Web Looks Sticky for Networks

Big talk hides the reality of declining payback for the big broadcasters.
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The big TV networks are juicing up online programming in a bid to shore up ad sales, but the Net is a long way from replacing the tube on their bottom lines.

Each network elaborated on interactive strategies at last week's Upfront presentations. Much time was spent outlining for media buyers and marketers how network programming would be made available on the Internet.

GE's

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NBC touted its 360 Digital plan, which features "mobisodes" -- as in mobile episodes, or teasers for a show -- and a new broadband comedy channel.

At

News Corp.'s

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Fox, Interactive President Ross Levinsohn spoke for half an hour on the company's Web plan.

Disney's

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ABC has free ad-supported shows, and

CBS

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pushed CBS.com's relationships with

Google

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and

Yahoo!

(YHOO)

.

There is little doubt that the media landscape is changing rapidly to encompass new technologies. But selling TV ads remains much more profitable for the networks than selling the same programs online, as a cost-per-thousand-views (CPM) comparison demonstrates.

A primetime broadcast show at a typical $20 to $25 CPM generates 40 cents to 50 cents in revenue per viewer. An online viewer, with many fewer commercials per viewing, generates 10 cents to 20 cents. Deduct the cost of streaming video, and the revenue picture darkens by several cents more per viewer.

Meanwhile, the talent guilds in Hollywood are angling for profit participation on any online ad revenue the networks see. Those negotiations are still to be determined, but the percentage promises to be another significant slice of the pie. A producer like

West Wing's

Aaron Sorkin or

Boston Legal's

David E. Kelley could easily be looking for a 10%-plus cut.

So, why are networks going to such lengths for so little? To hold on to revenue as programming moves into new channels, regardless of the incremental hit.

"It's so media buyers can go back to their clients and convince them to pay the same rates, or a little more, for TV because of all the extensions," says one analyst.

A media buyer pointed out that if a show has been sold into syndication, the network has to pay the rights holders to use it online. That could be a hefty cost, given that the TV show's syndication value is likely to diminish significantly by virtue of it being available on the Internet.

That the networks need to adapt to content-delivery change to curb future losses seems clear. Merrill Lynch analyst Jessica Reif Cohen says in a recent note to clients that "new media offerings from traditional broadcasters are clearly going to play a much larger role in the selling process and could allow them to protect their share of advertising moving forward."

But while some network leadership played up the online programming extensions, others were quick to point out that it all starts with TV.

Disney-ABC television president Anne Sweeney and CBS Chief Les Moonves both stressed the basic importance of traditional TV to deliver hits. And Moonves discussed the ongoing importance of the broadcasting networks within larger media companies, citing recent earnings results at his company's division, along with Disney's

ABC

and News Corp.'s

Fox

, as displays of the great importance of traditional broadcast television in the media-asset mix.

"The most obvious impact of the proliferation of new distribution platforms is increased leverage for advertisers, who now have more options when putting their budgets to work. All else being equal, this could put pressure on upfront dollars," wrote Merrill's Cohen.