How is the business different today?

When Kevin started at NBC in 1988, he started to see articles being written about how network TV was a dinosaur. The articles we see today are similar. The death of TV is greatly exaggerated. Back then you could see that cable would grow and network TV would lose share to cable.

There was no discussion of how the business model would change back then. TV was the greatest advertising mechanism every invented. While the media mix will change, there is so much information coming out now that people actually miss ads when they get pulled out of shows. People want to know about products and ads play a useful role.

People will declare TV dead. While there is no turning back the clock, there will be TV networks in the future.

What are the fundamentals that will always apply?

Kevin says he’s really shocked to see how much sometimes nobody knows anything.

We can’t make declarations about what will work and what won’t. He tells the story of how everybody passed on the Sopranos, how Law & Order was not seen as the great show and the same thing applies to the media and the business model. There is massive change going on, but when people declare something to be the “way things will be” it’s more often wrong. He says the one constant is quality content.

If we were at this conference 2 years ago everybody would be saying long form video won’t work on the web. Now, we see it as one of the leading drivers of video on the web.

Where are you on UGC?

We all love a polished production, but great entertainment can be some 5 minutes of truly entertaining content. He’s all for it if we can make a living with it.

What experiments have worked and what haven’t?

This is not like trying to re-tool the auto industry. He says the media business is very responsive. It’s all about the risk takers. He points to Rupert Murdoch as someone who has challenged the status quo and its one of the traits of News Corp.

Talk about year round development

The more things stay the same, the more they stay the same. The old network model was a license to print money. The cycle worked. It wasn’t very efficient. Peaks and valleys in work were huge.

It seemed to outlive it’s usefulness, but people kept doing it. When we came out to the strike, it seemed like an opportunity to move to a year round basis. It’s a risk, but it creates opportunity to use highly viewed shows at the end of their season to promote new shows.

Talk about the Remote Free TV idea.

The idea is an experiment. Last year they were setting the schedule and they decided they needed to do something different. They had been stuffing more and more commercials into shows. Advertisers had come to view the commercial load as clutter. They decided to cut the ads in half and charge twice as much per ad. Fringe was the first experiment. It was really received well by the audience. The rub was that the advertisers who would pay the premium were few in number.

Not sure whether this will be the model for the future, but it may be the way to go. (My note: he should read the Innovators Dilemma. TV is in segment retreat to the high end. Higher quality ads at higher prices. Same move as the steel industry etc. Worth reading if you care about this stuff.)

What about the relationship with Cable Networks.

We are at a saturation point with cable. People have 118 networks and watch 16. It’s no longer good to add more networks. They are negotiating with cable networks to take cash for their network broadcasts, but it may mean a reduction in the number of cable networks that companies like Fox have.

When things are available online via Hulu, how does that change the relationship with cable companies?

We have to create legitimate models before illegitimate ones pop up, like they did in music industry. Fox makes high end content which need 10 minutes of premium advertising to support. When people watch 24 on Hulu we make less money. How we balance this is important. Windowing might help this. Cable companies have a 7 day delay before it goes online. It’s just one of many challenges we are dealing with.

For example, the way we finance these shows has changed as well. It used to be getting to re-run syndication. That market has seriously contracted. We need to figure out new revenue models.

What’s popped culture?

Pop culture and mass media had a symbiotic relationship. It was a great robust time for media. Now we’re living in the era of Moore’s law. Everything is moving much faster. Managing the relationship with pop culture is challenging when things are moving so fast. Media is not moving in lock step with pop culture. It’s the beginning of a really big transition. Even in a forest fire, there is rebirth after the fire.

Why is a successful producer even dealing with the Internet?

Stan says he has a son who was just not watching TV. He says his son asked him about CSI which he saw on YouTube. His son’s generation just doesn’t know about networks.

The Internet is just growing and growing.

What does it take to make a successful show on the internet?

Principally, it starts with a simple thing – a great idea that the audience will embrace. If you don’t have that nothing else matters, no matter what channel of distribution you use.

The difficulty of making a 3 minute episode with a beginning, middle and an end, with a cliff hanger to bring people back is very hard. Some writers figure that out, some don’t. It’s very challenging to make that short format work.

The other thing that is becoming very important is the social networks into account. They are different and they will evolve into places where different type of entertainment will migrate to different places.

The challenge is to stay ahead of the curve. It changes always.

One of Stan’s partners spent two years working on games. They see the game aspects of the core piece of entertainment is important and growing in importance.

How did you get Rosario to do the show?

One of the writers of Afterworld is a friend of hers. She did one of the voices on Afterglow and it turns out she’s a sci-fi fan. We asked if we could do something with her and she said yes. Finding an artist that thinks the internet is cool and wants to be there, is what it takes.

Where’s the money?

Gemini Division has different model. They are using product integration with 5 different brands that are very organic. Microsoft, Intel, Cisco, UPS. They talked to the brands to find what was really cool about their stuff. They then could integrate the product features into the show.

The show starts with Rosario talking into the PDA, they had her talking into the Windows Mobile software. They created a new interface which was not the traditional Windows Mobile interface. Microsoft let them go ahead and it got really good reviews. Now waiting to see what Microsoft does with the interface.

They have not done pre-rolls – but they are open to experimenting. They believe there is more value in product integration, but traditional media buyers still want the things they know.

What about distribution?

Phase 1 was tied to NBC for the first 50 episodes. Phase 2 will be opened up to much wider distribution. There are lots of people who love the show now, but it can be opened up to many more people with wider distribution.

What can be learned from Quarterlife?

Internet entertainment is internet entertainment and TV entertainment is TV entertainment. They will re-cut the web version to make a DVD, but the TV version is a different thing as is a game version of the show.

Hulu has been a great consumer success. But it’s not clear how it plays out for the traditional distributors like cable and the content producers.

The traditional distributors are saying hold on, we’re paying to distribute this content and you are giving it away for free online.

The content producers are used to the TV load of advertising revenues which is much higher than the ad load at Hulu. We may not be talking about trading analog dollars for digital pennies, but it may be analog dollars for digital dimes.

If the cost per thousand impressions doesn’t change, it’s a hard to see how things progress quickly. It just doesn’t make economic sense for Madison Avenue.

One of the things that technology allows to do is to target ads much more effectively, which may be a way to increase the digital revenue without the same advertising load. There is some certainty that advertising will remain a major component of the revenue model.

There’s a tendency to lump music, TV and movies into an entertainment bucket. Movies have two primary sources of revenue. Renting a night at the movies which represent about 30% of revenues and then the sales of DVDs and the like representing the bulk of the revenue.

Cloud computing based movie distribution will begin to substitute for DVD’s as rental on demand grows. For example, while DVD sales may be down 30%, Xbox video on demand revenues have roughly doubled.

Looking at TV, before DVRs, TV viewers would watch about 2 out of 4 episodes of shows. With DVRs, that number has increased to the average viewer watching 3 out of 4 episodes. Cloud based access could play a role in further increasing the viewing ratio.

Is the next step the Netflix subscription model? Fewer and fewer movies are being distributed via the ad supported model. The Netflix model is not new. HBO has been around for a long time and is the premier movie channel. Netflix is a different time window than HBO. It’s offering access to the library. One in ten Netflix subscribers use the Xbox Live service to access movies to consume billions of minutes of media.

The two models that seem to make the most sense are subscription and ad supported distribution.

What’s been the impact on the rental market? The VOD market should see strong growth. The average consumer only watches a movie a couple of times which makes rental a sensible alternative.

However, the switch to online will take longer than people expect. It won’t be one model for everyone.

Westlake looks at the audience and see different segments. The older audiences will be stay wedded to the traditional channels. The younger generation will be different. Just like they prefer cell phones, they will be looking at it with a very different set of eyes. They will drive the change.

The bottom line – the internet has caught up with TV for entertainment use. TV viewing is down by about 2 hours from last year, with most of the increase being in watching online video.

The interesting thing is that there is lots of data to suggest that TV and Internet media reinforce each other. Much of the online activity revolves around catching up with what’s going on with TV shows. Watching shows you missed is a highly popular use of online video.

There appears to be a future for TV, but one quite different from that of the past. TV won’t be the single dominant entertainment channel. It’s going to have to share prime time with the Internet.

You can follow what’s going on via Twitter search.  Just search for #FOTV.

UPDATE:

# Mike Vorhaus (Magid Advisors) Presentation:
Nielsen versus Consumers – They Say Canabilization Happening
# Seth Geiger (SmithGeiger) Presentation:
Digital Media Trends and the Future of Television