Commentary: The ABCs of video upheaval

by Josh Bernoff

Walt Disney has announced that starting April 30 it will make popular ABC shows including "Lost" and "Desperate Housewives" available for free on a Web site it controls. Shows will include ads that can't be skipped.

This is the start of a big trend; now networks, Web portals, cable operators and advertisers need to shift their strategies. Free TV on the Web will further weaken TV schedules and hasten networks' transition to multiple revenue streams.

ABC broke the TV/Web barrier when it put its prime-time shows on iTunes. But most consumers won't pay for shows they can get for free. Meanwhile, the market for ads in online streaming video is exploding, with CPMs (cost per thousand viewings) moving upward from an already enviable $25. Recognizing the revenue opportunity, ABC has now defined the role of streaming video in network strategy: to expand audiences beyond the regular TV schedule. The rest of the TV industry must react:

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• Other networks must follow ABC's lead. The network's move will lock in loyal viewers, generate revenue, broaden relationships with advertisers and turn ABC's Web site into a high-traffic destination. As of this moment, CBS, Fox and NBC are behind. With their business models threatened by fragmentation, ad clutter and digital video recorders, these networks must fight their cultural tendency to protect prime-time viewing and 30-second spots, and create video portals similar to ABC's. Fox, in particular, should put its shows on MySpace.com.

• Portals should race to aggregate video traffic. With major networks' video locked away in their own sites, portals must romance other video sources, including less aggressive cable networks like Lifetime. AOL has a start with classic video in its In2TV service. Google needs to move quickly to add ad-supported video to its paid and free service. Yahoo should begin heavily promoting its video search, creating a better index into the free sites maintained by the networks.

• Cable VOD needs an ad model. Free video-on-demand abounds at Comcast and Time Warner Cable, but affiliated advertising is far from standard. To fix this, operators like Cox, Charter and Cablevision must beef up their free content and commit to supplying viewing data to measurement vendors Rentrak, Nielsen and Everstream. Without a VOD ad model, networks will shift their attention away from VOD and look toward the Web.

• Advertisers should embrace online video. ABC's streaming video spots are unskippable, uncluttered and dedicated to a single advertiser. Advertisers should leap on this opportunity to get consumers' undivided attention and insist on bundling it with TV ads. All future branding campaigns should include online video alongside television.

© 2005, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.