Wanna Buy a Slice of Sitcom?

By James Poniewozik

For nearly half a century, watching network TV was like eating at a school cafeteria. You chose from the limited options that day, take 'em or leave 'em, and you ate when they were served. If you missed Taco Tuesday, you were out of luck until next time it came around.

Sure, there were VCRs and, more recently, TiVos, but most people built their evening around the prime-time schedule, watching series at their appointed time or waiting for reruns or video. But suddenly, the cafeteria workers who run network TV are loosening their hairnets and offering viewers vending machines and takeout. In October, the Walt Disney Co., the parent company of the ABC network, cut a deal with iTunes to sell episodes of shows such as Lost and Desperate Housewives for $1.99 apiece. A few weeks later CBS and NBC Universal struck deals to sell shows, hours after their airing, via video on demand (VOD) for 99-c- a pop from cable company Comcast and satellite company DirecTV, respectively. (The CBS service debuts in January; NBC's, early next year.)

Why would people pay to watch shows they can get for free? For the same reasons, networks hope, that they buy DVDs of shows: convenience, instant gratification and the ability to skip ads. (CBS's offerings have commercials, though viewers can skip them; NBC's and ABC's do not.) Considering what big business DVDs have become, this could mean a big shift in how TV is watched and paid for. "Over the next five years," says NBC Universal Television Group president Jeff Zucker, "the world is going to change. Broadcast television will remain an incredibly important vehicle in society and as a business, but you'll also see fundamental change in the way people watch content."

Not that the networks' initial offerings are earth-shattering. They will sell only shows produced by their parent companies (including, for NBC, shows on sister cable channels USA and Sci Fi), because negotiations with outside producers would require haggling over fees. (Thus no My Name Is Earl for NBC, which buys it from Fox's production studio.) But the deals may multiply quickly. DirecTV has said it is pursuing deals with other networks, and Fox, its sister company in News Corp., is experimenting with distributing shows online. NBC and others are exploring an arrangement like ABC'S with iTunes. And while the networks are selling the same shows they put on-air, expect future offerings to be sweetened, like DVDs, with extras and original content.

There are big motives to make deals, says Forrester Research analyst Josh Bernoff, namely, "fear and greed": fear of being flat-footed by new technology, as the music business was, and greed, because "all of these new distribution formats look like they have the potential to generate pretty significant revenues."

But like any change in a business model, these new distribution formats could create big losers if they're widely embraced. Local affiliate stations are nervous. Since they sell ads on network shows, they worry that viewers will choose to buy shows rather than watch them on-air. To sidestep potential complaints, CBS has decided to sell its shows for now only in markets where it owns the local CBS station. "Some [affiliates] feel that we're wrong and that it may cannibalize the network," says CBS executive vice president Martin Franks. "We're convinced it extends and reinforces the network."

Then there are advertisers, whose blessed ministrations have made game shows and fish-out-of-water sitcoms free as air for generations of Americans. A future audience willing to buy its way out of commercials is an audience that could go tragically unaware of new KFC menu items. So we may see more product placement--not a case of Coca-Cola washing up on the island in Lost, but more seamless "embedding," such as when media buyer Magna Global Entertainment helped produce the Bravo reality show Blow Out, about a beauty salon, to get clients' products on the show. "There are different ways to get your word out," says Magna Global chairman and CEO Bill Cella. "Commercials won't go away," says David Lubars, chief creative officer and chairman of ad agency BBDO North America, noting that people want to watch sports events and the Oscars live. But, he adds, "there are many things in prime time--and that's where the big money is spent--that will be affected by the shift."

Bernoff says the new formats could include ads, as CBS's do. Video clips at websites like MTV's and CNN's, he notes, include spots that sell for a higher rate per viewer than TV equivalents. And selling shows could diversify the revenue streams of a business that's almost wholly dependent on Madison Avenue--which, with more viewers using digital video recorders like TiVo to skip commercials, is already threatening to pull money from TV and put it into other media.

Zucker says advertisers shouldn't be nervous; VOD, he believes, will only bolster the shows on-air. "If you're busy on Tuesday night and miss an episode of The Office, here's the easiest way imaginable to catch up," he says. "Actually, by doing that, you become more hooked on the series and will likely watch it more on the network."

But if enough people buy into the system, it could change the equation that determines a hit. Forrester estimates, for example, that Desperate Housewives earns ABC about 45-c- in advertising per viewer per episode, but clears the network about triple that when sold through iTunes. So if you buy the show, you are literally three times as important as someone watching for free. If watching VOD became widespread enough, the business model of "free" TV would be a little more like HBO's--in which what counts is not getting a lot of people to watch your show but getting a relative few to like it so much they'll pay for it. This is why cable shows are often great but polarizing: love-it-or-hate-it beats kinda-like-it.

Consider Zucker's example, The Office. Its ratings are poor, but its audience is rich. Its viewer incomes are among the highest of any network show. If its viewers are loyal, flush and tech-savvy enough that they'll pay not to miss episodes--or to watch them on their own schedule--the revenue could help keep such a marginal but critically praised show on the air. With new distribution channels, a production company could even try to sell a canceled cult show directly to the public. Nothing like this will happen immediately. It took DVD years to take off, but once it did, DVD sales of Family Guy were so huge they prompted Fox to uncancel it. Could VOD do the same? "It's conceivable," Zucker says. "I could envision that happening."

Of course, you could envision a lot at this embryonic stage. "These are the first steps into new avenues," says Stephen McPherson, president of ABC Primetime Entertainment. "This is all a frontier for everybody." But whether the big new TV distribution medium ends up being iTunes or VOD or something else, the trend throughout entertainment is portability. Viewers can get pared-down mini-episodes of shows, including Desperate Housewives, on their cell phones through services including GoTV. Fox has created one-minute cell-phone offshoots of 24, and a mini-spin-off of Lost is forthcoming. Time Warner (TIME's parent company) will offer computer downloads of past Warner Bros. series like Kung Fu through AOL (free but with ads), while Nickelodeon and Cartoon Network will sell shows for $2.99 for a media player made by toy company Hasbro. The National Academy of Television Arts and Sciences is even creating an Emmy for original video on nontraditional platforms such as mobile phones and computers.

When TV shows become something you order at whim from a cable box, or take on a plane, or carry in your pocket, what is TV? What is a network? After all, the networks, with their vast mid-century distribution systems, are in essence simply conduits for delivering programming from producers to viewers. Could the nets end up making their brands irrelevant? McPherson doubts it. "Whenever you're looking at airing your content in new places, you have to first consider the mother ship, which is the network," he says. Yes, but a mother ship can be part of a vast armada whose collective parts are just as important. You can see the point illustrated on Sci Fi network's Battlestar Galactica. Did you miss the show? You'll soon be able to order it on DirecTV.

With reporting by Reported by Jeffrey Ressner/Los Angeles