Television: Wanna Buy a Slice of Sitcom?

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Then there are advertisers, whose blessed ministrations have made game shows and fish-out-of-water sitcoms free as air for generations of Americans. A future audience willing to buy its way out of commercials is an audience that could go tragically unaware of new KFC menu items. So we may see more product placement--not a case of Coca-Cola washing up on the island in Lost, but more seamless "embedding," such as when media buyer Magna Global Entertainment helped produce the Bravo reality show Blow Out, about a beauty salon, to get clients' products on the show. "There are different ways to get your word out," says Magna Global chairman and CEO Bill Cella. "Commercials won't go away," says David Lubars, chief creative officer and chairman of ad agency BBDO North America, noting that people want to watch sports events and the Oscars live. But, he adds, "there are many things in prime time--and that's where the big money is spent--that will be affected by the shift."

Bernoff says the new formats could include ads, as CBS's do. Video clips at websites like MTV's and CNN's, he notes, include spots that sell for a higher rate per viewer than TV equivalents. And selling shows could diversify the revenue streams of a business that's almost wholly dependent on Madison Avenue--which, with more viewers using digital video recorders like TiVo to skip commercials, is already threatening to pull money from TV and put it into other media.

Zucker says advertisers shouldn't be nervous; VOD, he believes, will only bolster the shows on-air. "If you're busy on Tuesday night and miss an episode of The Office, here's the easiest way imaginable to catch up," he says. "Actually, by doing that, you become more hooked on the series and will likely watch it more on the network."

But if enough people buy into the system, it could change the equation that determines a hit. Forrester estimates, for example, that Desperate Housewives earns ABC about 45¢ in advertising per viewer per episode, but clears the network about triple that when sold through iTunes. So if you buy the show, you are literally three times as important as someone watching for free. If watching VOD became widespread enough, the business model of "free" TV would be a little more like HBO's--in which what counts is not getting a lot of people to watch your show but getting a relative few to like it so much they'll pay for it. This is why cable shows are often great but polarizing: love-it-or-hate-it beats kinda-like-it.

Consider Zucker's example, The Office. Its ratings are poor, but its audience is rich. Its viewer incomes are among the highest of any network show. If its viewers are loyal, flush and tech-savvy enough that they'll pay not to miss episodes--or to watch them on their own schedule--the revenue could help keep such a marginal but critically praised show on the air. With new distribution channels, a production company could even try to sell a canceled cult show directly to the public. Nothing like this will happen immediately. It took DVD years to take off, but once it did, DVD sales of Family Guy were so huge they prompted Fox to uncancel it. Could VOD do the same? "It's conceivable," Zucker says. "I could envision that happening."