Online video: Must-free TV
Media experts debate whether ABC's decision to put hit shows online for free will really shake up the television industry.
By Paul R. La Monica, CNNMoney.com senior writer

NEW YORK (CNN/Money) – Who needs TiVo?

An executive for Walt Disney's (Research) ABC network said Monday that starting next month, ABC will offer online streams of some of its most popular television shows, including "Desperate Housewives" and "Lost," for free the day after they first air on broadcast TV.

Missed the latest episode of
Missed the latest episode of "Desperate Housewives" or "Lost" and you don't have a TiVo? That soon won't be a problem as ABC plans to offer online streams of some of hits shows for free.
Walt Disney CEO Bob Iger has been quick to embrace technology in order to increase viewership for the Disney-owned ABC network. The company already sells shows through Apple's iTunes store.
Walt Disney CEO Bob Iger has been quick to embrace technology in order to increase viewership for the Disney-owned ABC network. The company already sells shows through Apple's iTunes store.
CBS streamed more than 15 million live broadcasts of NCAA tournament games during this year's March Madness, numbers that exceeded the network's expectations.
CBS streamed more than 15 million live broadcasts of NCAA tournament games during this year's March Madness, numbers that exceeded the network's expectations.
More about the TV biz
Despite Katie Couric leaving NBC for CBS, her move may not have a big $ impact on either network. (more)
CBS' online March Madness on Demand was a huge success. Are more free online TV offerings on the way? (more)
As the upfront ad buying period approaches, marketers and the broadcast networks debate whether 30-second commercials are still effective. (more)
The media company hopes to cash in on a lucrative new ad revenue stream by allowing people to watch March Madness games for free online. (more)
Fox has yet to offer hit shows like "American Idol" through online video services. But does News Corp. need Apple or Google? (more)

The online video offering, like regular TV, will include advertisements.

Some analysts said that the move has the potential to dramatically impact the way viewers watch TV and shakeup the industry -- others weren't convinced that there would be much impact at all.

"This is pretty significant. The most obvious benefit the consumer will see is the ability to watch a show whenever it is convenient. It takes the TiVo concept and applies it to the Web," said Phil Leigh, president of Inside Digital Media, a Tampa-based research firm.

But Laura Martin, an analyst with Soleil - Media Metrics who heard the announcement first-hand at a cable industry trade show in Atlanta, said the ABC executive downplayed its significance, calling it an experiment.

Networks want to hold onto the iPod generation

Nonetheless, the move by ABC is a clear indication that major media companies and advertisers realize that the television industry is in flux.

Some say the recent success of CBS' (Research) free March Madness on Demand video streams for games from the NCAA men's college basketball tournament may have served as a wake-up call to the TV industry.

"As CBS recently proved with the live streaming of the NCAA tournament, content is the once and forever king. So it's entirely strategic and smart for ABC and other networks to show their best programs on multiple platforms," said John Rash, senior vice president and director of broadcast negotiations with Campbell Mithun, a Minneapolis-based ad agency owned by Interpublic Group.

Nearly 20 brand-name firms bought ad time for the March Madness on Demand package. Meanwhile, some advertisers have expressed frustration about buying commercial time on prime time television since the 30-second ad isn't as effective as it used to be. In addition, the increased use of TiVo and other digital video recorders to zip past ads has also irritated many marketers.

With that in mind, industry experts said there's no reason why big-name advertisers won't be interested in ABC's online offerings, especially since ABC is claiming that viewers won't be able to fast forward through commercials.

According to reports, several high-profile firms such as AT&T, Ford and Procter & Gamble, have already expressed interest in the ABC service.

"Advertisers obviously want to be where consumers are and if consumers are going to be online the advertisers are going to try and be there as well," said Noah Elkin, vice president of communications for iCrossing, a search engine marketing firm. "Video and advertising go together like the proverbial bacon and egg."

Online ads: Smaller audience but more effective?

Another reason why the new ABC offering could be attractive to advertisers is that the online streams will feature fewer commercial breaks than the broadcast TV version. And each break will feature spots by the same advertiser.

Josh Bernoff, an analyst with Forrester Research, said this is key, citing a recent poll of marketers in which they said their biggest problem was not digital video recorders but increased clutter -- the average 30 minute show has about eight minutes of commercials.

So the prospect of getting advertisers to pay for spots during online video streams is likely to be a key point of negotiations during next month's "upfront" ad buying period – the time when networks will unveil their TV schedule for the fall to advertisers.

"I don't expect any trouble with advertisers signing up for this. What likely will happen is that ABC will go to existing advertisers and extend relationships for the online service," Bernoff said.

Some say it is difficult to figure out how much money advertisers will be willing to pay for online ads.

On the one hand, the audience for broadband video streams of shows like "Desperate Housewives" is likely to be much smaller than the one for standard TV.

But some advertisers may be willing to accept a smaller audience if they know viewers are not being bombarded with other commercials and can't fast forward through ads.

"Those two issues alone make this a pretty big deal for marketers. Will advertisers pay a premium for better effectiveness? You betcha," said Greg Stuart, president and CEO of the Interactive Advertising Bureau, a trade organization.

The boob tube is changing but TV isn't dead yet

ABC's online announcement is the latest in a series of moves made by Disney to embrace alternate forms of distribution. The company was the first major media company to start selling video downloads through Apple's (Research) popular iTunes store. But other networks have also been experimenting.

In addition to the March Madness on Demand offering, CBS sells some of its top shows through the video store of online search engine Google (Research).

General Electric's (Research) NBC has also sold shows through iTunes and has a video-on-demand agreement with cable company Comcast. And News Corp.'s (Research) Fox has experimented with mini-episodes for cell phones as well as a VOD service with DirecTV.

"Each of the major networks are incrementally upping the ante. Everyone is trying to make sure they are driving viewer growth faster than their competitors," said Brian Wieser, vice president and director of industry analysis with MAGNA Global USA, a media buying firm. He expects the other networks to soon launch free online offerings similar to ABC's.

Still, some experts said that there probably will be room for both free online offerings and a pay-per-download model to exist. So ABC's announcement was not viewed as being particularly bad news for Apple.

As for mainstream TV, even though free online video could be a negative for local TV affiliates, who could lose out on ad revenue, as well as cable companies who are trying to boost their own on demand services, one analyst said that it's premature to claim that the traditional way of watching TV is dead yet.

"I don't think the quality of video over the Internet comes remotely close to what you can get on a TV in a high-definition format," said Shari Anne Brill, vice president and director of programming with Carat USA, a media buying firm. "But it's smart for the networks to do all this testing to see what consumers will ultimately embrace."

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For more about CBS CEO Les Moonves, click here.

Does old media love the Web too much? Click here.

Analysts quoted in this story do not own shares of the companies mentioned and their firms have no investment banking ties to the companies. Top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.