The World: US networks release video-on-demand genie

With CBS and NBC offering video-on-demand, the advertising world is being forced to adapt, Mark Johnson writes.

Last week, two of the US's most-watched broadcast networks, CBS and NBC, made separate announcements that they were about to turn the traditional TV model on its head and ditch advertising in favour of paid-for content.

Starting in 2006, the networks will be offering a video-on-demand service that allows subscribers to watch popular shows for 99 cents just a few hours after being broadcast via cable and satellite.

Both deals are similar to one made this year by ABC with Apple to sell episodes of Desperate Housewives and Lost via iTunes for the new video iPod for $1.99 a go.

The Viacom-owned CBS - currently the most widely watched US broadcast network - will be offering reruns of four of its most popular programmes, including CSI: Crime Scene Investigation and Survivor. NBC Universal, 80 per cent owned by General Electric, will sell six shows that normally air on NBC, including Law & Order: SVU and The Office.

The services are based upon allowing viewers who missed the first free-to-air broadcast to buy the episode in the following week. Of crucial concern for advertisers is the fact that NBC's VOD service will be ad-free, while CBS will carry ads, but viewers will be able to fast-forward through them.

The moves by three of the US's leading TV networks have been interpreted as a survival strategy set against a backdrop of bleak predictions for the future of broadcast TV in an age of ever-expanding digital viewing options. US ad executives are now ruminating over two important questions: how strong will demand for the services be, given that they are paid-for; and if demand is great, what will be the effect on advertising?

The chairman and chief creative officer of BBDO North America, David Lubars, sees any VOD deal that allows viewers to watch programmes ad-free as a mistake. No stranger to advertising that goes beyond TV - he was responsible for the BMW internet films during his tenure at Fallon - he suggests that a subscription-based service provides a powerful opportunity to tailor ad content to consumers.

"They should have said to consumers: you can have the shows for free but they will have ads in them, then tailor the ads to the demographic of the subscriber. But then they could have said: if you pay $2, we'll remove the ads," Lubars says.

Nonetheless, despite believing that some broadcasters are missing a trick, he describes the announcements as "historical" in advertising terms. "I'm usually a cynic when it comes to major advances and predictions that they will have a dramatic impact, but the day that these announcements were made should be written down as the day that changed everything," he says.

Other US ad industry chiefs are less sure. For the MindShare North America president and chief executive, Mark Goldstein, the crux of how far VOD will go in changing the advertising mindset rests on the exact scale of demand.

"I don't dispute video-on-demand as a concept, but there are lots of choices out there for the viewer on how they get their content," Goldstein says.

"Some will get into personal video recorders, some into VOD, but there are predictions of individual consumers spending $100 a year on VOD and I question whether that is a realistic figure."

Larry Orell, the general manager of the US North-East region at Initiative, has a similar idea about the effect of VOD.

"We're not trying to create a panic because right now there are so many new models out there for delivering content and they are all experimenting and testing. With all emerging technologies, they create an amazing amount of discourse, but until we see real-life uptake, it is hard to make projections," he says.

For most, the advent of VOD represents a period of uncertainty. Orell concedes that only time will tell whether VOD is a powerful threat to current TV advertising practice, reflecting: "My kids still watch TV and so do I. TV is going to be fine. It will have to change, but it won't go away."

But Lubars argues VOD will require ad agencies to think beyond normal advertising media. "Does it end advertising? No. What it means is that everything has to be truly integrated. It doesn't even have to be new media as long as it attracts attention by becoming an event," he says.

Even with his prediction that VOD "changes everything", he expects its impact to have limitations. "Morning wake-up shows, the news, stock prices, football, the Superbowl - nobody will want to see programmes like these on-demand because they are important water-cooler talk the next day," Lubars says.

It is the primetime shows - also the biggest in advertising terms - that he argues will be most popular with VOD subscribers. He sees the only possible creative response for advertising is to focus on strategic ideas that can engage consumers.

Goldstein sees VOD as simply another argument for continuing the current trend for branded entertainment as well as striving to create compelling content that viewers will find engaging.

The launch of VOD has been greeted with a mix of shrill and nonchalant responses by US advertising executives. Either way, it has caused ripples that may soon reach UK shores.