Curtain Rising on Internet Programming Potential

When CBS started charging fans of “Big Brother 2” for extra video feeds over the Internet, it generated a storm of protests--and a surprising number of paying customers.

CBS’ experience this summer has helped pique the TV industry’s interest in using the Net not just to promote shows, but also to sell them. Several networks plan to experiment with Internet-based services, charging for access to exclusive or customized news, sports and specialty programming.

Their interest is fueled by the growing percentage of homes with high-speed Internet connections, which significantly improve the quality of online video. But they’re also being prodded by companies eager to apply the cable-TV model to the Net.

Chief among those is Seattle-based RealNetworks Inc., which today is expected to announce a new version of its industry-leading software for playing Internet-based media. The software is being packaged with online music and video services that Real hopes to sell, divided into cable-like tiers of programming.

Premium audio and video programming is an important weapon for Real in its battle with Microsoft Corp., its leading competitor in the field of online media software. Microsoft has yet to offer a package of programming like Real’s, but it has one important advantage over its rival: It is integrating its Windows Media technology ever more deeply into computer operating systems.

Also pushing the TV networks to sell programming online is Culver City-based Intertainer, which offers a package of movies, music videos and TV shows through selected cable TV and high-speed phone networks. Although it has less than 50,000 subscribers, Intertainer is backed by several leading technology and media companies, including Microsoft and Sony Corp.

Real’s online subscription service, which costs just under $10 per month, attracted more than 300,000 customers in its first year. A key draw has been the exclusive sports programming, including audio Webcasts of major league baseball and professional basketball games.

But the potential audience for Internet-based video is puny compared with the more than 100 million U.S. homes with TV sets, so the networks aren’t rushing to the Web with prime-time shows or original productions. Besides, they don’t necessarily hold rights needed to retransmit hit shows such as “Friends” and “Buffy the Vampire Slayer” over the Net.

There’s also the issue of picture-quality traffic jams on the Internet that can make a Webcast look jittery and blotchy even with a high-speed connection. Nor do many people have the equipment needed to bring video from the Web to their TVs.

That’s why the major broadcast and cable networks have offered little video programming on the Web beyond short news or sports clips and promotional footage. But executives said the situation is starting to change as several networks start to explore new online businesses.

CBS was the first out of the gate, teaming with Real in July to offer around-the-clock video feeds from the set of “Big Brother 2.” The network, which had provided Webcasts from the previous “Big Brother” set for free, charged a one-time fee of $19.95 for the “Big Brother 2” feeds. Real also offered the Webcasts as part of its GoldPass subscription, which costs $9.95 per month.

Within a month, more than 25,000 people had signed up to view the extra feeds, the companies said. “We had fairly modest expectations,” said David Katz, vice president of strategic planning and interactive ventures for CBS Entertainment, but the results “were an order of magnitude better than we had anticipated.”

CBS’ lifeblood remains advertiser-supported broadcast TV, Katz said, and one purpose of its online efforts is to drive viewers to those broadcasts. Still, there’s a lot of potential for Web-based programming to supplement what’s available on TV, he said.

When it releases its new “RealOne” software later this year, Real plans a revamped version of GoldPass that will include more programming from the networks. Real also plans to sell the “RealOne” technology to other companies that want to design their own subscription services.

Following Microsoft’s lead, the new Real software merges the company’s “jukebox” program for playing digital music files with its “player” software for tuning in Webcasts. But it goes a step further, enabling programmers to deliver a separate, synchronized screen of text and graphics alongside a Webcast.

One possible entry in the revamped Real package is ABCNews, which may offer on-demand replays of “World News Tonight” and “Nightline” broadcasts online. “We think the Internet is a terrific distribution mechanism for our content,” said Bernard Gershon, senior vice president and general manager of ABCNews.com.

“Having an aggregator who has a range of content, from sports to news to entertainment to shopping to whatever else they can come up with, and having them handle the transactions, makes a lot of sense,” Gershon said. He predicted that within a year, subscriptions sold through Real and other companies would account for 10% to 15% of all the revenue on the site.

Another possible partner for Real is cable TV’s E Networks. Ken Bettsteller, chief operating officer of E, says the network can’t ignore the opportunity presented by the Net, even if no one has figured out the best way to approach it yet.

“We never really looked at the Internet as being a competitive or an alternate form of business,” Bettsteller said. “We looked at it as a complement to our brand.”

Intertainer Chief Executive Jonathan Taplin said the Internet gives networks a new way to recycle programs that already have been broadcast. Instead of dumping shows into syndication, where their returns depend on advertising, they could put them into subscription-based video-on-demand services online, Taplin said.

“I think a lot of networks are really interested in selling original content to consumers,” Taplin said. The key issue is audience size, he said, which boils down to the number of homes with high-speed Internet connections that can be reached by a single programming service.