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The WB Returns: Why?

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Remember the glory days of the WB? Okay, I missed it too, but Warner Brothers Television Group (WBTVG) is determined to give me a second chance. A few days ago, Mediaweek reported that WBTVG plans to resurrect the old WB network in the form of a new website. Its clever working title is WB.com.

Online users will be able to see all those Warner-produced favorites that aired from 1995-2006, or at very least Gilmore Girls, Everwood, and What I Like About You. Other shows that were not WB-produced, such as Buffy The Vampire Slayer, Felicity, and Dawson’s Creek, will probably be offered by other sites started or partnered by the TV studios that own them. Also falling in the grey area are current CW shows like Gossip Girl, Smallville, and Supernatural.

A partnership with Hulu was also announced, which is a NBC Universal/News Corp joint online video venture. Warner TV will provide some exclusive content when Hulu has its much anticipated launch this week after being in beta for a while. Warner contributions mentioned were Babylon Five, Welcome Back Kotter, and clips of Friends. Why Friends wasn’t offered in full length form remains to be seen, but it sounds like WBTVG is holding back its top shows for future opportunities.

So why is Warner TV partnering some shows with sites like Hulu, and then airing other content for themselves? That’s where the scramble begins, the fight for who can come up with the best scheme to make the most money. WBTVG has a big plan, but will it work? Let’s look at the three motivating factors behind their decision.

Premise #1. There’s more money in doing it themselves.

While the announcement of the WB.com site was a surprise to many average television viewers, Time Warner (parent company of Warner Brothers) has been hinting that something like this was coming ever since the television group was formed in September 2005. When Bruce Rosenblum was announced to be President of the newly formed division, he was heralded as “… a leader in developing new revenue streams for television content in emerging media platforms. ” This seemed to be true by mid 2007 when he announced his hope to iron out with networks new financial models for the supplier-network relationship in the Internet age. As Rosenblum put it, “future deals could guarantee content suppliers a chance to stream product in broadband form and sell and retain ads for themselves.”

WBTVG has already aggressively put in motion its plans to create its own ad-supported channels. The new WB.com site, which should be in beta soon, is meant to primarily target women from 12-34, and while that may seem like a narrow demographic, it’s the easiest sell to advertisers. They’re holding onto the programming that will specifically appeal to this demographic. WB.com will also feature new short series, with each of these new episodes running five minutes, with 10 installments slated, and at a total cost less than that of an hour of broadcast network drama. An online animation channel is also due to be rolled out soon, possibly by April.

Rosenblum expressed last month, during a frank discussion with Stanford law students, the overall discontent by the major studios with iTunes and their business model. While the studios like the way they can cheaply distribute their content through the site, they’d like to be charging more money for certain shows. Apple prefers the one-size-fits-all model and charges the same for all shows, while the studios want to set their own prices. iTunes revenue hasn’t become a significant business for Warner, although Rosenblum didn’t indicate they were losing money on that model either. By offering their own streaming, WBTVG would earn revenue from ads that doesn’t happen for them on iTunes.

Premise #2. Network television will continue to decline.

Rosenblum also painted a hazy picture about the future of network television during his discussion at Stanford. He assured these students they were witnessing the “complete disaggregation of the networks.” Rosenblum stopped short of predicting the end of the big broadcast networks, since all these bold new online moves aren’t planned to be optimal for another five to ten years. He predicted networks’ share will continue to drop, as will advertising revenue, but the lost revenue will be supplemented by other sources.

In layman’s terms, studios are going to use new media to sidestep the networks and make money by distributing their own content via cheaper channels. Rosenblum also revealed during the speech at Stanford his belief that audiences are going to watch without any concerns about video quality “because viewers 16 to 25 are multitasking rather than watching closely.” He also observed that viewers seem to be tolerating the annoying promo bugs that have been popping up on network shows and don’t mind the fuzzy full screen pictures online since Hulu has found that not everyone is going full screen. Because of all this, “quality is irrelevant,” he said.

What does WB.com mean though for Warner’s existing network, the CW? Warner Brother’s discontent with running a traditional network was apparent a few months into Rosenblum’s tenure after he became a key architect in the deal (along with Paramount’s Nancy Tellem) to merge the WB network with UPN to create the CW. Rosenblum said the merger was necessary “on a practical level, on a strategic level and on an economic level,” but the network is bleeding a huge amount of cash these days, forcing Warner to seek these alternate revenue streams. If the online model does prove to be as successful as Warner hopes, one has to wonder if the CW’s days are numbered if WBTVG reprioritizes its commitments.

Premise #3. Chasing after alternate streams of revenue will complement their current businesses.

The leveling of DVD sales is playing a role in prompting the online initiative. DVD sales overall in 2007 were flat compared to 2006 and any future growth is expected to be weak. WBTVG is likely following the lead of the Warner Brothers Home Entertainment Group, who in early trials is finding success offering video on demand (VOD) via cable as an alternative to video rentals. WB Home Entertainment found DVD sales increased in those trial markets and wished to expand VOD. It’s possible the same could happen with TV DVD sales if viewers connect with certain Warner shows streamed online.

What about revenue for some cable stations and other syndication outlets? That’s especially an interesting question within the Time Warner family, since Time Warner owns TNT and TBS and sees plenty of future value in those networks. Is this initiative supposed to help or hurt cable channels? How can they get people to keep cable subscriptions when the shows are all available online? Will cable channels be forced to invest more into original programming, which is a costly venture? Will WB.com be offering specific programming only that the TW cable channels don’t need or want? The impact remains to be seen, but one wonders if Time Warner is really using a unified strategy across divisions on this bold new direction.

There will be huge costs associated with WBTVG handling the distribution themselves, but they believe the benefits will outweigh the costs. They must take over the marketing involved with getting viewers to connect with a show, which was a burden previously put on the networks. This will result in a lot of upfront spending in marketing but the logic is there will be more money for marketing since streaming costs keep dropping rapidly. The idea of streaming shows and skirting the costs of pressing DVDs is appealing to the overall business plan, but the notion that it offsets all the new costs? It’s new math all over again.

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The laws of nature have proven that anytime you upset a delicate balance, there are ramifications. I don’t blame Warner TV for chasing the revenue rainbow. It’s the nature of business, and they wouldn’t do it unless they saw huge income potential. The world of new media is changing, and what media company wants to be left behind? Still, there are too many unknowns in the plan that won’t guarantee the instant success the execs would like their shareholders to believe. While the idea is simple, especially with the declining prospects of network television, the streaming logic is not a catch-all. Audiences don’t have to watch ads on iTunes downloads, plus with this streaming structure, they can’t watch Warner shows on iPods anywhere they want. Isn’t that the specific reason why people download shows? High speed Internet connections aren’t everywhere, so static content is still going to be necessary. WBTVG and its parent company needs to remain committed to the mixed use strategy for a long while.

Competition is different in this medium. In starting these online streaming sites, big studios aren’t necessarily going after each other. They all own an impressive amount of exclusive content and control and want to make their share of money from it. It’s all about traffic. By pushing into this market, studios are more likely to run into competition with the average Joe with a video camera, but they’re competing with a staggering marketing and capital budget. WBTVG is coming to the party with a vast library of old shows, resources to build the needed infrastructure, and the expertise in creating and running successful content. Oh, and there’s the huge legal department. By facing the independent video makers head on, they’re essentially taking out a hornet’s nest with a flamethrower. How that looks from a PR standpoint remains to be seen.

Then there’s the technological risk. Good technology cannot be rushed, and bad technology creates many hard feelings among the tech savvy. There’s rumbling amongst some in the tech community that Hulu isn’t living up to its hype. TechCrunch recently reviewed Hulu and found that while it did a lot of things right, such as good video quality, intuitive controls, and great content, the site is still suffering from unfulfilled expectations. The beta product had jumpy streaming and was very slow to get archived content on the site, not to mention that people outside the U.S. can’t view the content. In their conclusion, they found that Hulu was “far from perfect.” If Hulu doesn’t launch smoothly when it opens to a wider audience, their troubles could prove to be a cautionary tale to others trying to implement similar platforms.

The most troubling part though is that never once was the dedication or commitment to “quality programming” brought up. That seems to be the biggest oversight in this plan. The idea of seeing short videos in five minute time frames with lesser video quality doesn’t exactly compare to a full length drama. I accept that TV studios and networks have to find creative ways to generate more revenue, or our viewing options will be reduced to all reality shows. Scripted shows are getting expensive. But none of these online initiatives delivered a message that studios like Warner Brothers are committed to delivering any quality programming, even if they end up turning a huge profit.

Despite Warner TV’s motivations behind embracing an online site, and the huge risks involved, I might give WB.com a try. Why not? Current programming options are weak, and I never did see Gilmore Girls. Maybe their strategy will work after all.

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