How CBS Turns March Madness into Monetization Madness

(MoneyWatch)  Is it possible for TV companies to make money in online video? Comedy Central obviously has its doubts, but CBS Sports is close to doing it - at least when it comes to its annual coverage of March Madness, aka the NCAA Basketball Tournament. According to a story today in Advertising Age, the network made $4.76 per viewer offline, and $4.26 online. What CBS is doing contains lessons for other legacy TV companies who worry about online milking the cash-cow that is network TV. Here are five key takeaways:

1. Put just as many ads in online programming as offline. That may turn off people who whine about there actually being a quid pro quo to get content for free, but no matter. This, more than anything else, has allowed CBS Sports to close the gap between the value of online viewing of March Madness on Demand and offline. Online ad revenue for the tournament has increased more than eightfold since 2006, from $4 million that year to $32 million for last year's tourney and an anticipated $37 million for this year.
2. Put fewer hurdles between viewers and their experience. According to the Ad Age story, in 2006, CBS dropped a paywall, but required registration and blacked out viewership in some cities. Now, it offers unfettered viewership online, and is consistently improving the experience, which should only draw more viewers to the more flexible online channel. This year, for instance, viewers who download a new high-quality video player can watch "picture-in-picture" highlights within live streams, while all online viewers will be able to overlay statistics on top of what they're watching.
3. Build an iPhone app and make sure to charge for it. Despite my general skepticism about whether consumers will pay for digital content, when it comes to the NCAAs, they will. CBS has doubled the price of its paid iPhone app this year, to $9.99 from $4.99; as of this writing it is currently the top paid sports app on iTunes. (The free CBS/March Madness app is No. 1 on iTunes' free sports app list.)
4. Don't be afraid one channel will cannablize another. In allowing every game to be broadcast for free online, CBS has thrown off any remaining concerns it might have had about how that would eat into the live TV broadcast, and with good reason. While the total unique visitors for March Madness on Demand increased by 58 percent between 2008 and 2009 to 7.5 million -- and there was a 75 percent increase in consumption of video and audio -- it hasn't hurt the offline broadcast. Last year, 130 million people tuned in on TV, and ratings were up seven percent compared to a year earlier.
5. Make the online product available on as many sites as possible. Rather than making streams available only within the walled garden of the CBS Sports site, the network has also allowed streams on Yahoo Sports, Facebook, and rival ESPN. It pays to maximize distribution. If NBC had done this during the Winter Olympics, maybe it wouldn't have been beaten out by Yahoo in online traffic to its Winter Olympic site.

I should note there are several reasons why CBS (yes, BNET's corporate overlord) has been so open-minded about its online experimentation. First, its 1999 deal with the NCAA didn't take internet rights into account, giving CBS carte blanche to do what it wanted with online streaming. Second, since much of the tourney happens during the day, it doesn't have as much prime-time broadcasting to protect.

Still, CBS' March Madness coverage is a model others should follow. If you give users what they've come to expect, but don't skimp on the advertising, it pays.

Previous coverage of online video at BNET Media:

• Why the NFL Can Play Ball with Hulu, While Comedy Central Can't
• Sad but Fair: Comedy Central Ditches Hulu
• Hulu: You Absolutely Need to Start Charging Users. Or, Why News Corp. Is Right
• Seven (Often Stupid) Reasons Hulu Doesn't Have More Ads