Running head: TELEVISION INDUSTRY AND THE INTERNET

Television Industry's Adoption of the Internet: Diffusion of an Inefficient Innovation

Harsh Taneja* & Heather Young

Media, Technology and Society Program

Northwestern University

1.Forthcoming in proceedings of the Broadcast Education Association, April 15, 20102

Seattle

2. Selected to be included as a Book Chapter in an edited Volume on Media Economics

and Management Research in a Transmedia Environment (Details TBA)

*Corresponding Author: 2240 Campus Drive, Evanston, IL 60201, USA. Email

[email protected]

TELEVISION INDUSTRY AND THE INTERNET 2

Abstract

Two decades after it initially considered adopting the Internet as a platform for content delivery, the television industry is still searching for a stable online business model. A suitable explanation warrants an historical inquiry into the adoption process. However, prior research on the relationship between the television industry and the Internet has been cross-sectional and moreover has neglected the interorganizational field of support industries in which the television industry operates. Through detailed examination of the events related to Internet adoption described in television industry trade publication, Broadcasting & Cable, during the period of

2001-2009, we achieve a longitudinal and interorganizational perspective on Internet adoption by the television industry. Our findings indicate that in adopting innovative online practices, television networks failed to reconcile their traditional business models with the unique affordances of the Internet. Institutional inertia, uncertainty, and complexity within the television industry forced networks’ online strategies to be informed by fringe players, who were successful in monetizing Internet audiences.

Keywords: television industry, Internet, website, interorganizational field, adoption, diffusion of innovation

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Adoption Of The Internet In The Television Industry: Explaining Diffusion Of An

Inefficient Innovation

The adoption of the Internet by the television industry has been a considerably turbulent and drawn-out process. The Internet problematized television as a product and threatened the industry's longstanding business models, resulting in pervasive uncertainty about its adoption.

For the first time, television networks had to adapt their offerings to an entirely new platform with capabilities much different from those of traditional platforms yet maintain their relationships with support industries. Their ongoing struggle with how to profit from making content available online warrants an inquiry into the challenges and opportunities the television industry faced throughout the process of adopting the Internet.

This study seeks to identify the factors, players, and events responsible for shaping the strategies used by television networks to adopt the Internet by performing a historical textual analysis of the television industry trade publication, Broadcasting & Cable (B&C) from 2001-

2009. We develop a theoretical framework that explains how innovations are adopted in uncertain and complex situations. We then review specific developments and broad trends reported by B&C to apply our framework to the interorganizational field in which the television industry operates in order to explain why television networks continue to struggle with adopting the Internet.

Scholars have studied the television industry’s response to the Internet for nearly two decades. However, the scope of this research has served to describe the artifact itself (i.e., the network website) at a specific point in time rather than the evolutionary process of Internet adoption. Early studies examined the use of television network websites in business strategies

TELEVISION INDUSTRY AND THE INTERNET 4 and found that networks imposed traditional business models onto the Internet. Initially, network websites emphasized providing news and information, catering to audiences rather than advertisers , and were primarily used to promote television programming . Station managers perceived websites as tools for bolstering audience relations rather than outlets which might generate revenue through online advertisements .

Television networks by and large failed to take advantage of the Internet’s interactive capabilities. As Siapera states, “innovative attributes [of the Internet]...[were] all subsumed under, and incorporated into, existing relationships” . Thus, early network websites did not have interactive features and contained mainly repurposed on-air content ; even when networks began to recognize the value of interactivity, most websites remained sources for information . While high website traffic did not translate to higher ratings , interactive features increased the amount of time spent on a site, resulting in an increase in a network’s overall brand equity . Cable network websites were more likely to have interactive features , which were thought to appeal to their specialized audiences . In some cases, networks formed partnerships with technology companies to capitalize on opportunities for brand extension and interactivity offered by the web

.

The focus on branding, advertising, and interactivity in prior literature has obscured additional factors that explain the online strategy of television networks. Scholars in television studies have shown that many exogenous factors – in particular the complex relationships between television networks and their support industries such as studios, advertisers, and measurement services – influenced how television networks utilized the Internet. Despite their expanded focus, these studies, too, took a cross-sectional view and focused either on the impact of the Internet on the current practices or future developments in the television industry and offer

TELEVISION INDUSTRY AND THE INTERNET 5 little explanation of how the current state came to be.

Lacking is a longitudinal inquiry into the evolution of the relationship between the television industry and the Internet with the goal of understanding the factors that affected the process of adoption. Also, to provide a comprehensive explanation a study should not be restricted to analyzing television networks' websites. Instead the inquiry should be at the level of the interorganizational field, a term Leblebici, Salancik, Copay, & King defined as a historically specific pattern of transactions composed of actors (usually organizations) who transact directly through exchange or indirectly through competition. More specifically, in order to explain all factors that influenced the television industry's process of Internet adoption, a study should go beyond looking at television networks' websites and examine how transactions between television's support industries impacted their online strategies. In this paper we address both these issues by drawing on theories that motivate a longitudinal inquiry using the television industry trade press, a data source that speaks to the interorganizational field, not just television networks.

Conceptual Framework

As a new medium, the Internet offered an alternative distribution platform that had to be adopted by television networks, yet reconciled with traditional modes of delivery. The overarching question, which guides our inquiry, is how various factors, events, and players influenced the process of Internet adoption by television networks. In this section, we develop a framework to motivate this inquiry by applying theoretical mechanisms in diffusion of innovations and institutional change to the television industry to pose specific research questions for this study.

Disruptive Innovation: Uncertainty and Complexity

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An innovation is “an idea, practice, or object that is perceived as new by an individual or other unit of adoption” . In the context of this study, the innovation is the use of the Internet by television companies as a promotional tool or distribution platform (i.e., innovation as

“practice”). Innovations can be incremental (minor improvements to products or services), radical (offering a highly novel product or service), or disruptive (rewriting the rules of the game) . New technologies are a source of environmental variation, and cause ferment among adopting organizations . In addition to the challenges posed by technology itself, two environmental contingencies, uncertainty and complexity, further affect firms’ ability to evaluate innovations (Tidd, 2001). Uncertainty comes from the rate of change of technologies and market characteristics. Complexity is a function of interdependence between organizations at both the technological and process levels. The higher the interdependence within the field, the more difficult it becomes for organizations to innovate (Tidd, 2001).

We regard the use of the Internet as a delivery platform to be a disruptive innovation for television networks, as it was a new technology that inspired uncertainty and problematized the complexity of the industry. Due to the experiential nature of media products, networks could not predict how consumers would react to content on the new platform prior to making content available online. Moreover, networks had to consider the impact that adopting the Internet would have on their relationships with support industries.

Diffusion of Innovations as Fashions and Fads

The dominant perspective on diffusion of innovations considers adoption to be driven by independent, rational choices that promise to enhance technical efficiency for the adopting unit .

However, this perspective is unable to explain adoption of inefficient or disruptive innovations which, according to Abrahamson, are adopted by organizations due to “outside influence”

TELEVISION INDUSTRY AND THE INTERNET 7

(“fashions” set by influential organizations outside the industry) and an “imitation focus” (in which fashionable practices become “fads” through widespread imitation) . From the fashion perspective, an organization’s decision to adopt an innovation is influenced by an organization outside its core group, usually a “fashion setting organization” such as a consulting firm or technology company. From the fad perspective, organizations imitate competitors either to avoid giving a competitor the competitive advantage or simply to gain legitimacy . These mechanisms drive innovations to be adopted regardless of their technical inefficiencies.

However it is not always possible to attribute the diffusion process to one of these perspectives alone, and often a combination of the fad and fashion perspectives explains diffusion of innovations. Diffusion of innovations within creative industries in particular is often attributed to fads and fashions . Given the uncertainty that adoption of the Internet presented to television networks, we employ a fashions and fads perspective to explain the adoption of the

Internet by the television industry, especially as we know in retrospect that the Internet was not adopted as an efficient choice

Institutional Change in Organizational Fields

Organizational inertia discourages longstanding organizations from adopting new technologies, as they perceive new technologies as a threat which will hurt existing practices and current business models . Past studies have demonstrated these tendencies specifically in media industries; take for instance the resistance of broadcast networks to new audience measurement technologies and newspapers’ responses to online publishing . Thus, although institutional leadership can foster a culture of innovation , organizations in mature institutional fields tend to become isomorphic in their practices and mimic one another . Dominant players in such fields do not willingly change their practices. Instead, innovations are introduced by “fringe players”

TELEVISION INDUSTRY AND THE INTERNET 8 which Leblebici, et al. define as the “the newer and/or less powerful participants [within an interorganizational field], for whom experimentation is less costly in final outcomes and who are less likely to be sanctioned by more central players” . If successful, these practices become new institutional conventions once they attract the attention of dominant players .

In the case of the television industry, in order to incorporate the Internet as a delivery platform, television networks had to begin interacting with information technology companies working amidst or at the periphery of the Web including Web portals, search engines and other

Internet technology providers (which we simplify hereafter as “Internet companies”), which meant the interorganizational field of the television industry expanded to include new players. In this paper we consider television networks to be the dominant players and Internet companies to be the fringe players. It may have been the case that these fringe players introduced some of the practices that television companies adopted with regard to using the Internet.

Research Questions

In this paper, we seek to understand why the Internet was viewed as a source of uncertainty and complexity, and how did the television industry respond to these uncertainties.

We are also interested in exploring the mechanisms by which innovative practices diffused within this complex interorganizational field, as well as the players who influenced the adoption of these innovations. Based on the literature, we pose three research questions as follows:

RQ1. What factors contributed to uncertainty in the television industry about adopting the

Internet as a delivery platform and how did the television industry respond?

RQ2. What fashions and fads impelled the television industry to adopt the Internet?

RQ3. Which players were responsible for introducing what innovative practices online that were subsequently adopted by the television industry at large?

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Data and Method

To develop an understanding of the evolution of the process of Internet adoption by the industry, we draw on television industry trade press. Caldwell (2009) characterizes industry trade press as a form of inter-group communication he terms “semi-embedded deep texts,” which

“function to bring the generalizing discussions of the nature and meaning of [media] production from one corporate media company or craft group to another”. Because these semi-embedded deep texts “succeed only if they are persuasive in maintaining or forging new relationships” between players in the organizational field, they are an ideal source of insight about the perception and response of the television industry writ large to the Internet. Broadcasting and

Cable (B&C), a weekly launched in 1930, is the premiere trade publication of the television industry. It covers news affecting the industry including conference proceedings, personnel changes, website launches, corporate restructuring, programming trends, and opinions of industry leaders and consultants. It also provides information about developments in support industries and regulatory changes that have consequences for the television industry. B&C is a reliable and stable source of industry information required for longitudinal analysis.

We used digitized archives of B&C to gather all articles published from 2001 to 2009 containing the word “Internet” in the title or body of text, publication defined keywords, or subject codes. We began our search for articles starting 2001 so as to include the period immediately following the stock market crash of 2000-2001. The search returned approximately

3,500 articles in all. Experimentation with other keywords like “Web,” “site,” and “online” did not return significantly different results. We were interested in articles of two kinds: articles about television networks' presence on the Internet (e.g., websites, program types, modes of

TELEVISION INDUSTRY AND THE INTERNET 10 delivery) and articles about the broader context in which Internet adoption occurred (e.g., distribution practices, corporate partnerships, revenue, technology, metrics, advertising). Articles about the FCC and other regulatory issues were excluded as they were beyond the scope of this inquiry. Based on our focus of research, we selected 258 articles to be included in our detailed analysis. We read and summarized each article and classified them thematically according to the following topics which emerged throughout the course of our analysis: organizational and website strategy, technology, revenue, and innovative practices. A fifth category was used to capture articles that spoke to broader questions in the study but did not fall under a particular category. Following this process of classification and analysis, we examined themes chronologically with an eye toward broad trends of which individual events were representative.

Internet Adoption by Television Networks

Based on our analysis, we classified the period of 2001-2009 into three phases (named after representative articles published during the phase), which are tied to key turning points in television networks' online strategies. Though the Internet was pervasive by 2000, television networks halted their initial online strategies in 2001 and started from scratch following the stock market crash, making this a sensible point at which to begin our inquiry. Phase One, from 2001-

2004, was one of skeptical experimentation in which networks were wary of the Internet, had justifiable doubts about its staying power, and lacked a unified strategy to incorporate the new technology into their offering. By 2004, it was clear that the Internet remained an important technology despite initial turbulence, and networks began to recognize the unique advantages of the Internet in terms of facilitating interactivity and targeting niche audiences. Phase Two, comprised of years 2005 and 2006, was one of rapid Internet adoption by networks. In 2005, more than half of the online population had access to broadband internet resulting in an

TELEVISION INDUSTRY AND THE INTERNET 11 explosion of content online by 2006. This phase also sparked interest in the social features of the

Internet. Phase Three began in 2007 and was typified by industry reconciliation of the fervor in

2005-2006 with the reality of issues such as distribution, monetization, and technical quality.

Below we describe in detail the trends occurring within each phase by identifying the online strategies followed by television networks. Tables 1, 2 and 3 correspond to the phases and contain more granular details of specefic events that inform the trends we report.

Phase One: “Tata TV Portals”

A 2001 B&C article titled “Tata TV Portals” aptly summarizes backpedaling by the television industry following the stock market crash in 2000-2001. In the late 1990s, television networks had mimicked Internet innovators like Yahoo! and America Online by creating all- purpose portals which they positioned as alternative networks. These portals ultimately failed, and by 2001, networks began to reduce investments in online ventures. Some shut down websites while others tried to align them more closely with on-air offerings. Networks were uncertain whether websites should serve as a reference for information about on-air programs or function as distribution outlets. Moreover, they were unsure whether content available online should be unique or repurposed from television. In addition to these challenges, the practical fact that broadband access among the general population was limited during this time and streaming technologies expensive for broadcasters to deploy further inhibited experimentation with distribution. In 2003, some networks began streaming content that was unavailable on broadcast networks yet was appealing to a niche audience, such as college sports to a nationwide audience of alumni, archived episodes of soap operas which typically aired only once, and short newscasts which could be viewed in the workplace throughout the day where broadband Internet access was more common. While networks did not yet fully capitalize on the interactive capabilities of

TELEVISION INDUSTRY AND THE INTERNET 12 the Internet, early attempts at incorporating interactivity into programming were made during this period.

A decline in advertising revenue in 2001-2002 produced general skepticism about the role of advertising online which resulted in subscription based models, for which streaming technology was provided by software companies. As online advertising revenues picked up again in 2003, networks showed renewed interest in advertiser supported models for streaming content while some networks partnered with web companies to launch subscription only services aimed at affluent audiences who had broadband Internet access and could afford to pay for content.

Other technology companies provided streaming platforms to accommodate both subscription and advertising-driven revenue models and offered targeted advertising spots and product placements. Set top boxes such as TiVo and attempts by telecom companies to launch IPTV services made streaming online content on television screens a possibility, which contributed to confusion about whether convergence would ultimately take place on the computer or the television. Phase One was the period in which the television industry cautiously waited for the

Internet to be readopted by advertisers and for broadband access to grow among consumers. By

2004, networks were convinced by positive trends in both of these measures to reinvest in the medium.

Table 1 about Here

Phase Two: “Now Streaming”

A weekly feature titled “Now Streaming,” which listed video content recently made available online appeared in B&C late in 2005 and was present until the end of 2006, when the sheer volume of content online made it impossible to list in the weekly magazine. By 2005 over

50% of consumers had broadband access and most networks were creating content in digital

TELEVISION INDUSTRY AND THE INTERNET 13 formats. These factors drove most networks to undergo efforts to stream content and by end of

2005, most networks had made content available online. Given that everyone was “Now

Streaming,” the industry’s dilemma in this phase was what, when and where to stream – a departure from Phase One in which the dilemma was whether to stream. Broadcast and cable networks strengthened both technological and organizational infrastructures in order to enable online content delivery. New websites which capitalized on the increased bandwidth of broadband were launched to distribute content and some networks acquired existing Web properties to target specialized demographics such as women, teens, children and Hispanics, groups that were rarely targeted through streaming in previous years. Networks experimented with unique online content such as short clips, celebrity interviews, and behind-the-scenes videos. Other networks created dedicate microsites to engage users, where they could interact with storyworlds and characters online. Some networks even premiered shows online before they went on-air, using the Web as a test ground for market research. Smaller stations without the resources to stream content online used third party software created by Internet companies to keep their websites competitive.

By 2006, availability of television content online was ubiquitous and to grow online audiences, networks partnered with Internet companies who developed distribution platforms to aggregate video. Although the bulk of this content was advertiser supported, subscription models did not completely fade away. In particular, content was made available on mobile devices where viewing was charged on a per episode basis. Although still small, advertising revenues from commercials embedded in online episodes grew substantially from 2005 to 2006. Yet the distribution of content without the necessary metrics to ascertain the value of online audiences quickly became problematic for advertisers, producers, and stations; broadcast affiliates and

TELEVISION INDUSTRY AND THE INTERNET 14 studios demanded shares of online revenues citing potential cannibalization of offline audiences.

The technological focus of the industry was to provide access on multiple platforms (i.e.,

Internet, mobile and television) rather than seek convergence on a single device. Phase Two consisted of a frenetic surge in free content online, the implications of which were felt by the industry in subsequent years as our description of Phase Three demonstrates.

Table 2 about Here

Phase Three: “The Genie is Out of the Bottle”

The adage about the “genie” – in this case, free content – is emblematic of Phase Three, which began in 2007, and this sentiment is echoed throughout B&C during this time. If the previous phase witnessed networks making copious amounts of content available online for free,

Phase Three saw the networks struggle to deal with the consequences of these decisions.

Consumers had grown accustomed to watching content online for free, yet no reliable metrics existed to monetize audiences through advertiser-supported revenue models. Moreover, networks feared that further growth in online audiences would further cannibalize audiences for broadcast content, thus diminishing overall revenue. However since content had already been made available for free, networks' focus shifted to growing both online and on-air traffic through cross- promotional campaigns. During this time, video aggregators grew in popularity as audiences sought a single source for a range of media content. Networks continued to redesign their own websites, primarily to facilitate searchability. Many networks acquired online outlets in hopes of reaching newer audiences, while others launched channels on YouTube, which was previously perceived as a threat. A growth in social networking websites sparked increased interest in utilizing social features of the net to drive on-air traffic. In 2007, networks promoted themselves using social networking sites such as Facebook and Second-Life; by 2009, Twitter emerged as a

TELEVISION INDUSTRY AND THE INTERNET 15 potent marketing and audience research tool.

The Writers Guild of America strike in 2007 left many writers with free time they used to experiment with new program formats, which led to the further integration of online video with traditional forms of programming. Several of these series became popular enough to attract the interest of networks that purchased the content to be adapted to television, but very few programs made the transition successfully. Networks also integrated online formats into on-air programs by showing viral videos during programs which featured online content. The popularity of social media led networks to bring tweets and online comments into on-air television programs. It became increasingly clear that although viewers were turning to the Web for programming, growth in the sales of high definition television sets ensured time spent viewing television remained consistent, which indicated that the two mediums complemented rather than competed with one another. With the aid of Internet companies, networks were able to achieve broadcast- quality streaming which made online content more attractive and facilitated cross-platform viewing. Although audiences for online video grew substantially, appropriate metrics for monetizing them remained elusive. Alternative measures to exposure such as engagement and the inclusion of enhanced demographic and behavioral data allowed for increased targeting of advertising messages. The lack of a currency for trading online audiences especially hurt the industry during the financial crisis and resulting recession and by 2009 commentators speculated that content would ultimately have to move behind paywalls.

Table 3 about Here

Factors Affecting Internet Adoption

In this section, we draw on overall trends identified above detailed in the tables, to answer the three research questions in order.

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Factors Causing Uncertainty

Widespread uncertainty about the implications of the Internet on the products and practices of the television industry contributed to the lengthy and turbulent nature of the adoption process. The commercialization of the Internet attracted the attention of advertisers, and therefore of television networks. Yet networks, although keen to adopt the Internet, were uncertain how to incorporate it into existing business models. At the most basic level, networks had to determine whether the Internet would function to promote and complement on air offerings, or act as an alternative channel. Creative products are experience goods, the value of which is known to consumers only after consumption (Caves, 2000). This is true of television content both offline and online, so networks were forced to adopt the Internet despite uncertainty about future consumer behavior online. When networks began streaming full episodes online in addition to positioning websites as information sources, they wondered whether this strategy would cannibalize on-air audiences. Adding to the weightiness of this decision was the complexity of the interorganizational field and the need to manage the impact of making content available online on studios, affiliates and syndication partners, all of whom wanted to reap the potential benefits of the Internet yet viewed it as a threat to traditional business models.

Networks adopted the Internet without any plan for monetizing online audiences. This uncertainty confronted networks following the stock market crash when advertising revenues online plummeted. Even in later years when online advertising grew and networks opted for an advertiser-supported model over a subscription-based model, the television industry remained uncertain about how to monetize audiences online because traditional measures of exposure were hard to replicate on the Internet and existing online metrics based on impressions, clicks and leads were unsuitable for monetizing online videos. Late in 2009 an article titled, “We Need an

TELEVISION INDUSTRY AND THE INTERNET 17

Online Model, and Fast” confirmed that the Industry remained uncertain years later about monetizing online content as a panel of industry executives “acknowledged the need to work quickly to identify new economic models” . Viewing technologies, the notion of convergence, and the question of the relationship between online and on-air viewing were all sources of uncertainty in the television industry. In Phase One, the Internet was considered a complement to the television, but in Phase Two, networks perceived online viewing would cannibalize offline audiences and revenues. By Phase Three, the two mediums again were thought to complement each other and networks focused on facilitating a seamless viewing experience through set top boxes that received both Internet and television. Constant changes to technologies and their configurations have problematized what solutions the television industry has been able to conjure.

Fads and Fashions

Given the prevailing uncertainty about adopting the Internet, television networks looked to successful players in the online space for evidence of effective strategies. Owing to their fundamental dependence on advertisers, networks were influenced most by fashion setting organizations (usually Internet companies) that successfully attracted online advertising, such as

Google, Amazon and MySpace. Other networks subsequently imitated these strategies triggering a fad throughout the industry. The role of fashions and fads in influencing Internet adoption by the television industry is evident from the introduction of the Internet. In the late 1990s, television networks including CNN, CBS, Fox, and Disney had modeled themselves after portals like Yahoo! and Ask.com, positioning websites as alternative networks whose production processes ran parallel to those of traditional television stations. Yet television portals were abandoned following the stock market crash and were criticized by one analyst for being “...ill-

TELEVISION INDUSTRY AND THE INTERNET 18 conceived, non-visionary, overpriced when being acquired, unremarkable, unclear, reactionary and badly executed” .

The decision by networks to imitate one another in Phase Two by creating broadband websites and streaming full episodes online for free is another instance of innovation based on a fad. Initially, a handful of networks offered content geared toward specialized audiences who had broadband access and an appetite for unique content traditionally unavailable on-air. However within a year, all manner of content was made available for free online across broadcast and cable networks. Similarly in Phase Three, competing networks’ decisions to make their content available on aggregator Hulu, which used an advertiser supported revenue model, are illustrative of diffusion under conditions of uncertainty when innovations are adopted due to prevailing fashions and fads and not necessarily because they are efficient choices. Most of the time, networks also imitated each other in the nature of content they made available on their websites.

In Phase One, networks’ websites failed to take advantage of interactive capabilities and functioned as information providers. Interest in interactive features was triggered by the success of American Idol, which provided viewers with opportunities to engage with the program by voting for their favorite contestant. However in Phase Two, most networks viewed websites as content hubs, where viewers could stream full episodes. In Phase Three, the growth of social networking websites and other user generated platforms made most networks again view websites primarily as drivers of traffic both on-air and on other online platforms, and many websites were again redesigned. The fashion setters in this phase were social media websites like

Facebook, Twitter and YouTube. In each phase, the successful companies (fashion setters) and trends in online adoption by other networks (fads) shaped the strategies of television networks.

Innovative Players

TELEVISION INDUSTRY AND THE INTERNET 19

Television networks themselves had little to no expertise with the Internet, which hindered their ability to exploit the Internet's unique capabilities (i.e., targeting audiences and opportunity for two-way communication) or foresee important developments in Web based technologies. In order to adopt the Internet, the television industry needed the technical support and expertise of Internet companies that networks sought by engaging these companies in partnerships. Networks forged partnerships with Internet companies for four purposes: developing streaming technologies, creating online advertising formats, developing convergence devices, and facilitating distribution of content online. These partnerships initially formed at the fringes of the television industry, yet the necessity of such partnerships meant that Internet companies would become an integral part of the interorganizational field. Owing to television networks' dependence on them, practices initiated by these players were influential in shaping the Internet adoption by television networks.

Of course, networks did not initially have the capability to stream content online, which required them to turn to software companies like RealNetworks, WorldNow, and IBS, which provided networks with the necessary technology. Even in the later phases as streaming became prevalent, smaller stations that did not have their own broadband capabilities used platforms developed by Associated Press and Microsoft to stream content on their own sites. Yet the dependence of networks upon Internet companies did not end there; networks were also unequipped to drive traffic to their online content. After networks uploaded content online (Phase

Two), they relied on distribution platforms created by AOL, Yahoo and other Internet giants to make their content widely accessible. Video aggregator Hulu, that emerged as the dominant destination for commercially produced online videos, although owned in part by networks, was independently managed by a private equity firm. Google's acquisition of YouTube and its

TELEVISION INDUSTRY AND THE INTERNET 20 subsequent popularity forced television networks to create channels on the service despite considering it a competitor. YouTube continued to be advertiser supported, and this arrangement remained the dominant model for the monetization of online videos. Firms like Microsoft,

Netflix, and other technology providers introduced solutions and devices that facilitated convergence between television and the Internet. In sum, these instances indicate that Internet companies became more central than television networks in guiding how advertisers and consumers interacted with online content, including that produced by television networks.

Eroded from their erstwhile position of centrality in this advertiser-consumer relationship, television networks were unsuccessful in reconciling their traditional business models with this new mode of delivery.

Conclusion

Throughout the period of this inquiry, the television industry struggled to capitalize on the

Internet; though the Internet captured both audience attention and advertiser interest, television networks remained uncertain about online consumer behavior and business models. Therefore, television networks' online strategies have been heavily influenced by Internet companies, which successfully attracted online advertising dollars. This explains why networks rushed to create portals in the late 1990s, were relatively inactive in early 2000s, created online broadband channels in 2005-2006 and from 2007 -2009 again considered websites to be complements rather than act as substitutes for on-air programming. Moreover, networks had little expertise in adapting their offerings to the Internet and therefore relied on partnerships with Internet companies to implement their online strategies, and the latter guided how advertisers used the

Internet. This explains why the television industry was unsuccessful in imposing traditional business models on the Internet and continues to struggle for a new online model.

TELEVISION INDUSTRY AND THE INTERNET 21

This paper thus makes several important contributions. The longitudinal inquiry conducted here establishes that Internet adoption by the television industry was driven by a combination of certain fashions and fads from the beginning due to the complexity of the field, organizational inertia, and uncertainty about the technical efficiency of the innovation. This historical perspective facilitates a more holistic understanding of online strategies presently being pursued by television networks. Additionally, the impact of the transactions between various constituents of the industry on the process of Internet adoption highlights the need for scholarship on media industries to move away from “making ‘industry’ one thing, a monolith, rather than acknowledging that the industry is comprised of numerous, sometimes conflicted and competing socio-professional communities, held together in a loose and mutating alliance by

‘willed affinity’” .

TELEVISION INDUSTRY AND THE INTERNET 22

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Table 1

Phase One: “Tata TV Portals” 2001 2002 2003 2004 Organizational/ Site closings, staff AOL's promotion of Increased interest in CBS partnered with Website Strategy layoffs at broadcast companies; PBS proved successful in driving streaming (especially in cases AOL and The FeedRoom in order more strategic site development traffic to PBS website where targeting was important or to stream NCAA basketball online due to budget cuts broadcasting was not feasible): 2004 Summer News Corp. dissolved o SoapCity.com Olympics were broadcast by NBC, News Digital Media subsidiary o Broadcasters’ news who used Web to distribute info sites about broadcast content and Entertainment schedule Tonight and Yahoo partnered to College Sports TV create branded website to mutual (CSTV) offered streaming games benefit online Technology Awareness of trend TiVo and other PVR Netflix partnered with toward consumer media technologies were introduced TiVo to offer movie downloads multitasking SBC and Microsoft partner to offer IPTV Revenue Models Commercial power of Increase in Internet TV/Internet relationship was advertising sparked renewed recognized by shopping networks interest; a variety of innovative HSN and QVC tactics for monetizing network Internet advertising sites emerged (e.g., interactive and revenues declined targeted advertising, subscription models, cross-promotion) Innovators RealNetwork made RealNetworks ABCNews.com, WorldNow business deal with MLB and NBA to offer expanded subscription offering Yahoo Platinum were launched as continued to grow to over 100 subscription service which proves subscription services broadcast affiliates popular IBS and WorldNow competed for deals with broadcasters to host streaming content Other Interactivity in reality Instant messaging Significant programming: American Idol was incorporated into Who Wants Developments to be a Millionaire

TELEVISION INDUSTRY AND THE INTERNET 25

Table 2

Phase Two: “Now Streaming” 2005 2006 Organizational Digitization of content led to a shift in focus from platforms Acquisitions facilitated enhanced targeting Website Strategy to distribution methods o NBC acquired women-centered iVillage o USA Network previewed programs online to generate buzz; o Telemundo launched site targeting Hispanics other networks offered extras Networks made attempts to enhance engagement with o BBC offered clips for download consumers ABC strengthened infrastructure for streaming news – o Disney Playhouse offers subscription service which allowed planned to hire more staff, make distribution deals, upgrade customization of interactive content to skill level of child Sci-Fi technologies Network created fan wiki Networks acquired additional platforms o Websites used as test market o ESPN, CSTV offered content across multiple platforms o Fox linked to RottenTomatoes and MySpace for cross- Personalization, interactivity, and unique content for Web promotional possibilities o MTV, CNN Changes to distribution Program specific microsites (e.g., Seinfeld) o Networks offered content online (Discovery, ABC – free New/Improved Websites/Services content, NBC – launched video portal) o CBS o CBS distributes content through Google Video Store o CNN Video on Demand Networks offered content across multiple platforms Fox sites underwent widespread redesign Concern that multiple distribution platforms were diluting the brand prompted ABC to create team of digital experts American Idol site traffic increased three-fold over 2005 Technology Broadband access reached tipping point (i.e. over 50% of Attempts at streaming through mobile devices. the population had access) Rapid increase in TV website revenue Networks engaged in talks about convergence, TV More convergence devices emerged everywhere (e.g., Warner) Revenue Models Further increases in Internet advertising revenue; networks Heavy focus on distribution across multiple outlets remained skeptical o Revenue sharing with Yahoo TV, Google TV Subscription models remained popular o iTunes o ESPN, CSTV, , CNN Pipeline Rapid increase in advertising revenue Advertisers demand better measurement online Networks recognized new marketing opportunities afforded by Internet Innovators Associated Press allowed smaller stations to stream video Yahoo launched video search through their site. Brightcove offered video distribution platform for networks AOL launched portal for streaming video AP Online Video Network, created by MSN and AP, allowed local affiliates to stream video clips on their sites. AOL launched video streaming site, In2TV Clear Channel Television partnered with ClipSyndicate Google acquired YouTube Other Significant Surge in availability of content online. Interest in social features of the Internet emerged Developments Trend toward “lifestyle” media – personalized and on demand Programs are developed out of Internet concepts Networks payed increasing attention to online buzz

TELEVISION INDUSTRY AND THE INTERNET 26

Table 3

Phase Three: “The Genie is Out of the Bottle” 2007 2008 2009 Organizational/ Attempts made to use the Internet Widespread site redesigns took Interest in the concept of “viral” Website Strategy to complement rather than compete with place in order to make sites more attractive and and attempts to harness this phenomenon traditional offering. improve usability in an effort to grow audiences o FOX’ created new brand for o TMZ.com launched TMZ on TV, with an eye toward monetization promoting viral videos which provided viewers with content not Local stations overhauled staff to o Weekly program that shows viral available online. grow online revenue by hiring people with Web videos New websites/players for streaming experience; stations reconceptualized websites Networks bought popular online video launched as “media hubs” rather than TV outlet websites shows from producers – some programs proved o Fox, ABC , A&E National Geographic launched successful on Spike TV, Comedy Central; other Site redesigns broadband video site to compete with Discovery networks experienced failure (e.g., NBC) o Hallmark , Lifetime, Court TV, CBS acquired CNet Networks, Inc. Networks encouraged user NBC to become one of top ten Internet companies generated content on station website (e.g., Hearst o Warner launched T-works an online Argyle) virtual world and MomLogic.com Network news operations looked to Desire to integrate YouTube into Internet to compete with cable news business Rival firms entered into o YouTube channels – Hearst Argyle partnerships to monetize the online space and Live Webcasts – FOX and MLB also hedge against recession Acquisitions – Sony acquired Networks incorporated online Grouper, second largest video sharing website to comments and tweets into TV shows create a streaming network o NBC Access Hollywood, CBS Alternative distribution channels; Insider, WB Extra launch of Hulu with content from NBC, ABC and FOX Technology Attempts at integrating offerings Further integration of television and Quality of streaming content across devices Internet through set-top devices and television reached broadcast quality Newer software and design sets themselves Online video had mass rather than upgrades o Netflix, Sony niche audience Technology vendors improved Recognition that seamless FCC pushed for set top boxes to be infrastructure for streaming resulting in integration and viewing content on a television the device that facilitated convergence between improved streaming quality is key TV and Internet o Telestream, Akamai, Limelight Tech companies made Networks improvements to players to enhance quality of o NewTek offered networks a online video portable production truck that facilitated webcasting – used by FOX, MTV

Revenue Models Increase in free content, especially Network AMC partnered with Internet viewed as tool for pretesting full length episodes Nielsen to offer measurement based on viewer programs/market research through the “focus NBC /iTunes deal called off as identity/preferences group” quality of social media NBC demands double price per episode Television attempted to unseat o Twitter was widely used as Engagement thought to be the new advantages of Internet by incorporating marketing tool by television industry metric to monetize audiences purchasing data into targeted advertising o Though this was sometimes Hulu launched with advertising detrimental due to false information supported model o Late Night with Jimmy Fallon Revenues from webisodes remained integrates with Twitter. elusive Recession caused decline in advertising revenue Immense worry about lack of a model for online revenue expressed at Industry conference o Network news websites worried about monetization Decision that content will have to move behind paywalls; subscription will drive future Innovators Networks incorporated innovative Competing video aggregator Hulu became top destination for promotional efforts FanCast was launched in January by Comcast online video content. o Facebook deal with Comcast to TitanTV, which previously offered o CBS was lone holdout, faced promote its VOD site, Fancast digital TV guides, expanded to offer “website pressure to innovate or give in o Second Life – NBC, CBS, MTV programming” and advertising solutions to experiment with fantasy games broadcasters

TELEVISION INDUSTRY AND THE INTERNET 27

o MySpace used by CW and other Entertainment Tonight struck deal networks follow suit (Fad) with Microsoft to make content available online Video aggregator site Hulu through MSN launched in March 2007 YouTube launched channels for networks Other Writer’s Guild of America strike led NBC attempted to adapt Programs attempted to engage Significant to new types of independently produced content “Quarterlife,” a web series, to broadcast audiences by offering interactive elements online Developments o Joss Whedon’s “Dr. Horrible’s television; it flopped and was transitioned to o Extra, The Doctors Sing-Along-Blog” Bravo o ET offered mobile application Producers created “webisodes” and experimented with new formats rather than new platforms (inspired in part by YouTube and popularity of user generated content) o Disney’s “Prom Queen”