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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 executives.

The New Paychecks

Those concerns are assuaged by the $100 millionplus 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 return.

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 content.

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.”

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