Should Disney Have Charged for the 'Lost' Finale?

Many in the industry consider Mouse CEO Bob Iger to be a consummate genius of the contemporary digital paradigm; he is to media what Stephen Hawking is to the science of singularities. I haven't been the biggest fan of Iger and his ludicrously inadequate dividend policy, which makes me wonder if he can actually comprehend a cash-flow statement. But I have always respected his imaginative thinking. He exploits the Internet to attract viewers who may have strayed from traditional television, and contemplates shortening the theatrical-to-DVD release window.

Content Is King ... Maybe

Lost would seem to be the perfect way to find out how kingly content really is: Would viewers be willing to pony up, say, a $10 pay-per-view fee? Exactly how much got-to-see-it equity is locked up inside the storytelling of this particular project? Inquiring minds should want to know; and by that I mean inquiring investor minds.

And ABC could use a little help in the art of value creation. These days, broadcasters need to find fresh sources of revenue to supplement the usual advertising scheme, which is one reason DVD sales of hit shows are so important. Unfortunately, unless you've been living under a rock, physical media isn't what it used to be and isn't going to be revived any time soon. The iPod generation could care less about buying cardboard boxes. Just give them a good wi-fi connection and they're all set to go.

Think about it: We've been hearing and reading about all manner of Lost finale parties and get-togethers. If four people are in a room watching the concluding scenes, then maybe they'd be willing to part with $2.50 apiece. Hey, if it's not worth $10, why not try $7.50? Do I hear $5.99?

Of course, when I suggested this to some Lost fans, I was met with condemnation for my sacrilegious ideas. More seriously, a pay-per view option would have to bring in enough revenue to offset the lower advertising revenue, which is a risk.

Ad or Pay-Per-View Revenue?

But if Iger truly wants to be a trailblazer, then he needs to do stuff like this and be willing to take some risks. Take the upcoming Toy Story 3. If I were in his shoes, I would pull it from theaters after a few weeks and then throw it to home video and on-demand.

Believe it or not, the model already exists for a potential Disney pay-per-view. Consider how Vincent Kennedy McMahon operates World Wrestling Entertainment (WWE). After giving away a lot of cool matches on cable television for free, he leverages all that promotion and drama for a significant payoff with the pay-per-view events. He could surely command decent prices for commercials tied to those events, but he's decided that he can do better with income from pay-per-view.

It's the same thing here. Every single episode of Lost has been an appetizer to the finale's "main course." So it would make perfect economic sense to test out whether charging for the finale might be an interesting strategy to keep in the portfolio.

Taking Risks in a Changing Environment

According to Time, ABC will receive $900,000 per 30-second spot on Sunday night -- not a small sum. But my point is that media companies have to get creative if they want to compete with the fractured content landscape before them, which is only going to get more complex from now on. All the old rules, as well as a lot of the newer ones, are gone. It's in the best interests of shareholders to explore every possible way to monetize demand for an intensely followed concept.

Certainly, not every project lends itself to an atypical presentation, and I would argue most television finales should remain ad-supported. Every once in a while, though, a magical opportunity comes along to make you do a double-take, and Disney is in the midst of one.

Of course, there may be contractual obligations precluding what I'm suggesting -- and no doubt, it's a little late in the day for Disney to change course on Lost. But the fact remains: Next time a show is lucky enough to capture the imagination of a cult (and mainstream) audience, execs had better be willing to extract some bucks from it. Use some form of regular broadcast and premium; use some combination of ads and paid content just as WWE does, but do something.

If 20 years ago you tried to explain to media heads of ABC, CBS (CBS), General Electric's (GE) NBC, or News Corp.'s (NWS) Fox that video-games today are one reason for less viewership, you'd be met with scoffing disbelief. Execs had better watch out -- it's not that hard to believe that a future summer sequel to a major franchise (say, Pirates of the Caribbean 6: Is Johnny Depp Really Worth His Paycheck?) would be ported to iTunes before it hit the theaters. Are they ready to believe?

Disclosure: I own Disney, GE; positions can change without notice.