Will Murdoch out-Fox competitors online?
Fox has yet to offer hit shows like "American Idol" through online video services. But does News Corp. need Apple or Google?
NEW YORK (CNNMoney.com) – Did you miss last week's episode of "Desperate Housewives" or "The Office?" You can buy them on iTunes for $1.99. Forget to record last week's "CSI" and "Survivor?" Go to Google Video.
But if you want to catch "American Idol," "24" or any of your other favorite shows from Fox, you're not going to be able to do so online. News Corp (Research)., which owns Fox, has yet to strike an agreement with a major tech firm for video content online. It's the only one of the big four networks to not do so.
Is Fox making a big mistake? "I guess they feel they don't want to be a leader. They want to be a follower," said Phil Leigh, president of Inside Digital Media, an independent research firm. "Eventually, it could hurt Fox if they don't make moves soon to join the bandwagon."
But Brad Adgate, research director for Horizon Media, a New York-based media buying firm, thinks Fox is not at risk of being too late to the market as long as Fox shows like "American Idol," "House," and "The Simpsons" continue to do well in the ratings.
"News Corp. is probably just taking a wait and see approach. Fox could start selling video in a year and I still think that they wouldn't be catching up because of the nature of the content they have," Adgate said.
Is Fox missing the boat...
In some respects, it's surprising that News Corp. hasn't taken the lead in online video. After all, the company has been an aggressive acquirer of Internet firms during the past year, most notably scooping up the parent company of MySpace, the popular social networking and music site for teens and young adults. And the company announced a deal Thursday with wireless carrier Helio to bring MySpace to cell phones.
In addition, the company has acknowledged the growing trend of online video. During the company's earnings conference call earlier this month, News Corp. chairman and CEO Rupert Murdoch said the company was actively looking at other ways to bring the company's various media offerings, which also includes films from its Fox movie studio, to the Internet and portable devices like MP3 players and cell phones.
"With our vast library and ability to create new appealing content we're positioned to capitalize on new revenue streams," Murdoch said during the call.
But he did not sound convinced that selling Fox TV shows online was the answer. "We're in discussions with all major players in this arena and we'll announce deals when we're convinced they'll create real value," he said.
Yet, it does appear that there is already healthy demand for video content online and that consumers are even willing to pay $2 a show for it.
Disney (Research) CEO Bob Iger said earlier this month that more than 2.5 million video downloads from ABC, ESPN and the Disney Channel have been sold through iTunes. ABC shows debuted in October, when the iTunes video store launched, and ESPN content was made available in January.
"In terms of being there when the market begins to take off, that is beneficial. ABC got the ball rolling with their deal with Apple and there is value in being part of the game first," said Nitin Gupta, an analyst focusing on digital media and entertainment with Yankee Group, an independent tech market research firm.
And earlier this month, after announcing a deal to offer shows from CBS (Research)-owned cable network Showtime, Apple (Research) said that it had sold more than 12 million videos overall since starting the iTunes video service.
Still, even though these numbers are impressive, David Card, an analyst with Jupiter Research, points out that online video remains a nascent business that isn't likely to have a material effect on sales for the big networks just yet.
"It's a low-risk effort to experiment online but it's low reward right now. This is not big bucks yet," Card said. He added that it might make sense for Fox and other networks to offer online video for free that's supported by commercials, essentially taking the current model for TV and bringing it online, instead of charging money to download a show.
...or building its own?
In addition, analysts point out that although News Corp. has so far shunned the Internet, it has done a video-on-demand deal that's kind of similar to the online offerings of other networks. In January, News Corp. announced that it would let DirecTV subscribers who own the company's new digital video recorder purchase some Fox shows for 99 cents in the week after they aired.
News Corp. also said that for $2.99 a show, subscribers could buy episodes of certain shows from its cable network FX a day or two before they officially air on the network. News Corp. owns a controlling stake in DirecTV (Research).
Leigh said this strategy is interesting but that if News Corp. really wants to maximize the amount of money it could make from selling reruns of its hit shows, it has to do so through the Web.
"You want video to be available on the Internet. That's the way to go, not closed ecosystems like cable and satellite," he said. As such, Leigh said he expected Fox to announce some sort of online deal for its content during the first half of the year.
Ben Bajarin, an analyst with Creative Strategies, a tech research firm, agrees that Fox downloads should be available in the near future. "There really is no good reason not to be online," he said. "With all the competition doing it, I can't imagine Fox waiting a whole lot longer." However, he added that one thing that could be keeping Fox off of a service like iTunes is haggling over how much revenue Fox would have to split with Apple from the sale of downloads.
To that end, Yankee Group's Gupta said he thinks that Fox shows will eventually find their way online but that the network might choose to avoid middlemen like Apple and Google (Research) and create its own video service through MySpace.
"If you're News Corp. and you want to distribute video, make it exclusive," Gupta said. "MySpace targets a large demographic so it would benefit the company to make that the destination for its video content."
Horizon's Adgate agrees. He says News Corp. has bigger aspirations for MySpace and that potentially offering video downloads of Fox shows on the site would be just part of a bigger online strategy.
"I think Murdoch wants to go after Google and Yahoo!" he said.
For more about the MySpace wireless deal, click here.
For a closer look at News Corp's online strategy, click here.