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CBS, Comcast Shift From 99-Cent Downloads to Free Online Fare

The companies end a paid video-on-demand experiment, seeing more profit in selling Web ads than charging viewers.

September 15, 2006|Meg James | Times Staff Writer

Consumers to media companies: We like our free TV.

On Thursday, CBS Corp. and Comcast Corp. announced they were scrapping their eight-month video-on-demand experiment with 99-cent downloads of such prime-time CBS shows as "Survivor" and "CSI: Crime Scene Investigation." Instead, they will immediately begin offering episodes at no charge.

The programs will be sponsored by advertisers, replicating the time-tested economics of broadcast television.

"Free turned out to be better," said Martin Franks, CBS' executive vice president for planning. "We can make more money on advertising-supported downloads than we could on the 99-cent downloads."

The two companies reversed course after discovering that few consumers were willing to pay for episodes of favorite shows, even when they cost less than a dollar. During the summer, they tinkered with their video-on-demand format in a few test markets by offering free downloads sponsored by automaker General Motors Corp.

Not surprisingly, the number of cable subscribers downloading CBS shows shot up.

"Viewers just didn't want to pay for it," said Josh Bernoff, media analyst with Forrester Research. "It's much easier to get money out of advertisers than out of consumers."

Bernoff predicted that the CBS-Comcast shift would be adopted by other TV companies, which also have experimented with video on demand. The lessons learned by cable provider Comcast and CBS confirmed the results of an earlier Forrester survey, which found that 67% of those questioned said they would not pay to watch an episode of a broadcast network show that had been available earlier for free.

When selling their wares piecemeal, TV companies have encountered a different consumer mind-set than have music companies or even movie studios, said Jack MacKenzie, a senior vice president at Frank N. Magid Associates, a television consulting firm.

Most people are used to buying individual songs or CDs separately, he said, or paying a set price to see a movie in the theater or on DVD. But television, he said, has always been different.

"Americans are used to the advertiser-supported model," MacKenzie said. "It's the way that we have learned to watch television. It's very much a part of our culture."

MacKenzie added that $3-a-gallon gasoline prices have crimped consumers' spending, making them less willing to order shows they could have caught for free.

What's more, he said, most consumers do not want to pay for "bundled services," particularly if it means their monthly bills fluctuate. Consumers, he said, "like seeing the same bill every month."

MacKenzie said that the Comcast video-on-demand program could help CBS maintain its bread-and-butter business of selling ad time.

Networks earlier this year sold less commercial time in their advance sales season than they had hoped. The reason: Advertisers withheld money so they could buy space on the Internet. "This could be another way for CBS to keep advertisers in the fold," MacKenzie said.

CBS will sell the ad space for the downloads on Comcast either as separate time or as part of a package for commercial spots that run in shows that air on the broadcast network, Franks said, adding that the broadcaster was just trying to meet the needs of its core constituency.

"Advertisers have been coming to us and asking, 'What are you doing on alternate platforms?' " Franks said.

The CBS executive added that the network's experiment of offering free streaming of March Madness NCAA basketball tournament games turned into a "watershed moment." CBS is no longer as worried that shows offered digitally would steal viewers from the broadcast network.

"We have found that this tends to be additive rather than cannibalize what's on the network," Franks said.

The debate over ad-supported or pay-per-view programming might not be entirely settled. Several companies are successfully selling episodes of their hit shows, such as NBC's "The Office" or ABC's "Lost" on Apple Computer Inc.'s iTunes store. Also, CBS is still offering some of its shows for $1.99 per episode through iTunes, Amazon Unbox and Google Video.

The move with CBS did not change Comcast's arrangement with NBC that makes available for 99-cent downloads of such shows as "Law & Order: Special Victims Unit" and "The Office" through Comcast on Demand.

Before CBS could scrap the 99-cent system, it had to revamp deals with such profit participants as producer Jerry Bruckheimer. Franks would not divulge how the advertising revenue would be split.

meg.james@latimes.com

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