News Corp. (NYSE:NWS) has an interesting little scheme in the works. According to The Hollywood Reporter, Fox and DirecTV (NYSE:DTV) intend on adding yet another permutation to the whole video-on-demand zeitgeist. Come March, DirecTV subscribers will be able to use their digital video recorders to order up content (at $2.99 per episode) before it's broadcast over the airwaves for a cost of nada. The shows include 24, Prison Break, The Shield, and RescueMe. So if you just can't wait for the appointed time slot to arrive, you can order up an episode of any of these shows a couple days early.
You have to wonder these days whether broadcasters want to be in the advertising-supported, over-the-air business anymore. In a sense, they don't. Disney's (NYSE:DIS) ABC, General Electric's (NYSE:GE) NBC, and CBS (NYSE:CBS) will always need advertising to fund their operations, but they're salivating at the prospects of selling shows directly to consumers. So are media-investing shareholders, because they know that the big nets are having a hard time maintaining growth in audience levels over the long term, since so many viewers are defecting to cable channels and other forms of electronic entertainment, such as DVDs and video games.
In News Corp.'s case, the last earnings report says it all: Cable segment operating profits were up 19% for the fiscal first quarter, while television operating profits were down 32%. Granted, all the media companies discussed here own cable properties that help to offset their investments in over-the-air broadcasting, but a dragging network will always hurt shareholder value. The major broadcasters must be proactive in finding novel distributional models.
News Corp.'s move of selling product before it's available for free might be a stroke of genius -- not so much due to the idea itself (after all, many probably scoff at the notion of paying ahead of time for banal network fare), but because it opens up so many possibilities. President and chief operating Officer Peter Chernin mentioned that Fox might offer the content with value-added features such as deleted scenes. That right there is what excites me most. As far as I'm concerned, the key to value in all ancillary distributional channels, such as DVD or syndication, is making the product unique for each platform.
If News Corp. can get its subscribers used to the act of downloading episodic content, then what's to stop it from trying all sorts of envelope-pushing notions? I'm sure execs have thought of this, but what if a season finale of 24 was made available only as a premium download? Sound too cruel and exclusive of those unable to spare the extra cash? Maybe so, but would it make money? And what if a prologue to the new 24 season was only on DirecTV download? Those are a lot of question marks, but this new medium of downloading video content has as many angles as the reality TV model.
For now, shareholders of media conglomerates will have to be patient, as I recently counseled with respect to Disney. News Corp.'s new experiment will test how relevant synergy is these days. If it fails, then perhaps all media observers should keep a close eye on the new Viacom (NYSE:VIA) and CBS, which were the result of Sumner Redstone's decision to unlock value via division. Maybe this is the future of all the biggies in the sector.
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Fool contributor Steven Mallas owns shares of Disney and General Electric. The Fool has a disclosure policy.
