Biz inspects gadgets

Congloms put CES on their agenda as digital dealmakers get more active

At last, convergence has arrived in a big way at the Consumer Electronics Show.

On the floor, Internet media companies like Yahoo and AOL will have a much bigger presence than ever before. And techies like Microsoft, Intel and Sony will be bragging more about how well they play with Hollywood content than the processing power of their latest gadgets.

That’s in part because they know the audience is no longer just the traditional CES attendees: retail buyers and industry analysts. High-powered Hollywood execs are also showing up to scope out the companies and products that may create the revenue sources of the future.

“We have many more people going to CES than we ever have before,” notes Larry Kramer, digital media topper for CBS.

They have good reason. After all, 2005 was the year when Hollywood dealmaking entered the digital world.

From TV shows on iTunes to clips on phones to original and classic content on the Web, media companies are finally making significant deals for digital distribution, driven by the recent slowdowns in most other areas of their business.

To head up these new efforts, and forge the deals behind them, virtually every conglom now has a high-ranking exec in charge of all things digital.

In some cases, such as News Corp.’s acquisitions of MySpace and IGN, and MTV Networks’ purchase of IFilm, they’re building new empires. Others, including most of the networks, are now distributing content on-demand via iTunes, cable or satellite. Then there are the portals like AOL and Yahoo and the cellular providers including Verizon and Sprint, which are in the business of getting their hands on Hollywood content and creating some of their own.

Of course, now that they have the authority to start making deals, figuring out which ones are worthwhile and how to value them presents a whole new challenge.

“Since we did the iTunes deal, a lot of people have come to us asking for our content,” says Albert Cheng, exec VP of digital media for ABC-Disney Television Group, which agreed in October to provide programs including ABC hits “Desperate Housewives” and “Lost” to Apple’s download service.

Apple followed that deal with a similar pact with NBC Universal that involved such programs as “Law & Order” and “The Office.”

“Now we have to be very thoughtful about what comes next,” Cheng adds. “Moving the business forward is not an excuse to rush into bad deals.”

Even when they’re ready to make a deal, however, digital media execs face a new set of unique challenges. In the film, TV and music biz, contracts are relatively standard, But online or on phones, execs are valuing content in a medium where it has never been valued before.

“We’re absolutely forging new ground, which can be challenging at times,” observes Jim Bankoff, exec VP of programming and products for AOL, which has licensed a slew of old TV shows from WB and creates some of its own unique video content.

“A lot of entities get that this is a new medium, which requires different cost structures and a creative approach,” Bankoff adds. “But there are some who think they are doing things the old way and deals fall apart for cost reasons.”

These execs are doing more than valuing existing content. They’re also working to make digital distribution a part of content deals from the outset for their companies, so that going back to the table to make deals for a wireless version of the next “Lost” won’t be necessary.

“As we go through this year’s development cycle, we’re planning for the first time on doing more than just put shows on TV,” Kramer says. “The entertainment team is aware of the multiple ways we’re looking to expand our programming, and that’s reflected in the contracts.”

Coming to CES, these execs are interested in technologies including high-definition DVDs, mobile video and home networking.

But beyond checking out the wares, these media companies will be keeping an eye on some of the big news coming from techies and online players.

In a keynote speech that, per tradition, will take place the evening before CES opens, Microsoft founder Bill Gates is expected to talk primarily about Windows Vista, the new operating system that will have advanced digital media capabilities built in.

“We’re focusing on the ability to use Windows Vista to capture, store, move, subscribe, and enjoy content via any and all means,” says Microsoft entertainment topper Blair Westlake.

In addition, Gates will discuss some of Microsoft’s media partnerships. Those include a new digital music service from MTV, which he will discuss onstage with MTV Networks prexy Judy McGrath, and its support of HD DVD, the high definition DVD format that’s competing with Sony’s Blu-ray.

Yahoo, meanwhile, is setting up space at CES for the first time in the form of a 3,000-square-foot tent outside the convention hall.

The company will not only be showing off its online media experience, but is expected to make some news of its own when Terry Semel gives a keynote speech Friday morning.

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