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Online challenge: Getting TV viewers to pay up

Carleton student Tina Esmaeili: ‘I don’t really trust random websites … because I don’t know where the show is streamed from.’

Blair Gable/© 2010, Blair Gable Photography

The lush, mysterious island on the hit show Lost has captivated viewers for five seasons, and counting. But a small - and growing - segment of fans of the television drama don't actually watch it on television.

"With my schedule, I probably watch more online," said 20-year-old Carleton University student Tina Esmaeili, who regularly catches up with Lost for free on the CTV website.

She's not alone. Television has moved to the Internet. But unlike the early days of music downloading, it's not all about illegal websites posting copied content. Media companies are racing to meet the growing demand for online video with network shows such as Lost and specialty programs.

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Last month, HBO GO, the website streaming more than 600 hours of HBO content, was officially launched in the U.S. Unlike popular services such as Hulu, it's not free: It will be made available only to customers who subscribe to both digital TV and Internet with Verizon. HBO is in talks with other distributors to open the site to more subscribers.

The music business didn't evolve fast enough and didn't try to meet customer expectations quick enough, and as a result saw a lot of cannibalization very quickly. The question for us is … how do we make sure the TV business remains strong and robust? David Purdy, vice-president of video products at Rogers

It's the first major part of a much-hyped online TV expansion in the works that will see distributors try to persuade their customers that online content should not be free. In the United States, Comcast and Time Warner call it "TV Everywhere."

On this side of the border, both Bell Canada and Rogers' cable division launched subscriber-only online TV services last fall.

"The generation that's coming up is not the same in terms of … how they will consume media," said Shawn Omstead, a vice-president with Bell's TV satellite service. "It forces us to compete."

Bell allows only the subscribers to its satellite television service to log in to its online service, which is ad-free. Rogers supports its online TV library with a mix of advertising and subscription revenues. And it's tiered, so Rogers Internet and wireless customers can also log in (cable subscribers get more programs than others).

"The music business didn't evolve fast enough and didn't try to meet customer expectations quick enough, and as a result saw a lot of cannibalization very quickly," said David Purdy, vice-president of video products at Rogers. "The question for us is … how do we make sure the TV business remains strong and robust?"

Bell's service is limited to movies and some TV shows provided by Astral Media, while Rogers offers programs from channels owned by Corus, CTVglobemedia and CanWest, among others. Both companies plan to expand deals with other content providers in the coming months - and now that HBO GO has launched in the U.S., Astral plans to add much more HBO Canada programming online in the coming weeks.

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"There's a shift coming … we need to have a presence there," said John Riley, president of Astral Television Networks, which provides all the programming for the Bell site. Like all content providers, Astral depends on distributors adding subscribers, but also keeping existing ones happy. "The upside is, they don't leave."

The downside is, it's not making any money yet. Neither Bell nor Rogers charges extra subscription fees for Web video, and online advertising revenues are still a drop in the bucket compared with TV. But for media companies, going online means being ready.

"A lot of this is just about learning where the viewers' preferences are," said Barbara Williams, executive vice-president of broadcasting content at CanWest Global Communications Corp., which put shows from its specialty channels including Showcase and HGTV on the Rogers site.

The Web is an important promotional tool for media companies, said Peter Fader, co-director of the interactive media initiative at University of Pennsylvania's Wharton business school. Networks such as CTV and Global, which rely on advertising, can benefit from streaming episodes free on their websites.

"It not only drives consumption of that content, but it creates more value for future content," Prof. Fader said. "The buzz builds around it."

The popular U.S. site is also ad-based and shares revenues with content producers to get the content on the Web legally. But Hulu is reportedly losing money, and moving to a subscription-based model soon. If the parent companies of Fox, NBC and ABC - all of which share an ownership stake in Hulu - can persuade viewers to pay, that's good news for the industry.

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Content providers are beginning to show signs of backing away from sharing their shows online unless the revenues can back it up. Viacom announced last weekMarch 4 that it will pull shows from its Comedy Central channel off Hulu; viewers will have to go to the websites of shows such as The Colbert Report and The Daily Show with Jon Stewart to see episodes.

CanWest also puts some of its specialty content on its own websites for free. Ms. Williams said the company supports restricting its shows to distributors' subscriber-only sites, but will do so only once those types of sites are set up nationwide. Cogeco Inc. and Shaw Communications Inc. have been slower to develop online program portals. Public broadcaster CBC has bypassed distributors altogether in putting NHL games on the Web: Tuesday it announced a deal with Yahoo! Canada to stream live broadcasts of Hockey Night in Canada on a CBC-Yahoo site starting this Saturday until the end of the season.

There will always be viewers who want everything free, and will seek out websites that show copied programs without the legal rights to do so. But even younger, tech-savvy viewers don't necessarily choose that option.

"I don't really trust random websites … because I don't know where the show is streamed from," Carleton student Ms. Esmaeili said. "It is also the legal issue … To be honest, the network websites are a lot better, I find. The quality is better."

She is the kind of viewer the television industry hopes to attract. Since last fall, more than 60,000 customers have logged in to the Rogers on-demand site, and Bell's Movie Network online site has had 57,000 log-ins. In TV ratings terms, that's barely a blip. But both distributors and content providers have good reason to hope that a paid model can ultimately succeed.

"We came to a very good place in what everyone would acknowledge is an experiment," Ms. Williams said. "Cannibalization is the great unknown as we all move our content all over the place … it's an ongoing puzzle but we continue to work away at it."

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