Studios take new technology global

Financial model for TV changing overseas

In the U.S., Hollywood studios are grappling with the fact that new technology (on-demand, time-shifting, etc.) is creating a cataclysm in the old financial model for TV series. And, before the studios can solve that quandary locally, they’re taking it global.

Overseas, a slew of video-on-demand channels and services have been introduced during the past few years. International viewers have many more choices — and studios have many more challenges.

The pros and cons of all of this next-generation TV activity overseas are sure to be topic of conversation as the global TV buyers and sellers gather this week for the annual MipTV conference in Cannes, April 7-11.

For years, strong foreign demand for Hollywood product has made it possible for the majors to spend upward of $3 million per episode on big-budget shows like “24,” “Lost,” “CSI” and “Heroes.”

That demand is growing more insistent — and a lot more complicated for program sales execs — as distribs in the U.K., Europe and other key territories dive head-first into the on-demand channel business.

A slew of high-end broadband, cable and satellite outlets have bowed in the past two years offering viewers many more options for watching television on their own timetables. Some are offshoots of existing major nets and pubcasters, like the BBC’s popular iPlayer, and some are cobbled together cable, satellite and broadband providers a la the U.K.’s Virgin Media, BSkyB and British Telecom’s BT Vision.

Some of Hollywood’s majors are joining the party, mining their libraries to create their own branded on-demand channels, such as Warner Bros.’ Warner TV outlet in the U.K., France, Japan and other markets, or NBC Universal’s PictureBox movie channel in the U.K. CBS Corp. has a deal with the U.K.’s Virgin Media digital cable service for an on-demand channel offering segs from the various “Star Trek” drama series.

Hollywood imports are by no means the only product showcased on these startups, but they are a big part of the marketing hook. (“Watch episodes from seasons one, two and three of ‘Lost’!” “Coming soon: Season two of ‘Scrubs’!” etc.)

The issues at stake overseas are not much different than the problems vexing Hollywood at home. How is time-shifted viewing going to cut into network advertising rates? What will on-demand exposure mean to a program’s long-term syndication value to a studio? Nobody knows — yet. But it’s undisputable that the 100-day writers strike was fueled by the ubiquitous sense among scribes that the industry is in the midst of a seismic shift.

“It is a big mosh pit,” says Gary Marenzi, a veteran international sales exec and co-prexy of MGM Television. “It is fun, and it is challenging. Hopefully we’ll start to see some semblance of order soon. Some of the deal terms have been all over the map … But as a program provider, we’re very happy. The more outlets the better for us.”

On the international front, licensing questions for traditional and new media are more complicated for larger distribs simply because the volume is so much greater. On-demand deals tend to be non-exclusive, allowing studios to license movies and TV shows to multiple outlets, in contrast with a traditional program pact. The onus is on the distrib to police their exhibition windows on shows and make sure they don’t violate existing agreements in granting new on-demand rights.

U.S. studio execs say the explosion of channels promises to open up significant revenue-generating possibilities in the future, especially with the low startup and overhead costs needed to launch a studio-branded broadband channel.

Consumers in the U.K., Asia and Europe are generally more advanced than Americans when it comes to embracing new technologies. And the choices are plentiful: Some of the new services charge a monthly fee for all-you-can-eat access to a menu of shows; some allow pay-per-download viewing, and some allow viewers to stream or download to a PC shows for free viewing, for a limited period, with embedded advertising.

For now, however, on-demand deals have yet to deliver much in the way of coin to the majors. So it behooves U.S. distribs to make sure that on-demand deals don’t get in the way of what CBS Paramount Intl. TV prexy Armando Nunez Jr. calls “the bread and butter of good old-fashioned program sales” to traditional outlets.

“The revenues the shows generate around the world is a very important part of the budgeting model for our dramas,” Nunez says. “The question of how the non-traditional pipes fit in to the traditional pipes is obviously an opportunity for us, but we need to focus clearly that we’re doing it in a complementary and additive fashion. We don’t want to take revenues from one pocket and put them in another pocket.”

Sony Pictures TV’s international division has invested more heavily that any of its studio competitors in operating branded channels overseas — even to the point of developing indigenous original programming.

Sony has linear “Sony Entertainment Television”-branded general entertainment outlets running in Latin America and India since 1995 and the AXN action-oriented channel serving Asia and India for more than 10 years.

“Hollywood product always works well and we usually launch and grow our channels using Hollywood programming as the core programming schedule,” said Andy Kaplan, prexy of international networks at Sony Pictures Intl. Television. “But as they grow and mature, ultimately local production becomes a key way of growing our audience and our advertising pie. … The trick is finding that right combination and packaging it up in the most consumer-friendly way.”

Blighty has been a hub of activity for the transition into digital and on-demand entertainment. The BBC’s “catch-up service” iPlayer (which boasts the tagline “making the unmissable, unmissable”) has proved a hit with auds ever since its bow in December. The service allows viewers to watch the Brit pubcaster’s programs for up to seven days after its original transmission date for free; more than 3.5 million programs were watched or downloaded within its first two weeks.

Rival webs Channel 4 and ITV also have their own on-demand service, while all three channels are also teaming in a historic partnership to launch Project Kangaroo by year’s end. The on-demand service will aggregate catch-up and archive programming for all three broadcasters.

“For some time we have wanted to form an alliance with other rights holders in the U.K. and give viewers an on-demand service with real added value,” said BBC Worldwide chief exec John Smith when the ambitious project was announced in November.

Brit telco BT is making moves with its upstart IPTV service BT Vision, inking an on-demand deal with Disney-ABC Intl. Television in January. The pact allows BT Vision users to rent shows such as “Ugly Betty” and “Desperate Housewives” on a pay-per-view or monthly subscription basis.

Virgin Media is reportedly considering selling off some of its linear channels so it can concentrate on high-speed broadband rather than premium content.

Although BBC’s iPlayer competes with Virgin Media’s offerings, a Virgin exec credited with the Beeb’s service with doing “a good job educating the audience in terms of the benefits of on-demand viewing. At this stage it’s all about opening up the market.”

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