Technology

Fox Feeds the Online TV Frenzy


The race for making more movies and TV shows available via the Web is heating up. News Corp.'s (NWS) Fox Entertainment Group on Aug. 14 announced plans to sell movies and television episodes through its Direct2Drive and MySpace Web sites. Starting in October, Direct2Drive will sell movies for $19.99 and episodes of Fox's hit series 24 and Prison Break for $1.99. A timetable for MySpace is still in the works.

Mickie Rosen, Fox Interactive Media's general manager, says the announcement is the first of many. "We definitely see ourselves rolling out additional services over time. We are working on very close collaboration with our studios and networks," he says.

Fox's announcement comes a week after Google (GOOG) and Viacom (VIA) said they'll syndicate content on Google's extensive AdSense network. As part of the deal, Google will also sell Viacom videos for $1.99 each on its video site (see BusinessWeek.com, 8/08/06, "Google's Duet with MTV"). Time Warner's (TWX) AOL also unveiled a video site this month offering both free and pay-per-download content from major networks.

ACCELERATED EVOLUTION. By themselves, the deals aren't all that earth-shattering. For months, studios and other providers have been announcing arrangements for distributing their content over the Web. Warner Bros. (TWX) is selling its TV shows and movies over the Internet through sites such as Guba and BitTorrent (see BusinessWeek.com, 06/26/06, "Guba Debuts Online Video Store with Warner Bros.").

But taken together, the deals show just how far the online video industry has come in the past year—and are a harbinger of where it's headed in a hurry. In a matter of months, many online video sites have evolved from pages packed with poor-quality home videos and pirated clips to video stores offering legitimate pay-per-download movies and network content. As networks and studios become more comfortable with selling content online—and cashing checks from online advertisers—analysts say many sites could morph again from stores to stand-alone stations where reruns and original content are streamed for free.

David Hallerman, a senior analyst at research firm eMarketer, says in the coming months, networks and movie studios will put more and more content online for free with advertisements running before clips. "These sites reach some of that audience that is barely watching television and whet appetites for the actual show," he says. "They generate that buzz…and, in terms of advertising, they provide more opportunity."

TIME FOR EXPERIMENTATION. Fox says an ad-supported model is in the works and is likely to be announced soon. "We think there are opportunities for multiple business models—consumers want to use their content in multiple different ways…and in the very near future there will be an advertising supported model," says Peter Levinsohn, president of Fox Digital Media: "You will see an announcement shortly about the possibility of making content available in an ad-supported way on our station Web sites. So, within the next 12 to 18 months, you will see us experiment."

Indeed, online video advertising will jump from $385 million this year to $2.35 billion by 2010, eMarketer predicts. If estimates prove correct, the total amount in 2010 will still only represent about 8% of the overall advertising pie. Still, much of that tally would be pure profit for content providers since they would be simply making shows, already created for television or the big screen, available online.

Thomas McInerney, CEO of Guba, also sees increased cooperation between networks and Internet video sites. In fact, he thinks eventually many studios will follow the model of News Corp. and acquire Internet sites to distribute their shows and advertiser content over the Web.

OPEN TO ACQUISITION. "There are two paths the studios can take," McInerney says. "They can basically partner with existing Internet distributors, whether it is Guba or Apple (AAPL), or they can distribute through their own properties. And the nice thing about distributing through their own properties is they don't have to give part of the margin to a Guba, Google, or an Apple." His bias clear, McInerney says Guba would be open to such an acquisition. The site already has distribution partnerships with Warner Bros. and others.

Content providers already are using in-house online distribution channels. AOL's video site, which debuted on Aug. 3, has clips from many networks owned by parent company Time Warner as well as other major networks (see BusinessWeek.com, 08/07/06, "AOL Video: Close But No TiVo"). Its content, which includes full-length shows and video clips, is largely free, thanks to advertisements inserted before most videos. Google, too, offers free videos supported by commercials that are bundled with content.


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