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TV's Evolution Brings New Profit Squabbles

As the industry tinkers with formats such as video on demand, the players are ironing out who gets the money.

January 17, 2006|Meg James | Times Staff Writer

Beginning this month, many Comcast Corp. cable subscribers who miss an episode of the CBS hit "CSI: Crime Scene Investigation" can pay to see it later. Next month, they will be able to use the same video-on-demand service to watch previous installments of the network's reality game show "The Amazing Race."

But when consumers fork over their 99 cents to see forensic investigators or globe-trotting contestants, who gets the money? And who controls the so-called VOD window?

That's what CBS and Walt Disney Co.'s Touchstone Television have been squabbling over lately. Ever since November, when CBS and Comcast announced their video-on-demand partnership, Touchstone has been crying foul, say several executives on both sides of the deal. The reason: Touchstone, which co-owns "The Amazing Race" with CBS, wasn't consulted before the deal was struck.

"These are areas that have to be ironed out," said Bertram van Munster, the creator and executive producer of the Emmy-winning show.

The Touchstone-CBS spat is hardly unique. As television executives scramble to exploit new technologies and make their shows available in as many formats as possible, they are facing scrutiny from many quarters -- retailers, advertisers, TV producers, actors and writers -- that fear their interests are being ignored.

Because existing licensing agreements signed as little as two years ago do not address how to split revenues from video-on-demand or video iPod downloads, every new deal -- however small -- is being closely watched.

"Right now, it's a low-money but a high-stakes game," said Rick Rosen, a partner at Hollywood talent agency Endeavor. "There's not much money involved at this point, but in the future it will be a tremendous amount. So any deal could be precedent-setting."

Hollywood's guilds are particularly concerned. Labor leaders fear a repeat of the early 1980s, when movie executives convinced them that revenue from videocassette tapes would never amount to much. The guilds accepted a much smaller cut of the profits from home entertainment, then watched as VHS and, later, DVDs mushroomed into a multibillion-dollar-a-year business and the studios' biggest moneymaker.

Now that technology has created yet more formats, said Patric Verrone, president of the Writers Guild of America, West, "this is really a galvanizing issue that some of our TV writers didn't see coming quite as rapidly as it has."

The dust-up between CBS and Disney's Touchstone centers on whether the network has the unilateral right to offer video on demand as part of its licensing agreement, which gives the network the first "window" of exhibition, typically defined as one season.

CBS' position is that because the video-on-demand release piggybacks on the marketing push it put behind its shows, the network should reap the rewards. Not only that, but most consumers identify a show with the network that the show airs on, not the TV studio that produces it.

Touchstone, however, has accused CBS of overstepping when it made a deal involving "The Amazing Race."

Executives at CBS and Touchstone declined to comment.

Some worry that the CBS-Comcast deal and others like it are nothing more than "land grabs," in the words of one top executive. But network executives describe them as experiments. Just as ratings on TV pilots reveal what viewers want to see, these deals may shed light on what delivery options consumers will embrace.

After all, networks are under pressure too. Their advertising revenues are shrinking at the same time that production costs, for items such as big-name stars' salaries and high-quality visual effects, are soaring. These days, TV production studios are commanding $750,000 to $900,000 to license a new half-hour comedy. The licensing fees for hourlong dramas are about $1.2 million to $1.6 million for each episode. And that buys a network only the ability to run an episode two or three times during the season.

TV production chiefs say they too are getting squeezed. In the past, the huge profits they reaped from a mega-hit such as Warner Bros. Television's "Friends" or 20th Century Fox Television's "The Simpsons" more than covered their inevitable flops, which cost hundreds of millions of dollars each year. And a show like "Friends," which made more than $1 billion in syndication, was a gift that kept on giving.

But now, the success of television show DVDs and next-day downloads of episodes are threatening the business model that has been in place for nearly half a century. So-called repeat values -- the amount that can be charged to run a show in syndication -- are expected to drop if everyone has already seen the show on a DVD or video on demand.

Still, many media executives hope the new technologies will make even more money not just for their companies but also for everyone involved.

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