TV wants its whole business model to survive the transition to digital platforms -- meaning both the subscription fees and the advertising. Subscription fees are coming to digital partly through "authentication" schemes that let you access programming on the web or various devices as long as you can prove you pay for cable or satellite TV.
Advertising is where tech startup FreeWheel comes in. Founded by a host of ex-DoubleClick execs in 2007, FreeWheel allows ads to follow the video wherever it happens to be, even YouTube. The dominant ad server for cable and broadcast networks, it recently added ABC Television Group to its roster, including ABC.com, ABCFamily.com and ABCNews.com, allowing the network to sell ads into shows whether they're viewed on ABC.com, Yahoo or mobile apps.
ABC Television joins NBC Universal, Fox, Turner Networks and 21 of the top 25 basic cable channels using FreeWheel. The rest are largely using their own home-brew ad servers or adapting one for display.
ABC was one of the first networks to start putting shows online, but its technology was built for display ads and pre-rolls. "When we launched online we had a internal proprietary ad server that Disney company had invested in over years," said Disney/ABC digital chief Albert Cheng. "We felt that our internal systems could not support the full-episode type of ad models our ad sales team wanted to implement."
ABC's full episode player has been downloaded more than 6.2 million times and currently the most popular free entertainment tablet app in iTunes. Soon that app and others will have TV-like ad breaks, just like they do on cable TV. "As more consumers are taking iPads and mobile devices, we are extending the ad model to mobile platforms," Mr. Cheng said.
Disney's ESPN unit is already on FreeWheel. Steamboat Ventures, Disney's investor arm, is one of FreeWheel's lead backers.
Short-form is the web's dominant form of video, but FreeWheel CEO Doug Knopper is playing a long game, one in which TV is delivered via the web along with TV-like ad breaks -- except the ads are targeted and data-driven much like online display. Many people expect the web to become more like TV, winning away some of its massive ad revenue in the process, but Mr. Knopper is betting instead that TV and its ad dollars will flow onto the web together.
"What we look as the real opportunity here is at some point in the future -- 5 or 10 years away -- the linear TV experience is going to be done in a dynamic digital environment," he said. "If just 25% goes to a digital dynamic on demand environment that is a huge opportunity -- bigger than anything in the online world today."
That means FreeWheel's space isn't the $3 billion video ad market but the $70 billion TV ad market. FreeWheel takes a percentage of the ad buy, anywhere from around 1% to nearly 10%.
Stats from FreeWheel's clients, largely TV networks and web video creators and distributors like Revision3 and Vevo, indicate online programming is getting longer. Mid-roll ads are now growing at twice the rate of pre-rolls and comprise 25% of all ads on FreeWheel's system.
FreeWheel has raised a total of $28.8 million from Steamboat Ventures, Turner Broadcasting System, Battery Ventures and Foundation Capital.