 2007, 36.7 percent of US Internet users viewed videos on YouTube and that among the 9.1 billion viewed during the month of July 2007, 2.4 billion of them were viewed on YouTube.37 Users say they prefer YouTube to other similar video destination sites because of the breadth and volume of videos available on the site and because it is easy to use.38 Despite its reputation as a UGC site, YouTube also does feature produced content. The YouTube Partnership Program invites independent video creators and media companies to collaborate with YouTube and share advertising
Madden, iii. Google (9 October 2006). “Google to Acquire YouTube for $1.65 Billion in Stock.” Press release. http://www.google.com/press/pressrel/google_youtube.html (Accessed 10 April 2008). 37 comScore. 38 Spencer Wang, Robert Peck, and Shubhashree Makherjee, “You Say You Want a Revolution?: Online Video Survey 1.0,” Bear Stearns, 20 April 2007, 6.
revenues earned. Some of the partners are individuals who’s UGC videos gained viral notoriety or, as they are commonly referred to, “YouTube celebrities.” Others are traditional media companies including Oprah and the NBA. 39 In response to YouTube, other companies have launched video destination sites as well. In July 2007, MySpaceTV was launched as an extension of the social networking site. Its content tends to aim towards a younger demographic and has been successful in its efforts as the site is the number two online video site among US Internet users 18-to-29. While UGC is welcome on the site, professional material is front and centre through its MySpaceTV Primetime section, which includes Hulu programming as well as exclusive original content such as the reality series Roommates.40 The major search engines have also entered into online video destination sites and video search engines. Google launched Google Video prior to their acquisition of YouTube. Following the acquisition of YouTube, Google’s Vice President of Product Management Salar Kamangar announced on the official YouTube blog that Google Video would continue to operate, but the two sites would play on their specific strengths, which are Google Video’s search engine capacities and YouTube’s position as a content destination.41 Yahoo! Video, AOL Video and MSN Video have also developed as popular video destination sites, although each site’s reach is still in the single digits. AOL Uncut and MSN Soapbox are UGC sites within the larger video sites. Several other video destination sites have appeared on the Internet, but none has yet to develop a large enough audience to rival YouTube.
YouTube. “YouTube Partnership Program,” YouTube.com. http://www.youtube.com/partners (Accessed 10 April 2008). 40 Brad Stone, “MySpace, Chasing YouTube, Upgrades Its Offerings,” NYTimes.com, 27 June 2007. http://www.nytimes.com/2007/06/27/technology/27video.html?ref=business (Accessed 10 April 2008). 41 Salar Kamangar, “A Look Ahead at Google Video and YouTube,” The Official Google Blog. 25 January 2007. http://googleblog.blogspot.com/2007/01/look-ahead-at-google-video-and-youtube.html (Accessed 10 April 2008).
User-Generated Content User-generated content (UGC) refers to amateur videos produced by individuals, such as home videos, video blogs, and personal mashups. These videos vary widely in terms of quality. Due to the mass adoption of digital cameras and the availability of editing software at affordable prices, amateur video can often look professional grade. UGC is the second most popular content category across all respondents and the most popular content category among men 18-to-34-yearsold.42 Viewers seem to gravitate to UGC videos because it allows for real human interaction that produced content, particularly reality TV, aim to mimic, but are unable to do. Users upload videos ranging from personal vacation videos to choreographed comedy stunts onto the site to sing-alongs with the radio in their bedrooms and expose themselves to the World Wide Web. “You have people from all walks of life wanting to share a piece of their life with you,” a video blogger named Leila was quoted saying in Time magazine’s 2006 Person of the Year issue. The issue named “You” as the Person of the Year, the cover depicting a computer with a reflective screen, demonstrating the impact of YouTube and its UGC. Leila went on to say in the article that she no longer even bothered to watch TV, preferring to voyeur into the lives of strangers instead.43 Produced Content Although UGC is among the most popular content genres, particularly among young adult men, produced content is still preferred among audiences. Overall, 62 percent of online video viewers say they prefer “professionally produced” content, versus 19 percent that said they prefer content “produced by amateurs.”
Wang, 2. Lev Grossman, “Time Person of the Year: You,” Time, 15 December 2006/1 January 2007, 42-43.
More specifically, news clips, movie trailers and music videos continue to be among the top three most popular genres.44 To meet this demand, a number of professional independent producers have taken advantage stepped out into the online video audience. The barriers to entry in this industry are much lower than in traditional media where the financial costs and regulations are high. As a result, Internet producers can target and profit off of the niche audiences that have the broad audience focused networks tend to miss. Online video productions have gained legitimacy despite their limited existence. In November 2005, the National Academy of Television Arts & Sciences announced the establishment of a new Emmy category for Original Programming Created Specifically for Non-Traditional Delivery, which includes professionally produced programming specifically for computers, mobile phones, iPods and other portable media devices.45 In 2007, the category was further specified with separate awards for Drama, Comedy, Variety, and Children’s. The awards are distributed each summer at the Daytime Emmy Awards presentation.46 Interactive Content In June 2006, Lonelygirl15 aka Bree uploaded her first video onto YouTube. Bree uncomfortably fidgets in front of her webcam, refers to herself as a “dork,” and then makes several silly faces. Bree appeared to be a normal American girl video-blogging from her bedroom. She had a MySpace profile and replied back to emails. However, months in, it was revealed by the press that “Bree” was actually a 20-year-old New Zealand actress named Jessica Rose and that the
Madden, 9-10. John Carey and Lawrence Greenberg, “And the Emmy Goes to...A Mobisode?” Television Quarterly, Volume XXXVI (2006): 3. 46 National Academy of Television Arts & Sciences (31 May 2007). “Nominees for the Emmy Award for Broadband Announced; Winners to Be Named June 14.” Press release. http://www.emmyonline.org/mediacenter/daytime_34th_bbnoms.html (Access 10 April 2008).
“video blog” was actually a production by aspiring filmmakers Ramesh Flinders, Miles Beckett and Grant Steinfield.47 “I wanted to break into the entertainment business, but it’s very hard to make it in Hollywood,” said Beckett. “I saw YouTube and thought about how it was a new platform and way to create new kinds of content and came up with this story line about this girl Bree who lived in her bedroom and was home schooled and sort of this classic knight story where she was rescued by this guy Daniel.” Bree’s character was eventually killed off, but “friends” continue the story. Over 200 episodes have aired and the series has accumulated over 70 million views on its syndicated sites, which include YouTube, MySpaceTV, Metacafe, and Revver. According to Beckett, the show has received interest from major studios, but the creators decided against the move because their belief in online entertainment. Beckett and his production company, Telegraph Ave. Productions, is also currently airing KateModern, a spin-off of Lonelygirl15 that takes place in London. Both shows generate revenues through product placement within the shows. Although the shows are fictional, fans can still interact with the characters via email and social networking sites, as the writers reply to each email.48 Another Internet success has been Ask a Ninja, an interactive video blog in which a man dressed as a ninja answers questions submitted by users. The site was started by Kent Nichols and Douglas Sarine and become an Internet phenomenon. Despite the fact that the producers have not spent a dime on publicizing the show, it has become a viral sensation with approximately 300,000
Virginia Heffernan and Tom Zeller Jr., “The Lonelygirl That Really Wasn’t,” The New York Times, 13 September 2006. http://www.nytimes.com/2006/09/13/technology/13lonely.html (10 April 2008). 48 9am with David and Kim, Interview with Miles Beckett and Tara Rushton, first broadcast on 2 November 2007 by Channel Ten Australia. http://www.youtube.com/watch?v=gJ6Gr3Pyos0 (Accessed 31 March 2008).
to 500,000 people watching each episode. The show has even managed to be fairly profitable, with earnings estimated at approximately $247,000 for 2007.49 Webisodes One particular type of produced content that has emerged is the webisode series. Due to the “lean-forward” nature of online video viewing, its viewers tend to prefer short-form content. As of July 2007, the average online video duration was 2.7 minutes.50 Short form content is also easier to distribute on video destination sites like YouTube, which set maximum file size limits on videos uploaded. Webisode series are similar to traditional episodic series. There is a set of characters that the viewers follow through a linear story line. Like traditional television, webisodes vary in genres, including dramas, comedies, and reality. The primary difference is length. Most webisodes are three to five minutes long in length. Also, several of these short episodes are released each week rather than one episode per week like traditional episodic television. For example, the first season of Prom Queen, a webisode series produced by Disney’s ex-CEO Michael Eisner’s Tornante Company, was comprised of eighty 90-second episodes which aired one episode everyday over 12 consecutive weeks. The series was a suspenseful murder mystery about a group of high school seniors at the fictional Edward Adams High School, with each episode incrementally revealing the whodunit behind the prom queen murder. Viewers could view the series on a number of video destination sites including YouTube, MySpaceTV, Veoh, Imeem, and Crackle. Viewers could also watch directly on
Heather Green, “How to Make Money Videoblogging? Ask Ask A Ninja,” Businessweek.com, 25 January 2008. http://www.businessweek.com/the_thread/blogspotting/archives/2007/01/how_to_make_mon.html (Accessed 10 April 2008). 50 comScore.
the show’s website or subscribe to the series and have each new episode delivered via email everyday. Another notable webisode series thus far has been Quarterlife, a series by Marshall Herskovitz and Edward Zwick, who had a previous track record of iconic hits My So-Called Life and thirtysomething. Quarterlife began as an ABC pilot titled 1/4life. When the network decided to go in a different direction, they sold the rights back to Herskovitz and Zwick, who redeveloped the project into an Internet webisode series that would support Quarterlife.com, a social networking site for “artists, thinkers, and do-ers.”51 The show focuses on the lives of artsy, creative types in their mid-20s. It centres on Dylan (played by Bitsie Tulloch, a former Lonelygirl15 character), an aspiring writer disguised as an editorial assistant by day, who upsets her roommates and close friends by blogging about them on Quarterlife.com. Dylan’s postings on Quarterlife.com, along with her friends’ personal postings, help narrate the story. However, outside the ABC studio, the project no longer had the big budget resources available to traditional television shows. “Essentially we had an inhouse project that was able to be done on a smaller scale with fewer resources and less money, but that really afforded us more freedom to fully execute the vision that Marshall and Ed originally had,” said producer Joshua Gummersall. “In going into this in a simplified way - especially in the way we shoot it, the way we light it and especially that it’s all handheld, has made the process so much more joyous for me,” said co-creator Herskovitz. “It’s been really liberating.” The low budget production utilized the fact that the characters were young people in the creative fields - Jed and Danny are aspiring filmmakers, Lisa is an aspiring actress/singer, Dylan is an aspiring writer, and Eric is an optimistic activist - by integrating their “work” into the production. “We have this raw sort-of
Quarterlife, “About Us,” Quarterlife.com. http://www.quarterlife.com/about-us (Accessed 10 April 2008).
rough around the edges feel, almost as if Jed and Danny are really making the show,” said editor Shon Hedges.52 The series debuted in November 2007, with eight-minute episodes airing twice a week. MySpaceTV had exclusive rights to air each episode one day ahead of Quarterlife.com and the other syndicated sites, which included YouTube and Imeem. Less than a week after the show’s official debut, NBC picked up the series to run on-air, making Quarterlife the first show to ever crossover from the Internet to traditional television.53 The decision was likely a direct result of the fact that the Writer’s Guild of America had gone on strike just weeks before, causing networks fear that they would run out of fresh content before an agreement could be worked out. Quarterlife aired on NBC on February 24, 2008 to weak ratings and was immediately cancelled. The show continues to air online and was reallocated by NBC to their cable network Bravo. “It never should have been a network show," Herskovitz told a group at a Harvard Business School conference following the cancellation. "It's too specific. From the first three minutes, I knew it wasn't right." While Quarterlife’s 3.1 million television viewers marked the network's worst timeperiod performance in the 10 p.m. hour in at least 17 years,54 Internet standards are not as high. Quarterlife had about 100,000 viewers per episode on MySpaceTV and a YouTube audience of up to 792,000 cumulative views of some episodes.
Quarterlife, “Featurette,” free download on iTunes. Bill Carter, “NBC Acquires ‘Quarterlife’,” 17 November 2007. http://www.nytimes.com/2007/11/17/business/media/17nbc.html?ref=business (Accessed 10 April 2008). 54 James Hibberd, “Web series’ third life is on Bravo,” Hollywood Reporter, 29 February 2008. http://www.hollywoodreporter.com/hr/content_display/news/e3i0055cabe5256398ae1dddcc9dc1c3f36 (Accessed 10 April 2008).
“Acceptance of scripted Internet content is still in the early stages,” said Herskovitz. “[Quarterlife] is one of the top three scripted programs ever [on the web].”55 Piracy In addition to original programming online, there are unauthorized programming as well. The freedom available on the Internet allows users to easily distribute material without the consent of the rights holder. In the late ‘90s, the illegal downloading of copyrighted music became a prominent issue leading to the Recording Industry Association of America (RIAA) to file suit against Napster, a popular file-sharing service that was largely responsible for facilitating illegal downloads. Napster lost the case and was shut down in 2001. However, it did not end the battle against illegal downloads. The new file-sharing services simply found ways to navigate around the flaws that had resulted in Napster’s ultimate demise. Currently, BitTorrent comprises 53 percent of all peerto-peer (P2P) sharing and manages to skirt the laws that brought down Napster because it does not have a centralized server that is easy to shut down. It is believed that a significant portion of its activity is related to unauthorized material.56 Still, copyright infringement via downloading poses a lesser threat to the networks than it had for the record companies because video files are significantly larger than audio files and the quality of unauthorized files as yet to reach that of legal means. However, copyright infringement via uploading is another story. The convenience of video streaming has led to users uploading television shows onto online video
Gary Strauss, “‘Quarterlife’ takes ‘unlikely voyage’ from Web to TV,” USA Today, 2008 February 25. http://www.usatoday.com/life/television/news/2008-02-25-quarterlife-main_N.htm (Accessed 10 April 2008). 56 Palmer, 64-67, 72.
destination sites such as YouTube. This poses a threat to networks as it provides viewers with a commercial-free alternative way to watch their shows. In March 2007, Viacom filed suit against YouTube for facilitating copyright infringement. The company sought over $1 billion in damages.57 In July 2008, however, Viacom won their suit and was granted access to records of what people are viewing on YouTube.58 Whether this will curtail illegal uploads, however, is still to be determined.
Anne Broache and Greg Sandoval, “Viacom sues Google over YouTube clips,” cNet News.com, 13 March 2007. http://news.cnet.com/Viacom-sues-Google-over-YouTube-clips/2100-1030_3-6166668.html (Accessed 12 August 2008). 58 Catherine Halohan, “Viacom vs. YouTube: Beyond Piracy,” BusinessWeek.com, 3 July 2008. http://www.businessweek.com/technology/content/jul2008/tc2008073_435740.htm?chan=technology_techn ology+index+page_top+stories (Accessed 12 August 2008).
Chapter Three: Challenges to the Networks “Everybody likes new inventions, new technology. People will never be replaced by machines. In the end, life and business are about human connections. And computers are about trying to murder you in a lake. And to me the choice is easy.” Michael Scott, The Office59
The rules of the game have changed very little over the history of the television industry, as it was limited to the television box. While cable introduced new options and delivery mechanisms, the concept was still similar - create content, distribute content, and ratings equal profit. The Internet, however, operates in a different game in which users are interlinked and new players are constantly flooding the market. As the networks venture onto the web, their long-held practices are challenged with new gatekeepers, powerful niche audiences, savvy users, lower barriers of entry, and increased creative freedom. New gatekeepers As long as media has been around, there have been gatekeepers. These gatekeepers help filter through all the creative material and ideally, present to mass audiences the cream of the crop. Newspapers decide what stories are newsworthy, publishing companies read over manuscripts and decide which ones should be published into books, record companies grant contracts to the musicians that should be recorded, and the movie studios decide what scripts are worth producing. Gatekeepers are necessary to prevent a lot of bad ideas from being realized and to unify audiences behind worthwhile content. Without good gatekeepers, content and audiences would have difficulty meeting one another.
The Office, Episode S04E02 “Dunder Mifflin Infinity,” first broadcast on 4 October 2007 by NBC. Directed by Craig Zisk and written by Michael Schur.
The broadcast networks have long enjoyed their position as the gatekeepers of television. The networks determine what programs should be aired and what advertisements should accompany them. Prior to the expansion of cable, producers and advertisers were at the mercy of the networks if they wanted to utilize the television medium. However, with the expansion of cable networks, their power has been somewhat diluted. Still, the broadcast networks are among a few media outlets that have nearly 100 percent access across all 50 states. With online video, the amount of video content is growing exponentially and the choices are seemingly endless. As such, audiences are even more reliant on gatekeepers to connect viewers to compatible content, but the Internet has their own set of trusted gatekeepers: • Search engines such as Google, Yahoo, AOL and MSN are the most frequented sites on the web. Each of these sites has a secret formula that determines the order in which sites appear in searches. Most of these formulas involve the number of links back to a page, making more “popular” sites appear first. These search engines now have a separate search function for videos. Thirty-two percent of online video viewers used search engines to find videos.60 • Video destination sites such as YouTube, MySpaceTV, Joost, Metacafe and more are increasingly popping up on the web. YouTube is currently the undeniable frontrunner. Most video destination sites allow anyone to upload content, but also serve as gatekeepers through their ability to feature videos on the front page and aggregating videos into special sections such as Partners. YouTube and other sites also maintain blogs in which they highlight content on their sites. Twenty-three percent of online
Lazlo, “US Online Video,” 10.
video viewers listed online video destinations as a method of how they found videos.61 • Individual users have also become gatekeepers. The Internet allows individuals, not just companies and large organizations, to become gatekeepers. Users are contributing as gatekeepers on sites such as YouTube through rating and commenting on content and sharing it with friends. Users can aggregate playlists and favourite content on their own personal “channels” within YouTube. Web 2.0 sites such as social networking sites (MySpace, Facebook, Bebo, etc.), social bookmarking sites (Digg, del.ic.ious, etc.), and personal blogs (Blogspot, Wordpress, etc.) allow users to share with their friends what content they found to be entertaining and worthwhile, thereby acting as filters for their own personal social networks. Fifty-seven percent of online video viewers said they share video links with friends.62 Despite their position as gatekeepers for television, the networks have less control over content on the Internet due to the new gatekeepers the medium has created. However, networks have been proactive in creating relationships with these other gatekeepers in efforts to influence these new powerful individuals and companies. User Control Not only are users gatekeepers, but these evolved viewers have become a disruptive technology as well. The Web 2.0 generation is one like none other before it. It is a generation that seems to intrinsically know to utilize technology to make the world revolve around them. The have almost instinctive ability to unbundle linear TV schedules through DVRs, Video-on-Demand services, and the Internet so that they can watch at their convenience.
Lazlo, “US Online Video,” 10. Madden, iii.
Online video accommodates to this attitude by allow users to time shift. Unlike traditional television, which requires viewers to view content at a certain time, in a certain order, online video allows viewers to control when they watch it and how they watch it. For example, a webisode series will air episodes a specific time each day, but the viewer does not have to schedule that time into his schedule. The video will be there to watch hours, days and even years later. The viewer can choose to watch sequentially or intermittently while watching other content as well. Online video provides choices that were previously the responsibility of networks. “The new video environment is boundary-less. There is no local, no national, no daytime, no prime time,” said National Academy of Television Arts and Sciences president Peter Price.63 Niche Audiences As a result of more choices, audiences are becoming increasingly fragmented. Prior to the introduction of cable and Internet, Americans were limited to the broadcast networks in their choice of television. As a result, more than 90 percent of households viewed at least one of the major networks.64 Because most households only had one TV that was located in a common room, the content on the networks, as a result, catered to a broad audience. They tended air shows that mom, dad and the kids could sit down and watch together. Today, the audience landscape has changed. Americans have access to upward of 500 channels,65 with the average viewer having access to almost 100 channels. Less than 50 percent of households are watching the major networks. Eighty-six percent of households have more than one television set, with 44
Carey, 4. Auletta, 24. 65 Palmer, 109.
percent having at least three.66 As a result, family members can be scattered throughout the house watching their own favourite programs. As a result, cable networks are becoming profitable by becoming successful in specific niche audiences. For kids, there are the Disney Channel and Nickelodeon. For women, Lifetime, WE and Oxygen. There is even a network just for food aficionados. The broadcast networks, however, still cater to a relatively broad audience, aiming to capture as many people within the 18-to-49 demographic. On the Internet, however, the producers can carve out small niche audiences and reach them closely with content that caters specifically to them. Low distribution costs allow them to find profits where none had existed before. For example, Ripe TV, a Ripe Digital Media channel that is available through ondemand, broadband and mobile, specifically produces short-form content for men 18-to-34,67 consisting of programs featuring girls in bikinis and fast cars. The niche audiences these Internet channels are able to aggregate are beneficial to companies who want to target them specifically. In Ripe TV’s case, its advertisers include Sony Playstation, whose primary users are young men. Lower Barriers to Entry The networks have long had a stronghold on the television industry because of their dominant control of limited airwaves. When cable introduced a new delivery mechanism that shifted users from broadcast airwaves to cable lines, the networks were not as impacted because of the Cable Communications Policy Act of 1984 which implemented the “must-carry” rule that required cable systems to carry all local broadcast signals, thereby insuring that despite the networks’
Whiting, 10. Ripe Digital Media, “Ripe TV,” RipeDigital.com. http://ripedigital.com/ondemand-networks/ripetv.html (Accessed 10 April 2008).
dominance would carry over onto the new technology.68 Also, cable networks still required significant levels of capital to maintain. On the Internet, however, there are fewer barriers to entry. For one, the FCC has yet to heavily regulate the medium, largely because the size and freedom of the web makes it difficult to monitor. As such, virtually anyone can set up business on the Internet without approval from a regulatory body. Adding to this, the costs of starting a web business are significantly lower than their brick-and-mortar counterparts. Whereas in the traditional television models, the networks were the primary gatekeepers and thereby producers had to go through them to get their content to the people, the Internet provides opportunities for them to go directly to the people. This is seen in examples such as Quarterlife where a show that did not get picked up by the networks was able to override them and go directly to their audience via the web, and Lonelygirl15 in which producer Miles Beckett, an inexperienced newcomer, was able to take his content to the web without building credibility with the networks. Creative Freedom The Internet also has fewer limitations regarding content than traditional television. This is primarily because of FCC regulations, which the networks are objected to because of their use of the airwaves. The FCC has yet to heavily regulate the Internet, and even if the FCC chose to set standards on the Internet, due to the structure and size of the web, it would be difficult to implement. As such, there is much more creative freedom on the web. Content that may be considered too lewd for broadcast are popular hits on FunnyorDie.com, a comedy video site started by a group of comedians and producers including Will Ferrell. Swear words are common as well as occasional gratuitous skin.
In addition to the lack of regulation, fledgling Internet start-ups and independent production companies do not have the brand reputation of the networks and have less to risk. Networks are limited at times due to their own brand image and the fear of tarnishing brands that has been cultivated over a hundred years. In the case of NBC, they also have the GE brand to consider, and for ABC, the wholesome image of Disney and Mickey Mouse. Still, despite lack of regulation or obligations to big brands, the online video industry does still self-regulate to make content accessible and approachable to broader audiences. “We self-censor or self-regulate because we’re the first people that are doing this and we’re really concerned about making the medium as engaging and as open to as many people as possible,” said Miles Beckett of Telegraph Ave. Productions.69
9am with David and Kim.
Chapter Four: Network Response “You don’t have a TV? What’s all your furniture pointing at?” Joey Tribbiani, Friends70
The networks have recognized that while the rise of online video has been a source of competition and possible cannibalism of audiences, it also provides opportunities for new sources of revenues, marketing and promotion opportunities, and new business ventures. NEW REVENUES Download Episodes In October 2005, ABC and Apple partnered to put episodes of hit television shows, Lost and Desperate Housewives, for sale on the Apple iTunes store. This marked the first time television shows were legally available on the Internet. Users could download episodes of the shows for $1.99 and play them on their personal computers or on Apple’s video iPods.71 Other networks quickly followed, realizing that the Internet, despite its potential to be cannibalistic, could also create new revenue streams. As of April 2007, the iTunes store reported to have sold over 50 million TV show episodes and 1.4 million movies72 The other networks also began putting their content on the iTunes store. However, in August 2007, NBC pulled its store after a dispute with iTunes over its inflexible pricing. iTunes charges $1.99 per TV show episode regardless of length or popularity. During the 2006-07 season, three of NBC’s shows were in
Friends, Episode S09E23 “The One in Barbados, Part 1,” first broadcast 15 May 2003 by NBC. Directed by Kevin Bright and written by Shana Goldberg-Meehan and Scott Silveri. 71 Jeanne McDowell and Jeffrey Ressner, “Brave New TV Land,” Time, 16 May 2006, A2-A3. 72 Lazlo, “US Online Video,” 6.
iTunes top three bestsellers and the network’s programming accounted for 30 percent of iTunes TV show sales.73 Following iTunes, other platforms have also started to sell television show downloads. Amazon released Unbox in September 2006, also selling television shows for $1.99. In March 2007, Amazon partnered with digital video recording device company Tivo to allow users to purchase programs on Unbox and have them download onto their Tivo machines to watch on their televisions.74 Ad-Supported Online Streaming Following the iTunes deal, Disney-ABC President Anne Sweeney appointed Albert Cheng as Executive Vice President of the newly formed Digital Media department. Cheng was eager to take advantage of the momentum created by the iTunes deal and decided the company’s next step should be to venture onto another platform that would be as groundbreaking. He and his small team decided that ABC should broadcast episodes embedded with ads on ABC.com for free. Each show was to have one sponsor which would be mentioned and air ads before, during and after the program following the same sequence as with traditional television. The ten spots for the May and June test of streaming Alias, Commander in Chief, Desperate Housewives and Lost on the new platform sold out in five days. The sponsors included AT&T, Toyota Motor and the Florida Department of Citrus.75
Apple (31 August 2007). “iTunes Store to Stop Selling NBC Television Shows.” Press release. http://www.apple.com/pr/library/2007/08/31itunes.html (Accessed 10 April 2008). 74 Amazon (7 March 2007). “‘Amazon Unbox on Tivo’ Now Available, Offering Over 1.5 Million BroadbandReady Tivo Subscribers Access to Thousands of Movies and Television Shows.” Press release. http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-newsArticle&ID=971365&highlight= (Accessed 10 April 2008). 75 Chuck Salter, “Brave New Mouse,” Fast Company, June 2007. http://www.fastcompany.com/magazine/116/features-brave-new-mouse (Accessed 4 October 2007).
The ABC online player took advantage of the interactive opportunities available on the Internet. The network invited advertisers to get creative. The Florida Department of Citrus sponsored programs, for example, had different flash ads at each break. The first ad involved links to the company’s site, the second had a game in which viewers broke open a piñata, the third provided trivia on the benefits of orange juice, and the fourth break had a traditional commercial. The Florida Department of Citrus continues to be an ABC online player sponsor.76 The ABC online player proved to be a great success, with over 11 million viewers watching during the month of May. More importantly, 85 percent of the online viewers surveyed during the trial run could recall the advertisers.77 The online player also attracted the younger audience that advertisers have long sought, with the average age of viewers being 29.78 ABC brought back the online player the following fall for the 2006/07 season. The other networks quickly followed suit with all the networks now having some type of online player operating on their networks’ websites. MARKETING OPPORTUNITIES Short-form Video Content To compete with the online video, networks have begun to produce their own short-form video content to market their programs and websites. These videos range in genre, but the primary objective of the videos is to engage fans online and to attract new viewers. Some networks also place pre-roll advertisements on the videos to generate additional revenues.
Albert Cheng, “Changing Economics of the New Television Marketplace,” JackMyers Networking Breakfast. Beverly Hills. 21 February 2008. 77 Frank Ahrens, “ABC Encouraged by Internet TV Trial,” Washington Post. 21 June 2006: D02. http://www.washingtonpost.com/wp-dyn/content/article/2006/06/20/AR2006062001321.html (Accessed 23 March 2008). 78 Cheng.
For example, on NBC’s The Office site, the video section includes videos of deleted scenes, video footage of the cast members attending The Office Convention in Scranton, Pennsylvania, clips of episode highlights, interviews with cast and crew, two-minute recaps of episodes, previews of upcoming episodes, and the webisode series The Accountants. Viewers can rate content, comment, and share with friends via emails, links and embedding the video onto their own pages. The webisode series The Accountants was aired online in summer of 2006 to entertain fans during the summer hiatus between seasons 2 and 3. The story line was simple and involved only supporting characters, but had the same look and feel as the on-air show. The series was included in the Season 2 DVD and won for a broadband Emmy for best comedy. ABC’s Lost site also has deleted scenes, recaps, highlights, and previews, but additionally, the site invites users to submit videos of their “Lost Theories” which can then be viewed on the site and rated by other fans. ABC has also utilized the Internet as a way for viewers to submit UGC videos for America’s Funniest Home Videos, a UGC show that has aired on the network since 1989. In addition to show-related short-form video, networks have also ventured into non-related content. For example, NBC’s website airs Coastal Dreams, a webisode series targeted at young women. The show has no corresponding onair show, but is exclusively available on NBC.com, bringing in traffic to the site and generating additional revenues through sponsorships. CBS.com has Danny Bonaduce: Life Coach, an animated webisode. ABC.com staff members air a daily talk show called ABC: Start Now on the site homepage highlighting news regarding the site and network programming. Cast members also drop by to discuss their shows. Partnerships with Video Destination Sites
A survey showed that 56 percent of online video viewers prefer a centralized online video destination where content is aggregated as compared to searching for video content among their favourite individually branded sites.79 As such, networks have formed partnerships with video destination sites to syndicate their content on multiple platforms. In these partnerships, the networks provide full episodes and/or short-form videos to video destination sites in exchange for a share of the advertising revenues generated. The most aggressive network in partnership efforts has been CBS. In April 2007 the company decided to de-emphasize Innertube, the company’s online video player, and instead take a different approach that they call the “CBS Audience Network.” The CBS Audience Network involves forming partnerships with and distributing full episodes on a wide spread of video destination sites including Yahoo! TV, AOL Video, MSN Video, and Fancast. “The object of the game is multi-partner, non-exclusive, open syndication of content, meaning in this new world where people can watch anything, anywhere, anytime, on any screen, you want to go to where those eyeballs are, as opposed to mandate that they go directly to CBS.com, for example,” said Quincy Smith, Chief Executive of CBS Interactive.80 Beyond distributing full episodes, CBS is currently the only major network to participate in YouTube’s Partnership Program. (NBC had been a partner, but pulled its content in October 2007 in anticipation of Hulu’s release.)81 Through YouTube, CBS distributes its short-form video content as well as supports its cable network Showtime. The partnership was launched on October 18, 2006 and over the next month, CBS uploaded more than 300 clips that had a total of
Bear Stearns, 5. Louis Hau, “Q&A: CBS Interactive’s Quincy Smith,” Forbes.com, 13 September 2007. http://www.forbes.com/media/2007/09/12/cbs-internet-video-biz-media-cx_lh_0912smith.html (Accessed 10 April 2008). 81 Daisy Whitney, “NBC Pulls Promotional Channels From YouTube,” TVWeek.com, 22 October 2007. http://www.tvweek.com/news/2007/10/nbc_pulls_promotional_channels.php (Accessed 10 April 2008).
29.2 million views. Three of the top 25 most viewed videos during the first 2 weeks of November 2006 were CBS clips. Additionally, the network experienced ratings growth for the Late Show with David Letterman and The Late Late Show with Craig Ferguson of five and seven percent, respectively, following the partnership launch. CBS released a press release in November attributing the growth in part to the partnership bringing a significant new audience to each broadcast.82 The other networks have also established partnerships throughout the Internet. ABC has partnered to put its episodes on AOL Video and has clips available on Yahoo! TV and Fancast, and NBC and FOX’s joint venture, Hulu, is syndicated on multiple sites including AOL Video, Fancast, Yahoo! TV, MSN Video, and MySpaceTV. NEW BUSINESS VENTURES Hulu In March 2007, NBC and FOX partnered to form a joint venture for an online video destination site to rival YouTube. The site became Hulu, which launched its closed beta in October 2007 and officially opened up in March 2008 for the general public. The site allows users to watch full episodes for most shows currently on NBC and FOX as well as full episodes and/or short-form content from over 15 cable networks (including Bravo, E!, Entertainment, FX, Sci Fi and USA). Additionally, the site provides other content including full-length feature films from four of the largest movie studios (Sony, Universal, Fox and MGM) and an array of produced web content. The site does not allow users to submit UGC content like YouTube. Hulu also is responsible for syndicating NBC and FOX
CBS Corporation (21 November 2006). “After One Month, CBS Content Among Most Viewed Videos on YouTube.” Press release. http://www.cbscorporation.com/news/prdetails.php?id=1264 (Accessed 10 April 2008).
content on outside sites, which currently include AOL Video, Fancast, Yahoo! TV, MSN Video, and MySpaceTV. Perhaps one of the most interesting aspects of Hulu is that it is being utilized as a platform on which archived programming can be distributed. Hulu has taken content from NBC and FOX’s archive that had not been syndicated and put it on the web with ads attached.83 While these programs may not have been profitable enough to justify television syndication, the low cost of distributing on the web make it possible to repurpose this previously shelved content. AOL’s IN2TV, an ad-supported line-up of six streaming-video channels, is doing the same with kitschy vintage series such as Kung Fu, Wonder Woman and Falcon Crest.84 Hulu aims to be the premiere destination for produced content on the Internet. According to FOX Digital Media President Dan Fawcett, Hulu is in talks with “virtually every broadcast network and a lot of other content owners,” in efforts to aggregate all professionally quality content onto this site. “[The role of Hulu] is having people be able to find and watch our content where they normally go but also have a site where the principal initiative of that sites is solely online video, not just of Fox but of premium content form a number of different content providers,” said Fawcett.85 There is scepticism on whether Hulu will be successful, largely because Disney and Viacom have yet to join the consortium. Both companies’ executives have said they are considering the possibility of making their content available on Hulu. However, Bear Sterns points out that egos may be a major risk factor as well as the fact that no major media joint ventures have been particularly
Hulu (12 March 2008). “Hulu.com Opens to Public.” Press release. http://www.hulu.com/press/launch_press_release.html (Accessed 10 April 2008). 84 McDowell, A5. 85 Louis Hau, “Q&A With Fox Digital Media President Dan Fawcett,” Forbes.com, 3 October 2007. http://www.forbes.com/media/2007/10/03/internet-advertising-fox-biz-media-cx_lh_1003fox.html (Accessed 10 April 2008).
successful in the past.86 However, Hulu could revolutionize the television industry as the intersection between the new and the old. Stage 9 Digital Media Disney-ABC, on the other hand, has ventured into the content production aspect on online video, officially launching Stage 9 Digital Media in February 2008. Stage 9 is Disney’s experimental new media company focused on creating original short-form programming, starting with the comedy series Squeegees. The series, which launched February 28, 2008, airs on the ABC.com video player along with other on-air programming as well as on YouTube. Stage 9 also produces the Voicemail and Trenches series. “An integral part of our overall digital strategy, Stage 9 was created to bridge the gap between user-generated content and traditional production, and is a perfect example of how we are continually looking at innovative methods to develop, produce, market and distribute the high-quality programming that consumers demand,” said Anne Sweeney, co-chair of Disney Media Networks and president of Disney-ABC Television Group.87
Bear Sterns, 8. The Walt Disney Company (28 February 2008). “The Disney-ABC Television Group Announces the Launch of Stage 9 Digital Media, An Experimental New Media Content Studio.” Press release. http://corporate.disney.go.com/news/corporate/2008/2008_0228_abc_stage9.html (Accessed 10 April 2008).
Conclusion “KYLE: I learned something today. We thought we could make money on the Internet, but while the Internet is new and exciting for creative people, it hasn’t matured as a distribution mechanism to the extent that one should trade real and immediate opportunities for income for the promise of future online revenue. It will be a few years before digital distribution of media on the Internet can be monetized to an extent that necessitates content producers to forgo their fair value in more traditional media. STAN: Yeah.” South Park88
Stan is right. Online video, while a more than worthy adversary, will not eliminate network television, although it undoubtedly has changed it. Traditional television has specific attributes unique to the medium that guarantee it will continue, mainly the brand recognition and reputations of network brands, financial resources available, and the nationalistic element of television. Additionally, viewers claim they are watching as much, if not more, television as they were prior to adopting the online equivalent into their lives. Finally, the aggressive actions taken by the networks to defending their position in the industry have positioned them as leaders in an expanding industry rather than an outdated medium of the past. Brand recognition and reputation Despite the fact that in America today, it is not unusual for a viewer to have access to over 500 channels, the average viewer watches fewer than 15 channels. For over 90 percent of these viewers, these 15 channels include the major networks and the top 10 cable channels.89 It goes to show that despite the
South Park, Episode S12E04 “Canada on Strike,” first broadcast on 2 April 2008 by Comedy Central. Directed and written by Trey Parker. 89 Palmer, 109.
abundance of choice, viewers continue to seek the comfort and familiarity of favourite brands. This behaviour transfers over to Internet viewing as well. Diversity on the Internet as “a mile wide but only an inch deep.” While the amount of information and content on the Internet is seemingly limitless, the structure of the World Wide Web leads to a staggering level of concentration as only a few sites at the top, usually run by familiar names, dominate. 90 In February 2008, the Internet sites to rank top five in terms of unique visitors were Yahoo! sites, Google sites, Microsoft sites, AOL sites, and Fox Interactive Media (includes MySpace.com). The same applied in September 2007.91 The networks also ranked in the top 50 in February 2008, with the CBS Corporation listed at number 30 with 23.6 million uniques, ABC-owned sites at 42 with 19.4 million uniques, and NBC Universal at 44 with 17.8 million uniques. FOX’s site is a part of the Fox Interactive Media group.92 Some new media companies, such as YouTube and MySpace, have managed to make a name for themselves and become a trusted brand in a short amount of time. However, trusted brand names like that of the major networks are not easy to develop and none of the independent content producers have been able to do so as of date and it is doubtful whether they ever will. The major networks have a higher level of legitimacy because of the fact that they are on traditional television and also through their affiliations with the major media companies. Resources
Matthew Hindman and Kenneth Neil Cukier, “ Does the Internet Promote Diversity?” Television Quarterly, Volume XXXIV (2004): 12. 91 comScore (18 October 2007). “comScore Media Matrix Releases Top 50 Web Rankings for September,” comScore. http://www.comscore.com/press/release.asp?press=1808 (Accessed 10 April 2008). 92 comScore (19 March 2008). “comScore Media Matrix Releases Top 50 Web Rankings for February,” comScore. http://www.comscore.com/press/release.asp?press=2118 (Accessed 10 April 2008).
One undeniable advantage of the networks is their access to resources, financial and otherwise. Each of the four major broadcast networks is affiliated to one of the largest conglomerates in the US - ABC with Disney, CBS with Sumner Redstone and Viacom, NBC with GE, and FOX with the News Corporation. As a result, these conglomerates can absorb any losses faced as well as help bring into capital when needed. Following Disney’s acquisition of ABC, ABC’s profits plummeted and the company suffered significant losses for the first four years.93 While for a smaller company this would be an end, for a company like Disney, the loss is almost immaterial. Another advantage of traditional television is the fact that it is much more developed, whereas the online video model has not yet been proven. The Internet advertising model has yet to generate the kind of revenue that is made through traditional television. Beyond the finances, networks also have unparalleled resources through their relationships they have within and outside their large conglomerates. The financial resources available, the support of the television studio machine, and the prestige of the networks enable them to produce content that is of much higher calibre than anything that can be created by independent web producers or an individual with a webcam and video editing software. The networks are able to attract high quality talent and producers through their big budgets and reputations. National Institution In the United States of America, television is not simply a popular past time, but a national cultural institution. The US is a large country with approximately 300 million inhabitants from all different backgrounds living scattered amongst a large geographical distance, from Alaska to Florida and Hawaii to Rhode Island. While
the Internet unites the world, network television unites Americans specifically, bringing citizens together under through a common culture and consumership of national brands. This is evident in examining some of the top-rated shows of the 2006-07 season. Six of the top 10 shows were occupied by FOX’s American Idol or ABC’s Dancing with the Stars.94 Both shows involve call-in voting and are “watercooler” television shows that viewers watch and discuss with colleagues and friends. Both of these shows, while ironically modelled after British television shows, are distinctively American, as in that they are tailored to the American audience and reiterate the American culture. Internet, inherently, is a global institution. While the networks have made efforts to block their programs online to foreigners, most online video programming is open to the world. YouTube is a multi-national site in which users of different countries can access one another’s’ videos. Network television, on the other hand, has always and will continue to be a nationally oriented medium. TV Viewership Consistent Despite the increase of online video viewers, market research indicates that this has not cannibalized traditional television viewership. Seventy-five percent of viewers say they watch the same amount or more television.95 Adult online video viewers watch only 11 percent of their television on computers versus 75 percent on the television.96 Also, after the over three-month long Writers Guild Strike, the industry was worried that viewers had gone online and would not return to traditional television
“2006-07 Primetime Wrap,” Hollywood Reporter, 25 May 2007, quoted on Jinxworld Forums. http://www.606studios.com/bendisboard/showthread.php?t=114628 (Accessed 11 April 2008). 95 Bear Stearns, 3. 96 eMarketer (30 May 2007), “TV Preferred for Video Viewing,” eMarketer. http://www.emarketer.com/Article.aspx?id=1004976&src=article1_newsltr (Accessed 10 April 2008).
following the strike’s end. CBS’s first Monday night back with fresh content proved this to be wrong as the line-up received the highest ratings yet for the 2007-08 season.97 Aggressive Actions Most important in maintaining network television’s dominance in the expanding television industry is their aggressive actions in maintaining their position. By selling television downloads on various platforms, the networks have made piracy unnecessary. With ad-supported online streaming and online marketing efforts, the networks found a way to utilize the Internet to their benefit. Through new media business ventures, they have expanded the definition of network television and staked their territory on the World Wide Web. The networks have followed the Internet video industry out of the box and onto the web, a move that is likely to be permanent. This has brought the networks new challenges they will have to continue to manoeuvre, but as brought even more possibilities in revenue, marketing opportunities and business ventures. Still, the online video industry will continue to keep the networks on their toes for years to come as the two screens battle it out for the consumers’ attentions. “Anyone who proclaims ‘Eureka!’ at this moment is very, very premature,” said FOX Entertainment President Kevin Reilly. “It’s a time of great experimentation. We have to be strong in our core business and vigilant about our experiments. I’ve yet to see anyone who has the answer, [or] the model. If you’re going to start proclaiming ‘This is how it is’ and ‘Those days are over,’ I don’t think you know what you’re talking about.”98
James Hibberd, “For sitcoms, many happy post-strike returns,” Reuters.com, 19 March 2008. http://www.reuters.com/article/entertainmentNews/idUSN1821953720080319 (Accessed 11 April 2008). 98 Kevin Reilly, “Changing Economics of the New Television Marketplace,” JackMyers Networking Breakfast. Beverly Hills. 21 February 2008.
While online video is flourishing and expanding its reach, network television is an important American institution that has stood the test of time and is unlikely to go anywhere. It is also important to point out that no form factor has yet to wipe out a previous form factor in the media business. Just as photography did not put an end to painting and home videos did not destroy movie theatres, Online video will not be the end of network television. Reilly put it best by saying, “There’s still a lot of kick in the old horse.”99
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Friends, Episode S09E23 “The One in Barbados, Part 1,” first broadcast 15 May 2003 by NBC. Directed by Kevin Bright and written by Shana Goldberg-Meehan and Scott Silveri. South Park, Episode S12E04 “Canada on Strike,” first broadcast on 2 April 2008 by Comedy Central. Directed and written by Trey Parker. Suite Life of Zack and Cody, Episode S03E16 “Tiptonline,” first broadcast 15 December 2007 by the Disney Channel. Written by Jim Geoghan and Danny Kallis. Online Video The Office, Episode S04E02 “Dunder Mifflin Infinity,” first broadcast on 4 October 2007 by NBC. Directed by Craig Zisk and written by Michael Schur. The Simpsons. Episode S02E03 “Treehouse of Horror,” first broadcast 25 October 1990 by FOX. Directed by Wes Archer, Rich Moore and David Silverman and written by Matt Groening.