Two of the world's-largest TV production companies, Endemol and FremantleMedia, are plotting online programming assaults for 2014. However rather than strong-arm their TV productions to the web, both companies will assimilate to the way things are done online.
Endemol -- the producer behind "Big Brother" and "Deal or No Deal" -- has invested $40.3 million to create Endemol Beyond, an online- video network akin to digital natives like Fullscreen and Maker Studios. The company even looked to the digital-video industry for the man to spearhead the network, hiring former Maker Studios exec Will Keenan to become president of Endemol Beyond USA.
And next month "American Idol" producer FremantleMedia will debut the British production company's first new digital series since its North American division launched a digital production business in September.
Both moves would have been unthinkable years ago when TV producers viewed fledgling web video services like YouTube as a threat to their businesses. The logic at the time was that there was meager money to be made from distributing videos online and more money to be lost from pirated TV programming. That's no longer the case.
Lower production costs, younger viewers opting for online video over TV and advertisers hungering for TV-quality content -- coupled with TV's constraints on content and advertising inventory -- are leading top firms like Endemol and FremantleMedia to more aggressively build out their digital businesses.
"Tim [Hincks, president of Endemol Group] at one point had said to me, 'In a number of years, digital is going to be the face of companies like Endemol and other traditional media companies that are now innovating,'" Mr. Keenan said.
TV producers will need to adjust to online video's starker economics, but may be able to parlay the increased independence into higher profits. FremantleMedia's CEO of Digital and Branded Entertainment Keith Hindle said that under the TV funding model, networks bankroll productions and handle ad sales. Online, however, is "entirely driven by ad-sales partnerships. We need advertisers directly involved," he said.
That may be a hard sell for the lesser-known online video networks courting media buyers who have only tepidly committed to the medium. But companies like FremantleMedia are familiar faces that may stand a better shot at winning TV advertisers over to non-TV content.
"I think having established players in here [like FremantleMedia and Endemol] is something that will settle the industry a little bit. It's cliche to say content is king, but these guys know how to make content," Horizon Media senior VP-director of research Brad Adgate said.
For as much attention as digital video is paid by advertisers, they aren't paying for it in full. EMarketer has projected that U.S. digital video ad spending will grow by 41% this year, yet through the first six months of 2013, digital video revenues rose by 24%, according to the Interactive Advertising Bureau. And online video's answer to TV's annual upfront presentations, the Digital Content NewFronts, are considered more show than sales pitch. A minority of the series presented this year are said to have received advertiser commitments.
However the hesitance of traditional media buyers that is stunting digital video's growth may be nearing a tipping point.
"A lot of advertisers don't want to go near the consumer-generated stuff, especially real brand advertisers," said Forrester principal analyst Jim Nail. "On the flip side, the professional regular television kind of advertising inventory gets quickly sold out. There's an opportunity in the market for companies with a name for producing high-quality content for broadcast to bring their skills to create high-quality content for web delivery and therefore attract ad dollars looking for a home right now."
The Couric Effect
Consider the $6 million Yahoo is reportedly willing to pay Katie Couric for a monthly interview series. That's a hefty salary, but Yahoo stands to make it back and then some if it takes advantage of the more conservative TV advertisers who may recognize a familiar face and loosen their budgets.
"I definitely see brands seeing us as a safe haven to invest their ad dollars," said Ariel Elazar, senior VP-digital at Dick Clark Productions. The production company live-streamed last month's "American Music Awards" red carpet show on Yahoo and plans to distribute more events on the portal's properties next year.
Capitalizing on advertisers' confidence, TV production companies can negotiate sponsorship packages that incorporate brands into the online videos and are more lucrative than a standard preroll-and-banner buy. Their margins widen further since the content they are producing costs less to create than the televised type.
Not replicating TV
For example, FremantleMedia is famous for big-budget reality series like "American Idol" and "The X Factor." However the series FremantleMedia is readying for a January premiere will be an online talk show to air on YouTube network StyleHaul, a company FremantleMedia invested in earlier this year. An online talk show isn't exactly a moonshot a la Netflix's "House of Cards," but that's the point, according to Mr. Hindle.
"That isn't the right approach; it's not what has been the most successful [online]. It's what you've heard a lot about, what you read a lot about -- a major, expensive online series gets produced -- but they rarely get the massive viewership that much more cheaply produced, authentic YouTube [stars are] achieving," Mr. Hindle said.
Advertisers are "not asking us to replicate what we do on television online," he continued. "They're asking us to leverage the enormous reach, and particularly youth-targeted reach, but with more sophisticated content that they want to be a part of."