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Digital Impasse

Nearly half the network shows on the primetime grid this fall are produced by third-party studios—independents like Sony Pictures Television or studios owned by the parent of a rival network. But NBC’s medical comedy Scrubs, produced by ABC’s corporate sibling Touchstone Television, is one of only a handful of such shows available for download on iTunes. What gives?

A year after ABC began offering its primetime hits on iTunes, kicking off a scramble to put network shows on emerging platforms, networks and third-party studios are still battling over digital-distribution rights, revenue-sharing and branding for their shows. While the studios are as eager as the networks to dip a toe into digital distribution, they are wary of disrupting their proven revenue streams.

“We need to be careful that we don’t allow the growth of new business models to have a negative impact on the downstream value of the content without offsetting the lost revenue from those downstream values,” says Bruce Rosenblum, president of Warner Bros. Television Group, which produces NBC’s ER, CBS’ Two and a Half Men and TNT’s The Closer.

At What Cost?

Downstream, of course, are the DVD and syndication sales that studios rely on to make back the millions they front to the networks to fund the shows. Putting their shows on iTunes for $1.99 a pop may offer quick money, but at what cost to future returns?

“You want to make sure you gain more than you lose,” Rosenblum says. “It’s way too early to tell that right now.”

While studios have agreed to promotional ventures, they have balked at paid downloading or free, ad-supported streaming of entire seasons. Next month, for example, CBS will stream the first four episodes of shows from Warner Bros. and 20th Century Fox for a week after they air.

Sticking Points

The sticking points range from which party should pay for the rights to music used in a show to whether networks are adequately attentive to the profit participants, such as actors or writers.

Networks, for their part, are restricted by their affiliate agreements when it comes to distributing content digitally.

There’s also the matter of branding. With content appearing on so many venues, networks want to make sure viewers know where it came from. And while the studios generally support that in the name of promoting network distribution, many are keen on the idea of getting top billing—particularly as they explore the possibility of launching their own broadband sites to distribute their shows.

“It is a big initiative for Lionsgate to have our name out there to build our brand,” says Sandra Stern, executive VP/COO for the TV division of independent studio Lionsgate, which produces Showtime’s Weeds and USA’s Dead Zone, among others. “As [with] any studio or network or soft-drink company, it’s very important to be able to control your own destiny.”

Despite the contention of the past year, there’s hope that deals are in the offing. Networks and studios are finalizing pacts for several fall shows but are waiting to see how they perform.

Warner Bros., for one, plans to close several with broadcast networks before the end of the year, Rosenblum says, though he declines to name which shows are involved.

The key to getting such deals done, he says, is to keep them short-term—yearlong distribution deals that studios can walk away from should they turn out to damage DVD sales or syndication prices.

Note of Hope

Touchstone Television President Mark Pedowitz sounds similarly optimistic that the current impasse will be resolved.

“Because of the radical transformation of the business,” he says, “no one’s quite sure where they’re standing on this earth for any given moment. You have to eventually step off the curb to see what the world is like.”