Tech Steals a Trick from TV

By Eric Volkman - February 17, 2012 | Tickers: AOL, GOOG, MSFT, NWSA, YHOO | 0 Comments

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As if any more evidence were needed that the web and traditional forms of entertainment were coming together, some of the biggest players in the online world are planning their own take on TV's "upfronts." Their version of the annual entertainment industry bonanza will be held this spring, in an attempt to bring in more ad dollars and close the revenue gap between internet media and the more traditional variety.

Upfronts are a long tradition in the TV business, and for good reason -- they bring in piles of money. Essentially, it's one big event, a festive and lavish occasion taking place over several days in May at glitzy venues in New York City. The broadcast networks announce their respective fall schedules, screen a bunch of their new shows, roll out a star or two for a touch of Hollywood glamour and sic their best salespeople on potential advertisers. This works extremely well; last year, for example, upfronts produced $9 billion in ad sales for the networks, which equated to over 15% of their $60 billion take for the entire year (according to ad consultancy eMarketer). This injection of cash gives the networks much of the financing they need to produce their series, and makes predicting ad sales and cash flow during the season much easier.

So the web guys want in on this action. Particularly considering that their current advertising take for online video (around $2 billion collectively in 2011, according to eMarketer) is a fraction of the billions the TV biz ropes in. Luckily, some of the top names in tech have managed to put aside their rivalries and band together to produce the cheekily named "New Fronts" over a two-week span in April. The name is deliberately close to the TV version, and to compound the similarities the event will also unfold in New York.

The fronting companies are the big names you'd expect -- YouTube owner Google (NASDAQ: GOOG), Microsoft (NASDAQ: MSFT), Yahoo! (NASDAQ: YHOO), revenue-hungry AOL (NYSE: AOL) and Hulu. The latter is an interesting presence given that its major shareholders are traditional TV purveyors like News Corp. (NASDAQ: NWS), which operates the Fox network. All concerned have money, particularly cash-rich Microsoft, and the more struggling firms -- AOL and Yahoo! -- aren't burdened by high levels of debt, despite their other problems (like stagnant or falling top lines, a strong incentive for getting involved in the venture).

This is a smart move, and the timing is right. Hulu, for example, just rolled out its first native series (Battleground, a drama with comic touches about a young political operative running his first campaign). Meanwhile, switching the channel to YouTube, the site's quirky videos have begun migrating to proper, 22-minutes-an-episode series... but to other companies. For example, the accurately titled comic offering Annoying Orange is currently being developed and will air on the Cartoon Network later this year. For the Googles and the Hulus, selling proper ad time and collecting (hopefully) billions for it will help keep such properties in-house. This will help immensely with branding; if a series can only be seen on one of these sites, it'll be readily identified with that outlet. More critically, it'll make a YouTube or Hulu more of a destination than a three-minute distraction (YouTube, at present) or a simple online venue to watch existing TV and movie offerings (Hulu).

Before long, if this effort is done properly these online channels can collect enough to produce and air as much content as a Fox or an NBC. And, it's hoped, collect the billions those companies rake in for their parent companies.

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