How Fox's New Video 'Window' Helps Close the Door on TV's Free Lunch

With Ads or Subscriptions, Viewers WILL Pay for Boob-Tube Favorites

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'Fringe' on Fox
'Fringe' on Fox

Every digital-age couch potato just got a larger-than-expected taste of sour cream.

By announcing yesterday that it would no longer provide fresh episodes of favorites such as "House" or "Fringe" to online viewers who watch TV programs without paying a subscription to some video distributor, News Corp.'s Fox is hastening the demise of "Free TV" in general and, perhaps, Hulu in particular.

As of Aug. 15, Fox will not allow anyone who does not subscribe to a pay-TV outlet or other distribution service to watch any of its programs for an eight-day window -- including people who might have wandered by Hulu in the hopes of catching the latest episode of "Fringe" with a reduced number of commercials (Hulu Plus subscribers should fare just fine). Take that , cord cutters!

Some people seem to have forgotten that it costs money to produce all those boob-tube favorites, whether it's a Sunday-night football match on NBC, the latest chapter of CBS's "The Good Wife" or a new round of "American Idol" on Fox. Attached to TV shows are celebrity salaries, a dollop of costs for special effects and on-location shoots and rights or licensee fees to sports leagues and production studios.

Time was, the networks got the money for that sort of thing from advertising. And they still do. But not the same amount as in the past, accounting for inflation. Consider that money committed to broadcast prime time in this year's "upfront" market came in between $8.8 billion and $9.3 billion, well below TV's halcyon year in 2004 when it snared around $9.5 billion. You can bet costs have gone up since 2004, but big TV's take of ad dollars has dipped or gone sideways.

To combat this trend, the companies that own the majority of the U.S. TV universe have worked steadily to mine new streams of cash, whether they come from "retransmission" fees paid by cable operators in exchange for airing heavily watched TV networks; licensing fees from the likes of Amazon or Netflix in return for the rights to stream back catalog; or some fraction of the price Apple charges its iUsers to access recent episodes of TV shows.

Hulu's role in generating such monies looks minor. True, the site's Hulu Plus subscription plan does bring money to the networks, but its free on-site offerings only snare ad dollars -- and a tiny fraction of the ones the TV guys get from showing things on their own air.

You'd think Fox, an owner of Hulu along with NBC Universal and Walt Disney, would want to do whatever it takes to bring the site the greatest amount of traffic, which in turn could send ad rates soaring. So it really says something about Hulu's benefit to its three glitzy overseers when one of them puts into action a plan that could limit the site's offerings, or at the very least reduce Hulu to a place where TV aficionados simply go to sample old shows (an episode that 's more than a week old has already made its trip to the water cooler).

TV networks have always faced some disruption. In decades past, however, it was limited to trips to the bathroom, potato-chip runs to the kitchen or a bored viewer fiddling with his or her remote control. These days, the challenges come in the form of devices that allow viewers to zap past the economic underpinnings of the business (commercials) or to watch the programs at times and dates of their own choosing. Doing that turns advertising, always a game of hitting the masses, into one of mining niches -- a process that might be financially unsustainable for any marketer in question.

Hulu fans will rail against this Fox move, just as Netflix adherents likely did when that content distributor decided to raise its fees depending on how much use its customers got from the site.

Cry all you want. If the networks can't turn a buck from ad-zapping viewers who watch at times of their own choosing, these are the sorts of tactics to which they will continue to resort.

The TV set is often considered part of the family. But Mommy, Uncle Bob or your best friend from down the street will never insist you watch TV in a single way or at a particular time. These days, the companies that own the distribution of this nation's televised content will insist that you pay for the privilege of watching anything from local news to "Saturday Night Live" either through attention to the advertising that supports those shows or via a subscription fee to whoever delivers them to your video screen -- if not both.

TV, especially in these days of rapid technological change, is best thought of as a business associate. Sure, the thing is friendly, but there's always the expectation of money hanging in the wind. Fox just made that abundantly clear to those who were looking for a hug rather than making a handout.

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Tuning In is an ongoing series of commentaries by Ad Age TV Editor Brian Steinberg on the TV schedule, the ads it carries and changes within the industry. Follow him on Twitter.

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