Brave New Mouse

iTuning in

Anne Sweeney remembers the call as if it were yesterday. In mid-2005, CEO-elect Iger told her that Steve Jobs had inquired about ABC providing content for a new product. Would she follow up? Sweeney, a self-described "happy iPod and Mac user," was thrilled to comply. Over the course of an hour-long phone conversation, Jobs explained that customers would shop for TV shows on iTunes just as they shopped for music, and download their purchases to their computer and iPod. He wanted to kick off the video iPod launch with Lost and Desperate Housewives, ABC's two biggest hits. Pirated copies of the shows were already available on the Internet. Here was a way for ABC to control digital distribution of its content and generate revenue.

Sweeney was intrigued but cautious. "If people didn't have a good experience," she says, "it would reflect on us as much or more than it would reflect on the platform." She asked Jobs, "When can I see it?"

In September, a small team from Apple met with Sweeney and a few colleagues in a private dining room at the Team Disney building, where Snow White's dwarves stand 19 feet tall on the facade. Jobs demonstrated the iTunes store for videos, then handed Sweeney a video iPod, which was still top secret. She watched an episode of Lost, with its huge Hawaiian vistas, on a screen smaller than a credit card. Yet the audio was substantial, the resolution sharp. Sweeney felt sure she was holding the future of TV in her hand. "Suddenly, we moved from talking and talking about technology to doing it," she says. "It's that moment when you're just ready to jump off the cliff. It was so exciting."

After the demo, Sweeney and Iger talked through the implications for advertisers and affiliates and agreed to take the leap. "We believed that if we were ever going to learn about the future," she says, "we had to lead with our strength." The streamlined negotiation with Apple in early October took just three days.

It was unbelievably fast, like a whole different Disney. And in a sense, it was.

"Forget about the rules," Cheng told his digital-media crew. "If we were operating as a dotcom, what would you want to do?"

The previous spring, Sweeney had asked Cheng to consider running a new digital-media group; the original team had shrunk dramatically when the ad market plummeted following September 11. Cheng, then a rising star in the company's cable unit, had an impressive résumé: an engineering degree from MIT, a year of experience working on fighter planes for Boeing, an MBA from Harvard, a stint as a consultant. By the end of October, he was making the iTunes deal a reality--sending tapes of shows to Apple, going over the episode descriptions, getting clearance for more shows before the holiday rush.

Cheng was eager to take advantage of the momentum created by the iTunes deal, which hit Disney like a shock wave. "People recognized that we are a different company in the way we think," he says. "We need to be taking risks." So in late December 2005, when Sweeney asked him, "What should we do next?" he was ready. He and his team had decided the next step should be another platform as groundbreaking as iTunes downloads. Cheng told Sweeney that Disney should broadcast TV episodes, embedded with ads, on its Web sites for free.

62 days (and nights)

The idea had emerged from a team brainstorming session Cheng dubbed Project Neo, an allusion to The Matrix. "It's my way of saying, 'I'm a geek,'" he says. And his way of pointing out that digital media, like the film's gravity-defying protagonist, was on a mission to disrupt the system. "Forget about the rules," Cheng told his crew. "If we were operating as a dotcom, what would you want to do?"

When he told his people that Sweeney had signed off on streaming shows online, they were ecstatic. Then came the bad news: The new broadband player had to be ready by May 1, in time for the upfronts, the annual high-stakes courtship of networks and advertisers, and the beginning of a two-month trial.

Cheng put Alexis Rapo, abc.com's vice president of digital media, in charge. The challenge, she says, was to develop a player that would "put TV shows on the Web in a way no one had done before." Up to that point, video appeared on puny square screens with lousy resolution. ABC hoped to lure people away from pirate sites with a superior viewing experience. Over the next 62 days--and more than their share of all-nighters--the abc.com crew, using technology from Move Networks, built a wide-screen format designed for watching an entire 43-minute program "like in an Imax theater," as Rapo puts it.