For the networks, television's future is online

The launch of online syndication sites such as hulu.com underscore how television companies are using the Internet to leverage their key asset: well-made content.

Predicting the death of network television is a popular pastime in Hollywood. After three decades of audience erosion to cable, the doomsaying has intensified in recent years as video-sharing websites such as YouTube and Facebook have demonstrated an audience of millions for low-budget video.

But it's still not time to count the Big Five networks out yet, say media watchers. They may have stumbled in the transition to the world of digital entertainment, underestimating audience appetite for consumption in new media beyond traditional TV, but they're rapidly trying to adapt.

This week, hulu.com a new, ad-supported site launched in partnership with Fox and NBC, showcases both companies' programming via streaming video. ABC recently launched Stage 9 Digital Media, an online production house for short-form content. CBS has assembled a partnership of some 300 online syndication outlets such as AOL and Joost. And Fox has acquired the wildly successful social-networking website, MySpace. In part, the networks hope their online offerings will spur interest in traditional television programming. But, more than that, the networks want to establish bulwarks in the online universe where they can leverage their primary assets: well-crafted content.

"The model the networks come up with for distribution is going to affect everybody because everyone consumes TV in some way," says Robert Thompson, director of the Center for the Study of Popular Television at Syracuse University in New York.

That new business model is still very much a work in progress. If network television is to continue to provide big-budget productions to viewers without charge, it must attract enough eyeballs to draw advertisers. Increasingly, though, competition is coming from other forms of online entertainment.

In the networks' favor: A great TV show can still trounce amateurish YouTube video for sheer entertainment value.

"I've been hearing about the death of television for nearly 35 years," says David Poltrack, chief research officer at CBS. He points out that the five networks still command over 50 percent of the viewing audience for television. While viewers may be consuming their favorite TV shows outside the standard broadcast prime-time slot – think cellphones, iPods, websites, digital video recorders, and DVDs – they still find out about the show from the prime-time schedule. This creation of the all-important "franchise" – the must-see stories that people will seek out regardless of the medium – is still what the networks do best.

The ability to deliver audiences that advertisers can measure is still key to the business model for distributing freely accessible content on the Internet. "Nobody else can come close to aggregating audiences the way the networks still can," says Marc Berman, TV analyst for New York-based trade publication, MediaWeek.

As the Digital Age matures, the model of free content is becoming the golden ring of the Internet. Consumers are tiring of paying fees beyond those for the Internet and cellphones. "They want their content free," says Mr. Poltrack.

Freedom of access is an important cornerstone of the media age, says David Wertheimer, executive director of Entertainment Technology Center at the University of Southern California School of Cinematic Arts. The TV networks have more than half a century of experience in delivering free content using advertisers' dollars.

Even so, the networks have occasionally stumbled. Last month, NBC tried to transplant "Quarterlife," an Internet series, to regular TV only to cancel it after just one barely seen episode.

But the networks' mistakes are instructive to newcomers. "I love having these big dinosaurs lumbering around the Internet," says Kip McClanahan, CEO of ON Networks, an online video site based in Austin, Texas. On the other hand, he adds, the networks still have the money to finance high-quality content.

But such online ventures may unravel the very structure of the networks, a business model that relies on affiliated stations to distribute network content, observes Mr. Thompson.

As the networks find more viable ways to make money putting their TV programs online, the hundreds of affiliates that used to be the exclusive outlets for these shows could be hurt, says entertainment lawyer David Oxenford, a partner in the Washington, D.C.-based Davis, Wright, and Tremain. He points out that local stations rely on prime-time programming to draw audiences to the local advertisers that support the stations. "Local news has always been a mixed bag, but at least it's something," says Mr. Oxenford. "If the local stations can no longer afford to do local coverage, then the community could lose."

Even in remote corners of the country, such as Eureka, Calif., local ABC affiliate (KAEF) station manager Alan Kammersgard says he sees the handwriting on the digital wall. He knows everything is moving online, and when that happens, "our advertising dollars will be going online, too."

As networks redefine their relationship to local affiliates, these stations may be an important part of the evolutionary process. When all broadcasts go digital next February, stations will have multiple broadcast tiers on each channel, opening the door to far more local programming.

"What we're probably going to see, as all this programming moves online, is a whole new meaning for the word network," says Thompson.

• Monitor intern Alison Tully contributed to this report from Los Angeles.