Rainbow Execs Beat Drum Before Opening Bell Rings

Mike Reynolds, R. Thomas Umstead and Steve Donohue -- Multichannel News, 4/2/2001

Rainbow Media Holdings Inc.'s management team has spent much of the past few weeks convincing Wall Street of the potential of its new tracking stock, which began trading on the New York Stock Exchange on Friday. Last week, the Rainbow honchos hunkered down with Multichannel News editors to discuss the outlook for Cablevision Systems Corp.'s programming stable. In addition to the stock, it now has a debt-free balance sheet, thanks to $825 million from Metro-Goldwyn-Mayer Inc. One tidbit: Rainbow confirmed it plans to launch American Catholic TV and other digital niche networks through its Sterling Digital incubator. MCN's Mike Reynolds, R. Thomas Umstead and Steve Donohue talked last Wednesday with Rainbow CEO Joshua Sapan, COO Hank Ratner, AMC Networks president Kate McEnroe and Bravo Networks president Kathleen Dore. An edited transcript follows.

MCN: Did you expect this would be the end result, the tracking stock? Or did you expect that Rainbow was going to be sold?

McEnroe: Yeah [laughing].

Sapan: I think we're delighted with the outcome. The combination of the MGM transaction and the tracking stock is, we think, ideal.

Ratner: We really end up being stronger than we've ever been in the past. We're aligned now with a studio partner. We have more cash and as a result, we're able to pay down a lot of debt. We have a tracking stock, which gives us a public currency for us to be able to do future deals with.

MCN: What does the MGM deal do for you, other than allowing you to pay down some debt?

Sapan: We're working with them as they release motion pictures, and we promote those motion pictures on our channels. We're working with their home-entertainment group, and packaging our programming in sync with their release of DVD and VHS titles. They will be a distributor of television programming that we produce and significantly own.

MCN: Will you launch networks with MGM?

Sapan: We'll certainly explore new business opportunities.

MCN: How could you use the tracking stock as currency for acquisitions? Can you tell us what type of companies or which genre of networks you're interested in acquiring?

Sapan: Acquisitions may not necessarily be exactly what we will do with the currency. We think that we are very interested in advancing our distribution. We're very interested in improving our programming and ratings, both in terms of what we acquire and what we produce and develop ourselves. We do have an interest in new products and services, so the resources and the structure can be used to accomplish all of that.

MCN: Are there any opportunities to get into other businesses, such as pay-per-view or video-on-demand, through what you're doing with MGM?

Sapan: Yes. We're very interested in VOD and SVOD [subscription video-on-demand]. We're interested in new cable TV channels. We think that MGM shares that interest.

MCN: Are you going to launch American Catholic TV?

Sapan: It's one of the content areas that Sterling Digital is going to explore, absolutely.

Sapan: Yes, absolutely.

MCN: How soon could that launch, and wouldn't you be concerned about alienating other subscribers if you only launch a channel for Catholics and you don't do one for followers of other religions?

Sapan: We think it's incredibly exciting to look at American Catholic, and to look at a number of other content areas, and to proliferate those content areas so that what we end up with is the equivalent of an electronic video-magazine rack, in which specialized interests have been served in a way that they never have been on television before.

MCN: What about other religions?

Sapan: That could occur, absolutely. I think this is the beginning of where Sterling is moving. There are several other content areas that Sterling is moving on right now, simultaneously.

MCN: How are you working with Cablevision and [Sony Corp.]? Are you looking to supply new digital content with what they're doing with the advanced digital [set-top] rollout?

Ratner: It gives us the opportunity to try to create programming for that box, and showcase it and experiment with it, and then hopefully go out and be able to syndicate it across the country.

McEnroe: It really gives us the ability to create a laboratory and test consumers' reaction on advanced television, interactive and virtual channels.

MCN: Cablevision is far behind on its schedule for that digital rollout. Doesn't that hinder you and what you can do in developing new digital products?

McEnroe: They're actually rolling out to 50 or 100 homes now.

Dore: All four national networks are creating virtual channels for deployment on the digital set-top box, which really gives us an opportunity to experiment with both interactivity and some very unique ways to extend and promote our brands.

MCN: Any examples?

McEnroe: The AMC [American Movie Classics] movie companion book, [which is] written in the AMC voice, has all been digitized, so they can use that as an overlay on their VOD as a call-up.

Dore: We'll be experimenting on the Bravo side with creating, perhaps, interactive games with regard to Inside The Actors Studio and [with] using our brands and actually trying to both help Cablevision and help Bravo extend through getting subscribers to actually use the interactive remote.

MCN: Are there any plans to include more interactive services? I know you put together an interactive service in New England. Does that have something to do with your plan?

Ratner: You mean our Game Face programming that has interactive kiosks and online elements? Sure. We're experimenting across the board. Sports is a great place for interactivity.

MCN: You said one of the reasons you delayed converting Romance Classics into an ad-supported network was that you wanted to develop the programming and the brand. Does that mean that the millions of dollars that you spent from '96 until last year have been a waste, since you're changing the programming and have changed the brand?

McEnroe: No. The [WE:] Women's Entertainment brand has been an evolution on a revolution, and it's been two years in the making; the type of programming, Cinematherapy, launched last year. Cool Women launched last year. It's really been moving towards finalizing our voice and expanding the brand to speak to a larger segment of women.

MCN: How much ad revenue do you think WE will generate once it is fully ad-supported?

McEnroe: We're not disclosing that at this point in time because of the tracking stock.

MCN: You had said last year you thought it would be $20 million. Do you still think it could still do $20 million?

McEnroe: I still think it can still do $20 million, plus maybe a little more dollar-side.

Ratner: She's sticking with her first answer. [Laughs.]

MCN: It was recently reported that the exclusive Johnson & Johnson advertising deal is worth $11 million. Is that accurate?

McEnroe: When you look at both cash and in kind value that they're giving us [through point-of-purchase displays], it's closer to an $18 million to $20 million value.

MCN: What plans do you have for MuchMusic? There's noise out there that AOL Time Warner [Inc.] may launch a new music service. There's also news that MTV [Networks] is looking to add new video programming to its services.

Sapan: We think that we are going to move more strongly with the customization and original programming that appears on MuchMusic, so we will launch several series over the next several months, in addition to the concerts that we've done.

If AOL Time Warner comes forward with a product, we think that it will undoubtedly be a good one, a welcome one and another voice in a field that is really frankly underrepresented and under spoken for and [in which] there's a paucity of alternatives.

MCN: Everyone is talking about the softening of the ad market. How will you get through that?

Sapan: We're in the beneficial position of having both sponsorship and advertising being relatively new to our services. So we think [that] as opposed to being in a mature place, we are on a fairly steep growth curve.

MCN: With Bravo stepping up to purchase The Larry Sanders Show and The West Wing, will there be enough appetite for those shows? Will they become an advertising destination for Bravo going forward?

We do think it will very much attract advertisers, however, even more than that we think it will expand our reach and it will bring new viewers in our target demo to the network.

MCN: How is Independent Film Channel's production arm doing?

Dore: We're at the point where we're actually discovering a lot of documentary films, films shot on digital, and we really think that it's probably time to expand from a single focus on films that have a theatrical release potential to perhaps acquiring documentaries for television premiere or for a library. In 2001, we'll probably be involved with over 20 different films in some stage of production.

MCN: Will some of IFC's New York-centered films gravitate toward the MetroChannels?

Dore: They well could. We've already used Clearview Cinemas to clear some films. Metro has covered a number of our premieres and we really are on very close contact. Documentary material may be even more appropriate.

MCN: How many people watch the Weather and Traffic (MetroChannels)?

Sapan: The [cumulative rating] is through the cieling. The average view time is relatively low, but the cume is through the cieling.

MCN: Would you like to add anything?

Sapan: We think we are in a very strong position. It's an important and a wonderful time for us. We are about to close the MGM transaction, which has financial benefits-clean balance sheet, debt-free, cash on hand and more importantly operational and strategic benefits that we are executing today and provide for opportunities tomorrow, that as we face and embrace the new technology that's going to be on cable TV systems, we think that content and their production, married with our platform and distribution, will be able to be made into new activities that have great value.