Why NBC is Polishing Its Digital Gems

SAN FRANCISCO — The migration of video online — legally published or illegally posted — combined with the prevalence of personal video recorders that let viewers skip ads, has actually created an opportunity for NBC Universal.

With a wealth of broadcast, cable and online properties, the media conglomerate sees Internet video as an opportunity for new revenues, not a drain on broadcast revenues.

In a discussion with Fortune magazine senior writer Adam Lashinsky, George Kliavkoff, chief digital officer for NBC Universal, explained to the audience at the ad:tech conference, held this week in San Francisco, how the company manages its online growth.

The most high-profile example is Hulu, the streaming video platform created by NBC and NewsCorp, featuring content from NBC and Fox. Hulu launched
as a private beta
in October 2007. The public
was March 12. The content is available on Hulu.com and also distributed by several partners, including AOL.

Hulu offers users “all the value of aggregation, one-stop shopping for premium content,” Kliavkoff said. At the same time, he thinks it will reduce the illegal exchange of the content on peer-to-peer networks. “The best defense [against piracy] is providing a legitimate place for people to enjoy the content,” he said. For example, if NBC can post the latest episode of “Saturday Night Live”
one minute after it’s finished airing, as happens with unauthorized posting on YouTube, viewers are more likely to watch the authorized stream. NBC isn’t quite there yet, but it’s working on it.

Shows on Hulu have the same number of commercial breaks as broadcast versions, but only a single commercial airs, which reduces clutter and makes the ads more attractive to advertisers, according to Kliavkoff. As the audience builds, it will be able to offer advertisers targeted advertising based on user behavior. In the meantime, it’s come up with some creative ways to improve the prices it can charge. For example, viewers can opt to watch a single movie trailer before the show instead of the scheduled commercials. “It gets someone to self-select into watching a particular movie trailer, so it’s great for the company marketing that movie,” Kliavkoff said.

NBC Universal’s plans for Olympics coverage showcases the advantages of its online and mobile offerings. There will be a section of the main NBC.com site dedicated to the Olympics, as well as a standalone site. Altogether, NBC will offer 2,200 live hours of programming and 3,600 hours of on-demand content. If you’re a fan of one of the more obscure sports that isn’t broadcast live, you’ll be able to see it online somewhere. Citizens will be able to watch competitions on-demand, get alerts to watch live competitions, email highlights to friends and watch live on mobile devices.

Kliavkoff said most inventory, broadcast and online, has been sold and most packages sold to advertisers include the “three-screen experience. No one wants to buy just the television.”

Pressed by Lashinsky, Kliavkoff hinted that NBC is still in negotiations with Apple. NBC yanked its content off Apple’s iTunes service WHEN because of a price dispute.

“We like to control the wholesale price of our product, and that’s the way it works on every distribution platform except one,” he said.
NBC doesn’t think it make sense to let the distributor set both the wholesale and retail price, and it felt that iTunes’ pricing didn’t reflect the value of the content.

Another big issue in the NBC/Apple dispute is piracy. “If you look at studies about the leading MP3 players, and what proportion is pirated content and how it gets onto devices, it has to go through gate-keeping software, which would be a good place to put something to prevent piracy,” Kliavkoff said. Hulu was able to negotiate the insertion of software to check for legitimate copies with other distribution partners; evidently Apple refused. “If we’re going to give you access to the crown jewels, you have to make sure the material is legitimate.”

Still another digital initiative is DriverTV, one of several digital cable channels NBC Universal will launch in the next few months. Each channel will focus on one of the top ten advertising categories. To launch its auto channel, NBC purchased a stake in DriverTV, an independent producer of content for auto aficionados. It will become an element in a larger auto network that could slurp up online ad dollars.

By finding similar under-utilized video content, Kliavkoff boasted, “We can launch a new network without spending an extra penny to create content.”

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