be relevant to young people, he said Disney had to break old habits. In the first year on iTunes, he said, Disney streamed a hundred million shows and movies. Although iTunes represented just 1 percent of Disney’s revenues, it generated $44 million in revenues in 2006, a figure analysts projected would mushroom to over $320 million in 2008.
Murdoch and others made moves. Seeking to bring fresh storytelling to the Web, Murdoch signed seasoned Hollywood producers Marshall Herskovitz and Edward Zwick to create a slickly produced series called Quarterlife, for MySpace. NBC Universal’s corporate parent, General Electric, announced that it was placing $250 million in an equity fund to invest in digital companies with robust growth prospects, including Albie Hecht’s Worldwide Biggies. Comcast, which has more subscribers than any cable company, would launch Fancast.com, an ad-supported cable Web site that hoped to attract full-length content from all suppliers. Viacom and CBS joined others in investing $45 million in Joost.com, a YouTube rival that chose not to display user-generated content but instead to offer full-length programs from MTV, Comedy Central, and CBS, sharing ad revenues in exchange. The TV giants discussed forming their own Internet platform to compete with YouTube. Although many participated in the discussions, only two initially joined: News Corporation, which as the new owner of MySpace saw YouTube as a direct competitor, and NBC Universal. The new platform was named Hulu, and it would look very much like television on the Internet, with full-length programs from the two networks interrupted by commercials in the old-fashioned way.
Sumner Redstone declined to join Hulu; Viacom’s content, he believed, appealed to younger viewers than Fox’s or NBC‘s, and in any case, he and Daumann wanted control over where their content appeared. CBS, which was split off from Viacom but which did not lose Redstone as its controlling shareholder, came close to a licensing agreement with YouTube, but pulled back. Redstone didn’t want CBS to make such a deal; nor did its network peers. Like Redstone, CEO Les Moonves said CBS would not agree to display its programs exclusively on Hulu. “The issue of the moment is whether Google is going to dominate advertising,” observed private equity investor Steven Rattner, then managing principal of the Quadrangle Group, which invests in media companies. “The airlines always kept McDonnell Douglas in business because they did not want to depend on just Boeing. Everybody wants at least two suppliers.”
Still, CBS established a more cooperative relationship with YouTube and Google. This reflected, at least in part, the different nature of the two businesses. As a cable program and movie supplier, Viacom got the bulk of its revenues not from advertising but from the license fees cable distributors like Comcast and Time Warner paid them. Unless YouTube offered a reasonable license fee, Viacom risked blowing up its cable business model. CBS, a broadcaster reliant on advertising as its sole source of revenue, saw YouTube as a worthwhile experiment to tap into new revenues that might replenish the revenue CBS lost as its audience shrank.
CBS also had a more assertive digital strategy. Les Moonves decided that he would not treat the Internet as a single distribution channel that his network could control; instead he would spread CBS content on over two hundred Web sites. He had to overcome resistance from the traditionalists in CBS. Jeff Fager remembers the contentious 2005 meeting he attended. Fager is the executive producer of 60 Minutes, the longest running program in evening television history, and he wanted to expand his audience. He had worked out a proposed agreement with Yahoo that would give the Internet site a total of sixteen clips, up to two minutes long, from the CBS show each week. Yahoo would sell advertising against these clips. Fager pitched the deal to a roomful of CBS executives. He assured them CBS News would retain control of the editing process, that he would have a staff of seven to edit these pieces, that Yahoo had agreed to pay half this staff cost and to split the advertising revenues. “I argued that we needed to reach a larger and a younger audience and to find new revenue sources,” he recalled. The average age of his Sunday evening audience was approaching sixty. “The resistance was: ‘Why do we want to give one of our best brands to the competition?’” They would be diluting the exclusivity of a venerable CBS program found nowhere else. CBS executives wrongly thought of the Internet as just another distribution platform, and