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No Longer 'Ancillary Revenue'

How Warner Bros. Sees TV on the Web

Michael Stroud
11.16.05

Twenty years ago, Warner Bros. Pay TV executive Eric Frankel got a call from Pat Robertson's Christian Broadcasting Network asking to buy the rights to “The Waltons”.

“We had never sold a series to basic cable,” recalled Frankel, today president of Warner Bros. Domestic Cable Distribution. “Basic cable almost didn't exist. They didn't pay a ton of money because advertisers didn't give them a ton of money.”

Today, he gets offers of as much as $1.5 million an episode from cable programmers who want exclusive rights to Warner Bros. library material.

And that's precisely how he concluded early 2006 was the time to launch In2TV, a venture with fellow Time Warner Inc. unit America Online that will post Warner Bros. TV library material like “Welcome Back, Kotter” and “Wonder Woman” on the web. Viewing will be free, duplicating broadcast television's ad-supported model.

“We expect we will have significant business from Day 1,” he said. “And we are optimistic that it will be a great business.”

Frankel's comments reflect a sea change in the TV business's attitude toward the Internet and emerging technologies. Once regarded with distrust, the web is seen as a critical future distribution medium.

That's why CBS announced on Tuesday that it would make a special bonus scene for “CSI: Miami” available only on the web. It's why CBS and NBC signed deals last week with cable and satellite operators to offer prime-hits on demand for 99 cents apiece. And its why ABC recently signed a deal with Apple to allow video iPod users to download episodes of shows like “Desperate Housewives” for $1.99.

As broadband penetration in the U.S. reaches a critical mass of more than 50 million households, streaming or downloading TV shows over the Internet is now feasible. And with college students and others already illegally downloading thousands of shows over the web, it's a nifty way to strike back against piracy.

Each program consumers watch will have four 15-second advertisements. The partners are counting on AOL's more than 100 million monthly unique visitors to drive advertising traffic.

For AOL, the venture offers opportunities to hyperlink news on, say, George Clooney to the old TV show “Alice”, which he played a role in. Since TV is a launching pad for many famous actors' careers, such possibilities are numerous.

Warner Bros.' approach is particularly intriguing because it involves streaming the shows, not downloading them. Streaming means it's harder to create perfect digital copies of the shows and distribute them illegally. Anyway, how do you “steal” something that's already free?

For In2TV to fly, two questions must be answered affirmatively. Do the streaming programs look as good on computer screens as they do on TV? And do people actually want to watch TV on their computers?

Frankel said the answer to the first question became clear the first time he and 10 other Warner Bros. executives watched last summer's Live8 music event stream over AOL on a plasma screen in a conference room.

“In less than `one mississippi' I got Elton John,” he said. “No buffering. It was a quicker reaction than my cable or satellite. The quality was terrific. I said, `I think the whole ball game's just changed.”

(I'll watch a demo of In2TV tomorrow, so I'll be able to report my own impressions).

As to the second question, Frankel points out that hundreds of thousands of people – particularly college students – already use their laptops or computers as the center for all their entertainment, including TV shows and movies.

It's not much of stretch to imagine TV shows streaming to media center PCs in living rooms, too.

In fact, the main obstacle to streaming video from PCs to TV screens hasn't been technology. It's been the lack of good content.

“The consumers haven't cared because all you could watch was movie trailers, music videos and news briefs,” he said. “We think that's about to change.”

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