TV making money on Internet

CANNES -- As you walk up the stairs from the on-site café at the Palais de Congres, you are blasted by the upbeat strains of the revamped CBS series Hawaii Five-O. Climb a little higher to the fourth and top floor where NBC-Universal has its enormous booth and an attractive young woman will hand you a sturdy shopping bag advertising its new paranormal, highly serialized show The Event.

The bouncy Hawaii Five-O music reflects the mood of the twice-yearly television market held here. If you close your eyes, you could imagine just for a moment you were back in those heady days of network television when the show aired in its original form in the 1970s.

We are not. The problems that plague today's TV industry are still very much here. Audiences for network TV are far smaller than they were then. Specialty and pay channels have eroded the network audience. More people in North America are now watching shows on video-on-demand, on computers or through recording devices than are watching them live. The Internet remains a huge threat to conventional TV.

But there's renewed confidence. The despair of the past couple of years has gone. Sales of television shows around the world have picked up. Prices are still not what they were and continuing economic problems in parts of Europe are depressing sales, but the revamped Hawaii Five-O is setting the tone: Everything old is new again.

The numbers speak for themselves. Jon Feltheimer, the CEO and joint chairman of the Canadian-based upstart film and television studio Lionsgate, rattled them off in his keynote address to the delegates here. People are watching more television than ever. Worldwide, households watch television for an average three hours and 12 minutes a day. In the U.S., that figure is five hours and 19 minutes.

But it is not the 1970s, and life in the television business is quite different than it was then. Lionsgate makes some of the best shows on television, including the multi-award winning Mad Men, Weeds and Nurse Jackie. But as Feltheimer pointed out, all of those shows have far smaller audiences than the big network shows of the past. Smaller audiences mean less advertising revenue. Less advertising revenue means the shows have to be funded in new and inventive ways.

It used to be the big American networks paid for television shows outright. Advertising revenue on the main television stations returned that investment. Foreign sales to countries like Canada and the U.K. were gravy, and the real money was made as the shows were repeated in syndication.

Today, even the big studios and networks need foreign sales on many shows to make profits. Shows like Mad Men cannot be financed on the old studio model. What companies like Lionsgate are discovering is that while the audiences for shows like Mad Men are far smaller than for the network shows of the past, their audiences appear more passionate about them and are prepared to pay for the privilege.

So part of the financing for Mad Men comes from sales on iTunes. The shows is available that way in Canada as well as being on the American channel AMC. The Internet video-on-demand service Netflix, which just launched in Canada, is also providing a new source of revenue.

Slowly but surely, the television business is beginning to find a way to make money from the Internet. What has for the longest time been seen as a way to get shows for free is changing.

The question is how much people will pay and what will they pay for? Sometime during the coming year, the big studios are expected to experiment with what they call "premium pricing" for the early release of hit movies through video-on-demand, whether made available via the Internet or direct to your set-top box. The studios believe a family might well be prepared to pay between $20 and $50 to watch a movie sooner after it has been released in theatres than has been possible in the past. The argument is that as long as it is cheaper for a family to watch a movie at home than going to the theatre, people will pay the price.

Which raises the question of how much you will pay to watch TV shows. More people in the U.S. last year bought premium cable subscriptions. The signs that consumers will pay to watch shows that they value are growing. The question may be whether people will pay to watch a show before the majority watch it.

A system may be developing where consumers will be able to pick and choose what they want to watch and when they want to watch it and they will pay different prices depending on how long they are prepared to wait.

Nicholas Hirst is CEO of Winnipeg-based television and film producer Original Pictures Inc.

Republished from the Winnipeg Free Press print edition October 7, 2010 A15