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  Eric Frankel is president of Warner Bros. Domestic Cable Distribution. He recently spoke to [itvt]’s Tracy Swedlow about the strategy behind Warner Bros.’ new broadband TV service, In2TV, about the kinds of content that are proving most popular on the service, about the company’s future plans for the service, and more.

[itvt]: Why did Warner Bros. launch In2TV?

Frankel: Warner Bros. makes more movies, more television programs, more animated series, and as many syndicated reality-type shows as anyone in the entire business. So we’re either number one or tied for number one in these categories of production. Then we either have the largest library–or the second-largest, depending on whom you believe–of anyone in the business.

In every form of distribution, other than getting our movies into the theaters, there are people who you might say control everything we do: television stations, pay-TV channels, video stores, large retail stores, basic cable networks, etc. They sit there and go, "Nope. We only want 10 of these. Nope. We don’t want this show, we want this other show. Nope, we don’t want to give you all this shelf space," etc., etc., etc.

A couple of years ago, I said, "Gee. One of these days, Internet TV is going to happen, and we should try to be the first guys in–or at least one of the first–so that we can control our own destiny by building our own retail store where we can directly sell to consumers, without Wal-Mart or Showtime or Tribune or USA Network getting in the middle and acting as a roadblock."

So we went out and brought in a bunch of paralegals. We started going through all of our television library. Over the course of a couple of years, we cleared 300-plus television series, and about 14,000 to 15,000 episodes of programming.

[itvt]: My understanding is that, for a company like yours launching a broadband TV service like this, ensuring you have the appropriate rights is one of the most difficult issues you’re going to face…

 

Frankel: Yes. First, you need to look at all your rights, program-by-program and episode-by-episode, to see if you have the rights to put it on the Internet. Then you have to examine what your individual music contracts say. The music in your programs is typically the big problem. Even if we’re dealing with content that’s Warner Bros.-owned, if there’s a song in it, you have to determine how that affects the rights: you might have the rights to offer the program with the song in it on TV or home video, but you most likely don’t have the rights to put it on the Internet. The television business is such that the music companies make money by charging you for every right. In other words, they typically don’t just give the Internet rights away, you have to pay for them. When you make a show for, say, NBC, you make it for X amount of money, and NBC pays you less than that X. It’s called "deficit financing" and it’s how pretty much every show on television is made. Now, remember that most television shows don’t succeed–they get canceled and you lose money on them. So, when you’re securing rights for the music in a show, that’s going to increase your already substantial overhead and therefore your already substantial risk: if you say to, for example, Polygram or EMI, "Oh. By the way, I’d like to also have the right to put the program with this song in it on the Internet," they’ll say, "OK. That will be another $10,000." So, instead of risking losing $300,000 on that episode, you’re risking losing $310,000, and, if there are more songs used in it, you’re risking even more.

[itvt]: And, as a result of the efforts of your team of lawyers and paralegals…

Frankel: We found 14,000 to 15,000 episodes that didn’t have issues. We had acquired the necessary rights for them either because we were forward-thinking or because people simply gave us those rights.

[itvt]: In many cases, though, these shows were produced a fairly long time ago. Presumably, you weren’t anticipating, at the time they were made, that you might eventually offer them on the Internet…

Frankel: No. We simply had language in our contracts with the owners of the music in those shows that gave us the right to exploit it in any way, shape or form we wanted.

Now here’s what typically might happen: we might have a 100-episode show, and the guy we contracted to compose the music for it gave us the rights to use that music however we please. However, we’d then find out that 50 of those episodes contained popular songs by people like Frank Sinatra or The Beatles, and we therefore couldn’t put those episodes on the Internet.

[itvt]: Are you working on re-scoring those episodes–or on removing the offending songs?

Frankel: For the time being, we’re simply pulling those episodes. So, while the show might have 100 episodes, only 50 of those episodes will be on In2TV. As a result of all this work, as I mentioned, we ended up with a total library of 300 series with 14,000 plus episodes between them, and we decided to package them into genre-conceptual channels.

[itvt]: Was the plan always to launch In2TV on AOL?

Frankel: Not necessarily. We went out to a number of big portals, including AOL, obviously, and Yahoo!, and we basically said, "We have an idea for how we could co-launch a business: we’ll program these channels and we’ll put them on your service–so we’ll have, say, a drama channel and a comedy channel and so forth, and it’ll be somewhat like cable television. And you’ll build the backend." And we also pitched them on the quality of the programming we’d be able to offer, saying stuff like, "We have ‘Lois and Clark,’ which was on TBS two years ago and which happened to be the number-one program on cable at 10 in the morning out of 65 channels. And we have this show on Nick at Night that gets these huge ratings," and so on.

AOL told us, "We like this; we get what you’re doing; and we’d like to go into business with you." So, on March 15th, we launched In2TV with six channels. Warner Bros. owns it and runs it in partnership with AOL. It all runs on AOL’s backend infrastructure, and they sell the advertising. The advertising that’s generated by the service is split between Warner Bros. and AOL.

As you probably know, not so long ago, we added three more channels. Right now, we have 50 original programs available on the service and 400 episodes. We also have around four original interactive games on a special area called In2Active. It’s promoted in various places on AOL; so, if you’re one of the millions of people who visit AOL.com each month–they get approximately 85 million unique visitors–hopefully you’ll see these various things all over the site that will make you want to press a button and watch an episode. We’re one of a handful of sites–the others include Google Video, iTunes and ABC.com–that have launched that allow you to watch commercial programming online. Our unique selling proposition is that we provide the largest quantity of free on-demand programming.

[itvt]: Now, another differentiator for In2TV in the broadband video space is that you offer full-screen capacity, correct?

Frankel: Yes. We’re one of the few sites that have full-screen capability–though people don’t necessarily know that. We recently did some research, and found that most people weren’t aware of it. Currently, to switch to full-screen mode, you have to use a little box in the corner of the player with a few arrows on it. We’re going to be changing that, so that it says "Full Screen"–i.e., so that the availability of full-screen mode is a lot clearer than it is today. Another improvement we’re working on, while I’m on that topic, is making it easier for people to ensure that they get the video in the best possible quality. Right now, to optimize their experience, they have to go to "preferences." But how many people know what "preferences" means? So we’re spending a lot of our time on ensuring that the user experience is as simple as possible.

[itvt]: How are revenues generated by In2TV divided up?

Frankel: The money–which is generated from the commercial every time someone watches an episode of a show–goes to AOL. AOL then gives us our share of that money. The money is then distributed between all the participants in the show, via the Actors Guild, the Writers Guild, and all the various unions. So the people who participated in the show are definitely getting paid from this, just as they would get paid if we sold a series to, say, the Sci Fi channel.

[itvt]: Are you looking to launch programming services on mobile phones and other platforms?

Frankel: Yes. We’re exploring all of those. For whatever reason, the rights issues with all those aren’t as complex as with the Internet, for whatever weird reason.

[itvt]: Could you talk about some of the interactive features you are offering or plan to offer on In2TV in association with your programming?

Frankel: We believe that, because of all the capabilities of online, we’ll be able to do all kinds of things. For example, we have games coming on board that appear on the right-hand side of the screen as you watch programs: trivia questions come up; you answer them; and you get points. We’ll also have games where you get to gamble on which side is going to prevail in "People’s Court." In another couple of months, we’ll be adding a server that will allow tracking of your points. Once you get X-number of points, you’ll start to get prizes sent to you by the advertisers. We think that that feature is particularly awesome–not to  mention the fact that you’ll also be able to talk to people while you’re watching. So you’ll be able to say, "Hey! Come on over and watch this. You won’t believe how cute John Travolta is!" or "Have you seen that new special they just made on the history of Superman?" and so forth.

In2Active, the games channel within In2TV, currently features five different "TVIQ’s" or interactive trivia quizzes–ranging from quizzes on Growing Pains to quizzes on Babylon Five. Each channel also offers a more immersive game experience, including our recently launched "Kotterizer," which allows users to upload their photos and dress them up as Sweathogs with ’70’s hairstyles and props–you know, funny sunglasses, big hair etc.

 

As you know, we’ve all been hearing all these interactive promises for years. We can actually do it all. We’ve hired an outside company to build a lot of these things for us. They’re currently about a third of the way there: about a third of the planned interactivity for year one is up and running.

[itvt]: Can you say which company it is?

Frankel: Yes. It’s called Protagonist. The guy who runs it is called Matti Leshem. He’s a TV producer kind of all-round guy who just gets all this stuff, and he’s been a great partner. He’s got a great team of people, and he’s been quite ambitious in terms of what he wants to achieve with this. This is really a mother of an assignment, and he’s been frustrated on this project thousands of times: what he’s trying to do and what we’re trying to do are unlike anything AOL has ever done before. He and his team have had to come up with kinds of code that have never been written before. They’ve got people in India writing code for this. They’re really trying to create something that hasn’t ever been done before, and I’m very optimistic that it’s going to be successful. We already have a reasonable percentage of users accessing the interactive features that have already launched.

[itvt]: How did you select Protagonist to develop In2TV’s interactive features?

Frankel: To be honest, we were quite naïve about all this, so the process was quite simple and informal: we have a guy–one of my guys, actually–who sold advertising online for the WB for five years; so he was our de facto expert. He went to other people at Warner Bros. and ended up getting a couple of good recommendations from the guy who builds all of our big movie Web sites. So we then had two groups of people who claimed they could do this kind of thing. We gave them each a very small amount of money and said, "Here are the programs we’re putting up. What are your ideas?" Matti came back with a better concept statement than the other person. We met him and we liked him. It was a good fit.

[itvt]: Right now, In2TV is pretty much devoted to previously broadcast content–to established commercial programming…

Frankel: Right. After all, that’s what Warner Bros. really does for a living.

[itvt]: Yet, as you know, there’s a lot of interest right now in user-generated content, and in the question of how established programmers should respond to the user-generated content phenomenon. Is user-generated content of interest to you?

Frankel: Totally. Here’s one of the things we’re thinking about: at Warner Bros., we have some very old product where we don’t have any talent issues. So, maybe in the future, we’ll allow people to futz around with it and turn it into, say, something along the lines of their own "Mystery Science Theater 3000"–if you remember that show–by allowing them to edit it and put their own voiceover and music on top of it. Or perhaps a better analogy would be Woody Allen’s "What’s Up, Tiger Lily?"

On the other hand, I don’t know that this is going to be the kind of site where we’re going to have things like that "Kicked in the Nuts" viral video, or the one where those two Chinese or Japanese guys argue on the bus for six-and-a-half minutes–which has supposedly been translated into 30 languages. I don’t think we’re ever going to do stuff that might be considered racy.

[itvt]: Are you planning to license out In2TV’s channels to other Web sites?

Frankel: Absolutely. We’d license the entire service or individual channels, depending on the appetite of our partners. Conversations are ongoing right now. But remember: it’s still very much early days for us. Right now, I see us as a store. We’re not an established store that has been around for many years and that really has everything down. We’re a brand-new store, with brand-new technology. We’ve got a larger quantity of long-form video than anybody else has, and we’re offering it for free. But inserting commercials into it and adding all this interactivity–all of that is very complex. So we’ve got to get this thing straightened up a little before we get too ambitious. And we have to bear in mind that it’s going to take some time. That said, we definitely need to syndicate what we’re doing to hundreds of other places; then we need to add more, better and fresher content; then we need to get into the user-generated stuff, letting people play with our programming without having this result in the various unions getting upset and shutting down our studio or whatever. All those directions–those are exactly where we’re going to go.

[itvt]: So you are concerned that giving people the ability to creatively manipulate your content could result in problems with the unions?

Frankel: It could. Everybody’s happy with what we’re doing right now, because we’ve created a whole new outlet. We’re making money and we’re paying money out to participants–to the actors and directors and writers and so on and so forth. That’s all good. But the reaction would be very different if you were to take an episode of, say, "Blanketyblank," and you started to cut it up. People would go crazy. You can only do that kind of thing with certain kinds of content. It’s not going to happen with last year’s Academy Award winner, though it might happen with, say, a great western from 1952, that you could really go to town with and have a field day with, doing phenomenally creative things. If we were to do something like this, it would be good to have an array of tools and templates on our site, that would provide you with ways to re-score the content, etc.

[itvt]: Most of the content on In2TV is fairly old. Is that changing?

Frankel: Yes. During our June Refresh, for example, we added five series from last season and three series from the year before. So our content is definitely getting a lot fresher. 40% of the programming on In2TV right now is from within the last 10 years; 70% is from within the last 20 years. So we’re getting a little less vintagey and a little more contemporary.

[itvt]: Do you have any plans to develop original content for In2TV?

Frankel: Not at this time. Though we are presently offering programming that has never aired before on our "Gone But Not Forgotten TV" channel, including never-before-seen episodes of programs like "Wanda At Large," starring comedian Wanda Sykes.

[itvt]: What kinds of content are proving most popular on In2TV?

 

Frankel: Animation is huge. We’ve gotten some terrific results out of animation. And we don’t think its popularity is necessarily due to kids. We’re also getting terrific results out of sci-fi. Like "Babylon 5," for example, which was a series that played for four or five years in syndication and on TNT, and which won more sci-fi awards than "Star Trek" did when they were both on the air. The audience goes after that stuff like there’s no tomorrow. It’s huge. They also love comedies. People seem to particularly love the short-form, two-minute comedy stuff.

Here’s something we should be aware of, though: what we’re finding is that, because In2TV is a new and unfamiliar toy, people are hitting the first category on the navigation bar, and then hitting the first series that pops up, and then the first episode of that first series.

Another factor–probably the most important factor–influencing people’s content choices, obviously, is marketing. I think marketing is influencing consumer behavior on In2TV right now more than anything else. When we get a promotion on an AOL welcome page–you know, something that says, "To watch ‘Lois and Clark,’ click here," we can get 600,000 hits in an hour. So a lot of which content is most popular or not has to do with people being directed–whether through marketing or through the layout of the In2TV store. When you have hundreds of options, that’s what’s going to happen.

[itvt]: So are you proactively trying to direct people to particular kinds of content?

Frankel: No. We don’t have a "point of view," so to speak. Again, we see ourselves as store owners: now store owners can’t necessarily say that they treat every toy or piece of food in their store as equal, but the reality is that they want people to come to their store and easily find exactly what they want, regardless of what specifically they’re looking for. So, in our case, we want them to find great programming that will play back easily, clearly and so on. And for those people who want to play along, we also want to ensure that they can do that easily. And for those people who are asking, "What the heck is Gabe Kaplan–Kotter–doing today? Is he dead? Is he alive? Is he a successful gambler, businessman and speech-giver?"–well, we want to help them find that out, too!

[itvt]: What are your ultimate goals for In2TV?

Frankel: We want this to be a place where people can go on their computers and have hundreds and hundreds of positive video experiences. And we want those positive experiences to eventually work their way to the 10-foot environment of your television, once the next-generation computers and other interactive devices that will enable this are built. We want to make it possible for people to sit and just watch television, the way most people do now, or to play along, chat, and have community. We want to give people all of these options. As I mentioned before, we don’t have one particular point of view: if you want vanilla, we’ve got vanilla. If you want chocolate, we’ve got chocolate. If you want tutti-frutti, we’ve got tutti-frutti. We just want to make all of these things easy to navigate and to enjoy, and we just want to keep adding more and more content, so that you don’t have to go to as many other places. On the other hand, I don’t know that we’ll ever be the place for the sort of short-form, viral, user-generated video you get on a lot of sites on the Internet–that " America’s-Funniest-Home-Videos"-on-steroids type of content.

Ultimately, we want you to watch a lot of television–and view a lot of commercials–so that we generate money and you have a good experience. And we have a smaller commercial load than you’ll ever see on television, anywhere. So we think it’s a win-win situation.

[itvt]: As we discussed earlier, In2TV’s business model right now is advertising-supported. Do you plan to change that going forward? Do you plan to charge people for content?

Frankel: In my opinion–which is not a definitive plan–a consumer in most cases should have the ability to watch content for free, with commercials. However, if you’re trying to design everything with the consumer in mind–which is our goal here–the question you have to ask is: "How do you make consumers happy?" Consumers should have a choice: some might want to watch it free, with four commercials per half hour. Others might prefer to pay 50 cents or 99 cents for the ability to watch it without commercials and to have unlimited access to it for two days. Others might prefer the iTunes model, where you pay $1.99 and own it for the rest of your life. Offering a variety of options, I believe, brings in more consumers.

[itvt]: What was the thinking behind the decision to launch the service as advertising-supported?

Frankel: We’re doing advertising-supported, because we wanted to differentiate ourselves from other broadband video services offering traditional TV programming. We also thought that the free-with-commercials model seems to be the most popular in most forms of media. We can always figure out premium models, where people pay fees, on top of the advertising-supported model. When you’re trying to get people to do something that hasn’t really been done before–which is to watch 30-minute TV programs on their computer–you don’t want to put a lot of hurdles in their way. If you were to tell people that the only way they can do that is to join a club for $10 a month, you’re not going to get a lot of people trying it out. We want to get a ton of people in the tent and give them a really positive experience–through all the features you and I have been discussing–and get them to come back. Once you have a big enough audience, then you can say to them, "Hey! Here’s another way to enjoy In2TV."

[itvt]: What kinds of announcements should we expect to hear from Warner Bros. about In2TV going forward?

Frankel: Lots of new programming and exciting new channels. We’ve been adding new channels on a monthly basis, including temporary channels like our Superman Channel, which even features exclusive content like Bryan Singer’s and Kevin Burns’ "Look, Up in the Sky! The Amazing Story of Superman," as well as shorts like our "Monkey’d Minutes," fun parodies of famous movies, acted by chimps.

URL: Warner Bros. Domestic Cable Distribution
URL: In2TV

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