NEW YORK (AdAge.com) -- When Erik Flannigan began his role as Comedy Central's senior VP-digital media in December 2006, he faced the same conundrum all cable networks were grappling with: how to distribute and monetize his programming in a post-YouTube era.
However, unlike most cable-network groups, which remained cautious about embracing digital distribution at the expense of their dual-revenue relationship with the cable and satellite operators, Mr. Flannigan had no choice but to be aggressive. Topical shows such as "The Daily Show With Jon Stewart" and "The Colbert Report" had to stay relevant to their web-savvy fans, and he needed to take a stand against the Bittorrenters who made "South Park" one of the most pirated shows on the internet.
"We had a website that wasn't really oriented around video at all, yet three properties that were probably the most popular internet-video content from any cable network," Mr. Flannigan said of his early days at MTVN, which he joined after a stint as a VP-programming at AOL. "It was clear to me that if you wanted to attract the biggest audience to the biggest shows in our world, then you had to do what no other network was doing at the time."
Cable TV 2009
Cut to today. Mr. Flannigan is exec VP-digital media for MTV Entertainment Networks. The entire ad-supported video archives for "The Daily Show," "Colbert" and "South Park" have been available online for more than a year, and, at no expense to any of the shows' on-air ratings. All three series continue to break their own records despite online availability within hours of their initial telecasts. "The Daily Show" scored its biggest ratings ever with Barack Obama's Oct. 29 appearance, and beat out all of cable in its time slot (11 p.m. to 11:30 p.m.) among adults 18 to 49 with its Inauguration Day telecast. Online, thedailyshow.com continues to thrive. Last month Jon Stewart's confrontational interview with Jim Cramer became the site's most-streamed video of the year, with 1.3 million views in its first day.
Even "South Park" scored its highest-rated fall season premiere in eight years in 2008, and continues to be the top-rated cable show among men 18 to 24. Yet despite the show's continued popularity on all platforms, Mr. Flannigan initially had some trouble persuading the rest of the company to take the show online. "Some people suggested that [pirating] the show was niche behavior and not being done by the mainstream," he said. "So I did a Google search on just the two words 'South Park,' and the first three results were all pirate sites streaming episodes of 'South Park.' So I said, 'If you think this is somehow fringe behavior, I'm here to tell you otherwise.'"
Too much free
Yet being the early bird to the digital nest doesn't necessarily mean getting the worm. The long-standing debate of how much cable networks can stream online for free before the cable operators call their bluff surfaced Dec. 31, when Time Warner Cable balked at Viacom's proposed 15% increase of per-subscriber fees, citing free online offerings of its most popular shows as a direct example of how its content has been devalued to distributors.
Michael Nathanson, a senior cable analyst for Sanford C. Bernstein Co., said Comedy Central is a "very cheap network" to cable distributors, with affiliate-fee deals below 15¢ a subscriber. It's also a bright spot in a family that also includes MTV and VH1, both of which are down double digits in ratings and ad sales and have thus caused MTVN's ad-revenue growth to underperform the industry average, in the 1% to 2% range. Mr. Nathanson thinks Viacom would be smart to point to "Daily Show" and "Colbert" as areas of value to their subscribers, even if the ad-supported model has to change to subscription down the road.
"It's an ecosystem argument," he said. "You want to maintain the health of the [cable-operator] infrastructure, and also the network infrastructure, by having linear consumption affected by allowing people to view things on a one-off basis online" but not reach the point at which their not paying for that is damaging.
Yet in spite of the panic around live-rating cannibalization, Mr. Flannigan is hesitant to draw a correlation between the web and its effect on linear ratings. "We do know the audience consuming this content online is a bit younger than the network. We also know it's seen nice gains in the demo it targets, which is men 18 to 24," he said. "If that demo is defining themselves by iPods and what computers they have, we need to be delivering the content they need on that platform. I don't think you can force people to pick a platform; I think platform choices are being made independently."
Mr. Flannigan declined to disclose the percentage Comedy Central's revenue that comes from digital but said it has nearly tripled since his arrival at the end of 2006. What's prevented that ratio from getting even higher, however, is a scarcity of cross-platform deals.
"One of the challenges to convergent selling has been doing a TV upfront with one agency for on-air and [another for] online," he said. "Until those came together, it was logistically challenging to sell. Now that we're seeing that happen, more and more who've grown up in the digital ranks are coming to agencies. Now we have to create video ad models that people think are as compelling as broadcast."
Lessons learned at Comedy Central
- As they move online, TV networks don't have to lose money or audience. Since 2006, MTV Networks has nearly tripled its digital revenue while achieving record ratings on-air and online for "The Daily Show," "The Colbert Report" and "South Park."
- If you build compelling experiences online, media buyers will follow. Mediavest recently started a "Cross-Athletes Program" to train its buyers to buy across platforms. "We're ultimately buying content, the viewing experience and video consumption, and we're changing right now to adapt to that," said Francois Lee, VP-activation director for MediaVest's Video Investment and Activation group.
- Content companies can still control the discussion even as the proliferation of Twitter and Facebook chatter gives more power to the individual fan. The next generation of "The Daily Show's" website is designed to harness all social activity around the show on the web under one destination.