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Media Executives: Digital is a Reality, Not Necessarily Profitable

1 May, 2009 By: Erik Gruenwedel

Milken Institute Global Conference

The migration of online video consumption beyond user-generated content to mainstream Hollywood fare is a certainty media companies can’t ignore even if the economics suggest otherwise, said entertainment panelists at the Milken Institute Global Conference April 27-29 in Beverly Hills.

Media executives said the popularity of Hulu.com, TV.com and the digital video recorder (DVR) for repurposed television content and select movies underscores the changing dynamic of viewers that is impacting advertising revenues and corporate financials.

Hulu, co-founded by NBC Universal and News Corp., for the first time cracked the top three in the rankings of videos watched in March, according to comScore. Online users watched 14.5 billion videos in March, up 11% from February. The average online viewer watched 327 minutes of video, or about 5.5 hours.

“Anyone who doesn’t realize your content has to out there, has to be all over the place, is kidding themselves,” said panelist Les Moonves, president and CEO CBS Corp. “The thing that keeps me up at night is: Can the Internet eat your lunch?”

Moonves, whose network shows include the top rated “CSI” franchise, newcomer “The Mentalist”, “NCIS”, “Two and a Half Men” and “Without a Trace”, said he hoped repurposing programming online wasn’t cannibalizing broadcast revenues.

“It’s a quandary we think about everyday,” he said.

Peter Chernin, departing (in two months) president and COO of News Corp., countered that the Internet was cannibalizing TV re-run revenue (not primetime broadcasts) and that digital distribution offered new and unique ways to monetize repurposed content.

“We would rather that people watch reruns on Hulu, CBS.com and Fox.com than TiVo them and watch them without commercials,” Chernin said.

He said there continues to be tremendous growth in online video advertising with spots being sold for higher CPMs (cost per thousand) than for network ads. Chernin said 70% of Hulu’s revenue is paid to the studios’ home entertainment divisions, in addition to profit sharing and residuals.

Former AOL CEO Jon Miller, who was recently named digital head at News Corp., replacing Peter Levinsohn, said that going forward media and technology executives would have to become more comfortable talking to each other.

Moonves argued that while viewers may be time-shifting TV shows or watching them online, it only becomes meaningful if those viewers can be translated into revenue. He questioned the accuracy of online traffic and unique viewers.

“I call hits on the Internet ‘Lira,’” Moonves joked comparing Web views to the inflated value of Italian currency. “A show was watched by 847 million unique viewers last week, it got 12 billion hits. I ask my people, what does that really mean? How does that translate?”

Miller agreed that better standardization in the measurement and accuracy of online traffic was needed to entice advertisers and generate more than incremental revenue.

“How much are people making [with repurposed online content]? Not a lot in almost every case,” he said. “The combination of premium content, which [advertisers] feel comfortable advertising around and a form of transactional commerce can lead to a real [and sustainable] business model.”

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