Content

On Menu: Four Startups With Leverage

1/23/2005 7:00 PM Eastern

Decisions, decisions: Is it better to add a new college-sports network, a new military-history channel, a programming service dedicated to “reality” fare or a network aimed at gays and lesbians?

Or, given that some of the biggest network groups in the country are pitching them, is there room to add all four?

That’s a dilemma facing cable companies receiving pitches for these new digital networks, backed by entrenched media conglomerates with the leverage to secure their carriage.

On the Launch Pad
A quick look at several high-profile new-network launches:
Name Owner Launch Date Subs At Launch
Logo MTV Networks June 30 10 million
ESPNU ESPN Inc. March 4 Not available
Fox Reality Channel Fox Cable Networks Second quarter 17 million
Military History Channel A&E Networks Second quarter Not available

Distributors say networks such as The Walt Disney Co.’s ESPNU; Fox Reality Channel from News Corp.’s Fox Networks Group and A&E Networks’ Military History Channel are not guaranteed a slot on what they say is very limited bandwidth, despite the perceived leverage factor.

A fourth — Logo, from Viacom Inc.’s MTV Networks — recently pushed its proposed February launch back until June, in part to give potential affiliates more time to make up their minds and free up space.

FEW DEEP FOOTHOLDS

While numerous basic-cable niche networks have launched in the last two years, few have been able to gain significant digital distribution.

In fact, only TV One, which is backed by Comcast Corp., and the National Football League-owned NFL Network have been able to come close to reaching the 20 million-subscriber mark. Unlike other startups, those two networks were able to utilize the strengths of their parent companies to gain valuable basic-cable carriage.

ESPNU, ESPN’s college-sports network, will also look to ride the coattails of its parent network’s new long-term deals with some operators. For operators that already have long-term deals with ESPN, the network — which will launch March 4 with live college basketball, baseball and football programming, magazine shows and other college-related programs — will have to be negotiated as part of a separate deal, but will most likely be packaged with other new services, like ESPN2 HD and ESPN Broadband, said Disney/ESPN Networks president of affiliate sales and marketing Sean Bratches.

He would not disclose the rate card for the network, but said ESPN already has deals in place with operators that will be announced at a later date.

FOX DEALS IN PLACE

Of all the new networks, Fox Reality has been fastest out of the blocks. The network, to launch in late spring or early summer, already has carriage deals with Cox Communications Inc. and direct-broadcast satellite platforms Dish Network (EchoStar Communications Corp.) and News Corp.-owned DirecTV Inc.

Collectively, those providers represent more than 17 million subscribers for the fledgling Fox Cable service.

Fox executives say the network — featuring programming from a number of popular broadcast and cable reality shows — will be packaged with other Fox Networks Group services, like FX or the regional sports networks, or sold separately.

“We’re opportunistic sellers and listen to our customers, so where we have opportunities to package in with other channels we will, and in other cases the network will be sold in strictly on its merits,” Fox Cable executive vice president of affiliate sales and marketing Lindsay Gardner said.

A&E Networks — owned by Disney, Hearst Corp. and General Electric’s NBC — also wants to package the Military History Channel with other niche digital-tier networks, like The Biography Channel and History International, when it launches this spring, A&E Networks senior vice president of affiliate sales and marketing David Zagin said. He would not reveal a rate card for the potential package.

“Fortunately, we have widespread distribution of and deals with every major distributor,” he said. “What we’ll do is approach them about an expanded digital bouquet offering that could include any combination of the three services, as well as add our [video on demand] services that we provide. It gives us a good opportunity to bundle everything together and provide the best value for the package.”

But while network executives are confident of gaining distribution for their startups, distributors are not conceding channel slots yet. With bandwidth extremely scarce, distributors say nothing is guaranteed to anyone regardless of any potential leverage.

“Everybody seems to think they have some form of leverage — there are so many things to be concerned about in negations of any magnitude, but particularly with the larger, multi-faceted programmers,” DirecTV executive vice president of programming Stephanie Campbell said. “But it’s hard for us to find space to launch digital channels, and as we get more involved in our interactive and [digital video recording] platforms it becomes even more challenging over time because bandwidth is really at a premium.”

Another MSO executive who wished to remain anonymous said that any new network regardless of affiliation will find little or no room on the company’s digital basic tier.

“We’ll look at digital tiers for new networks, but we’re not looking to launch new networks on [digital] basic,” said the executive.

Comcast Corp. — which has said most new networks would launch on digital tiers, preferably after offering up video-on-demand programming first — would not say whether it would make room for the new, conglomerate-backed networks.

“We’re always looking for new and different programming to bring to its customers and we’re always talking to different programmers about new services,” a spokesperson said.

NO LOCKOUTS YET

But network executives say no MSO has locked them out of a potential basic linear network slot.

“When you combine the strength of the ESPN brand, the consumer’s passion that orients itself around live-event collegiate product, and our ability to provide incentives to our customers to embrace our content, we’re not finding any resistance to the concept of a linear network,” Bratches said.

A&E’s Zagin added that it’s incumbent on the distributors to develop a package that provides value to operators in order to gain basic-cable carriage.

“Linear distribution is a challenge, but we need to go out there and demonstrate why we’re doing this,” Zagin said. “If it’s compelling, it’s a strong brand and makes sense for the operator, then we’re confident that we’ll make some inroads with our affiliates.”

March