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Diving Into Digital Dilemmas

Dealing with digital will continue to be a
key business issue for the television industry in 2012.

While Netflix and other streaming companies are no longer seen as public enemy
No. 1 threatening the television ecosystem, ratings erosion and over-the-top
availability on multichannel subscriptions remains a concern for top TV

The New Paychecks

Those concerns are assuaged by the $100 million-plus checks from Netflix,
Amazon and Hulu cashed by the likes of CBS, Time Warner, Viacom and Discovery
for programming, much of which might otherwise be gathering dust in a library.

"This digital space is incredibly important. Clearly it's going to be over the
next five years and beyond the No. 1 issue we need to navigate as these digital
platforms and digital ways to distribute our product continue to evolve," News
Corp. COO Chase Carey said in December at an investors' conference. "We're
looking to make that an additive process so we keep adding things on top of it,
but it is incredibly important to be able to develop and build the right
business models in this digital space."

Most media companies have decided that streaming works for library programming
that is either too old or too serialized to do well in traditional syndication.
But they are keeping their deals short-term to maintain flexibility, because no
one knows what the market is going to look like in five or 10 years.

Still, the revenue available from these new digital distributors is
substantial. The CW, a joint venture of CBS and Time Warner, made deals with
Hulu and Netflix that turned the small network from one that had questionable
profitability and worries about its future into one with a clear economic

Cord-Cutting Caution

But there is still wariness. Wall Street is training an eagle eye out for signs
of cord-cutting by consumers who think that they can get the programming they
want over the Internet without subscribing to a more traditional multichannel
video provider.

That is adding to the pressure on cable and satellite operators to provide
lower-cost services to consumers who are facing unemployment and
underemployment and just can't afford the continually rising price of a cable
subscription. (Those pressures will intensify as a new round of NFL contracts
with ESPN, CBS, NBC and Fox calling for 60% to 70% rights-fee increases kick in
and those networks look for higher subscriber and retransmission fees.)

Multiplatform Measurement A Top Issue for Madison Ave.

The move of video to digital is also a concern on the advertising side of the
business. Web video is not having as much impact on television viewing as some
reports would have one believe, says Rino Scanzoni, chief investment officer
for media agency giant GroupM.

For now, TV is a very healthy business from an advertising perspective, but
increasingly what is thought of as TV programming will be viewed on alternative
screens, from laptops to tablets to smartphones.

The key for advertisers is finding a way to reach viewers of a program
regardless of the delivery device, Scanzoni says.

"One of the things that's high on my agenda is this whole aggregation model,"
he says. "Just like we had to go to C3 [commercial ratings] four years ago, now
we have to move to an aggregation model where we are counting in the
impressions that are being delivered- whether it's on a computer screen, an
iPad, a tablet-for that content within that C3 environment."

Scanzoni says that's necessary because viewers are going to engage more and
more in those alternate platforms, and without aggregating viewership it will
be difficult for advertisers to reach the mass audiences they want via
television and for media companies to fully monetize the viewership of their

One issue is measurement. Nielsen has not yet been able to measure viewing on
tablets. At the same time, not all networks are putting the same commercial
loads on streaming video as they do on broadcast and cable, which creates a
chicken-and-egg situation as far as generating commercial ratings.

Scanzoni adds that different networks see varying amounts of urgency in
aggregating their on-air and online viewers.

"The litmus test is clearly the guys that have been most affected by it have
been closer to moving toward an aggregation system," Scanzoni says, citing the
CW and Fox.

"You have an ABC and a CBS right now that are sitting there thinking, we're
fine. We can sell those streams in an online world as a separate buy," Scanzoni
says. "They're not necessarily comfortable that the additional revenue that
they can generate on the ratings side is going to compensate for it."

But from a media buyer's and advertiser's point of view, the GroupM exec adds,
"the reality is for us it's not practical to continue and operate where we're
dealing with all of these different data streams. At the end of the day, this
content is the same content. It should be included and it should be paid for
within the same metric."