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Web-TV Divide Is Back in Focus With NBC Sale

Brian Stelter|The New York Times
Friday, 4 Dec 2009 | 12:12 PM ET

As she prepared her daughter for college, Anne Sweeney insisted that a television be among the dorm room accessories.

“Mom, you don’t understand. I don’t need it,” her 19-year-old responded, saying she could watch whatever she wanted on her computer, at no charge.

That flustered Ms. Sweeney, who happens to be the president of the Disney-ABC Television Group .

“You’re going to have a television if I have to nail it to your wall,” she told her daughter, according to comments she made at a Reuters event this week. “You have to have one.”

But she does not, actually. For 60 years, TV could be watched only one way: through the television set. Now, though, millions watch shows like “Grey’s Anatomy” on demand and online on network Web sites like Ms. Sweeney’s ABC.com and on the Internet’s most popular streaming hub, Hulu.com.

How people watch TV on demand — and whether they should pay for the privilege — is a critical issue in the landmark deal, announced Thursday, that will give Comcast control of NBC Universal. In the deal, Comcast will become a co-owner of Hulu.

Like all its broadcast rivals, NBC rushed to put its popular shows on the Web years ago, hoping to secure a piece of the booming online advertising market and offset an eroding audience.

The viewers came in droves, but the ad revenues have not materialized as expected. By giving away TV episodes online, “the industry is literally tossing money and premium content away,” Barry M. Meyer, the Warner Brothers Entertainment chief executive, said in a speech in October.

Comcast, the country’s largest cable operator, has already been using its considerable muscle to limit how many shows are available online, lest people think they can cancel their costly cable subscriptions and watch free online. Now the company — which, if the NBC deal passes government muster, will own a piece of the biggest site that threatens to undercut its core business — is looking for ways to charge for ubiquitous access to shows.

With millions now watching TV on their computers, can the media companies put the Hulu genie back in the bottle?

The scramble by TV companies to preserve its ad model while giving consumers choice — what Comcast’s chief executive called in interviews Thursday “anytime, anywhere media” — mirrors the efforts of newspapers, magazines and radio companies to wring more money from digital media. But all are facing some entrenched habits.

“If you disrupt the consumer experience, you’re in trouble,” warns Mike Kelley, a partner at PricewaterhouseCoopers.

Stephen B. Burke, the chief operating officer of Comcast, recently called streaming “the biggest social movement I’ve ever seen.”

“Online video consumption is off the charts,” he said at an industry conference.

NBC and the News Corporation , the owner of Fox, jointly formed Hulu in 2007. Disney later became an equity partner in Hulu. On Hulu and sites like it, TV episodes are available any time, usually for a full month after they premiere; the images are crystal clear, and the commercial breaks are short.

Hulu now draws more than 40 million visitors a month, according to comScore, and in October about five billion minutes of full episodes and short video clips were viewed. If online streams were included in TV ratings — and they eventually will be, Nielsen says — some shows would see considerable improvements.

While Hulu does not release revenue figures, executives privately concede the site is not yet profitable. The race to “get our content out to viewers where, when and how they want it” was well intentioned, Mr. Meyer said in October, but it is “undermining the basic business model — by making our content less valuable to the people who actually are paying for it.”

In response, Comcast and other operators are busy creating so-called authentication systems that will allow subscribers to stream a buffet of shows — but will lock out people who do not pay for cable.

“Hollywood needs a toll collector,” said Todd Dagres of the venture capital firm Spark Capital, and “Comcast can play the part because online video will erode traditional cable.”

Some are advocating for a pay model for TV streaming, and Hulu is widely expected to add a subscription arm next year. Chase Carey, the president of the News Corporation, said in October that Hulu needed to have a “subscription model as part of its business,” suggesting that the site could share some episodes for free and charge for others.

In an interview last week, Hulu’s chief executive, Jason Kilar, would not discuss forthcoming changes to the site, but said “we never aspired to be Hulu.org,” referring to a nonprofit domain name. The site continues to be bullish on the current ad-supported model, but Mr. Kilar indicated that it was eyeing multiple business models for TV and movie viewing for the future.

“If your ambition is to bring the world’s premium content to users, and to do so in a way that produces fair returns to content owners — and it is our ambition — there isn’t one single bullet,” Mr. Kilar said.

In other words, on-demand viewing is about to get a lot more complicated. In the short term, users can expect more commercials and, potentially, fewer options for watching hit shows like “CSI” and “House.”

Already, TV distributors have started to tighten the screws. For example, episodes of ABC shows usually appear online the morning after they premiere on TV — but last month each episode of the network’s alien invasion drama “V” was held back for four days. The message was clear: Watch “V” on TV.

Fearing backlash from distributors, cable channels have always been more stingy about allowing streaming. The Syfy channel, for instance, streams episodes of its drama “Eureka” eight days after they premiere on TV. Many cable shows are never streamed.

But they could come online through the authentication systems proposed by Comcast, Time Warner Cable and other operators. Sometimes called “TV Everywhere,” authentication proposes that it does not matter what screen people watch shows like “The Office” and “NCIS” on, as long as they pay a cable subscription and are counted by Nielsen.

Even authenticated subscribers can expect to see more ads online in the near future. Currently a typical sitcom will stream on Hulu with about two minutes of ads, a pittance compared with the eight minutes of ads on television. Comcast and other companies are already experimenting with higher levels of ads, and the trials indicate that consumers will sit through them.

“Given the amount of change you’re seeing happen,” Mr. Kilar said, “you’re going to see a tremendous number of experiments.”

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