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New Patrons for Arts Channel Ovation

9/01/2006 8:01 PM Eastern

Hubbard Media Group and indie-film impresarios Harvey and Bob Weinstein are setting out to relaunch Ovation, The Arts Network — and jump-start its distribution and ad sales.

Hubbard Media and The Weinstein Co., the Weinstein brothers' company, are part of an eclectic group of investors that last week purchased Ovation, a 10-year-old independent channel. The group declined to comment on what they paid, but an industry executive familiar with the transaction put the investment at about $50 million.

Hubbard Media, a unit of the family-run broadcasting empire Hubbard Broadcasting Inc., has a relationship — contractually and personally — with DirecTV Inc., which has 15.5 million subscribers. That could help Ovation quickly increase its 5.3 million-subscriber distribution.

The Weinstein brothers are expected to offer their creative input to Ovation. The Weinsteins founded Miramax Film Corp., which produced such independent hits as The Crying Game and Pulp Fiction, before selling the studio to The Walt Disney Co.

Today, the Weinsteins produce TV shows such as Bravo's hit Project Runway, as well as movies. Their involvement could lend Ovation a hip, artsy cachet.

MARKETPLACE SENSIBILITIES

“Are they our partners because they're going to make all the programs for Ovation? Of course not,” said Stanley E. Hubbard, Hubbard Media's chairman. “They're sitting around the board table with us and they're all partners with us. They bring sensibilities to this that they've proven in the marketplace.”

Hubbard Media, which is set to debut the film-centric ReelzChannel Sept. 27, is Ovation's controlling shareholder. Other investors include not only the Weinsteins, but Corporate Partners II, a fund of Lazard Alternative Investments LLC; Perry Capital; and Arcadia Investment Partners.

Cable is “a sector and a space that we have a lot of confidence in,” Hubbard said. “We're involved because it's an opportunity that standing alone makes sense for us.”

In an environment where it's tough to increase distribution, Ovation officials last week said they expect to double the network's carriage within a year, which would take it to just over 10 million homes. Longer-term, they said the network needs to be in 20 million to 30 million homes to be profitable.

Hubbard Media's relationship with DirecTV could help.

In 1999, Hubbard sold its U.S. Satellite Broadcasting Co. to DirecTV, which was then-owned by Hughes Electronics Corp. As part of that $1.3 billion sale, DirecTV was obligated to consider launching future Hubbard programming services.

“They negotiated for, as part of the deal, access to specific bandwidth on DirecTV channels for the future,” said Jimmy Schaeffler, a senior analyst for The Carmel Group.

That arrangement opened the distribution door for Hubbard to launch ReelzChannel, a movie highlights service originally called MovieWatch. And it could help clear a path for Ovation to secure a berth on DirecTV.

In a 2002 interview, Hubbard said that terms of the USSB sale required there be “a commercially reasonable carriage agreement” for any service Hubbard brings to DirecTV.

Last week, Hubbard said, “There were some contractual rights that were spelled out in the merger agreement,” without providing any further details.

But he added, “Clearly, one of the things we do have is a great relationship with DirecTV.”

DOUBLING DISTRIBUTION

Plans to quickly double Ovation's distribution will involve targeting “satellite, both DirecTV and Dish [Network], and clearly all cable,” according to Hubbard.

DirecTV declined comment.

Part of Ovation's allure, according to Hubbard, is that it already has master carriage agreements in place with many of the major cable operators, such as Time Warner Cable and Comcast Corp.

The reason it's taken Hubbard Media six years to launch ReelzChannel is that the company was trying to nail down carriage deals and line up a base of at least 20 million homes for its debut, Hubbard said.

Ovation's new day-to-day-management team includes chairman Ken Solomon, who will retain his job as CEO of The Tennis Channel; and CEO Charles Segars, who, like Solomon, is a veteran of the Fine Living network.

Current chief operating officer Ron Garfield will retain that role.

During a press-conference call last week, Ovation's new team said it plans to rebrand the channel, possibly renaming it. They also want to reposition the network to cover a broad array of arts — from traditional culture such as opera and dance, to more contemporary fare such as video clips that could appear on a Web site. Its arts coverage will include local and regional venues and on-demand choices.

With A&E Network and Bravo abandoning arts coverage long ago, Ovation's new team claimed they have a big opportunity fill the gap.

“You've got a wide-open category that nobody is programming to at all,” Solomon said. “You've got a void in the marketplace that they [Ovation officials] want to fill.”

Ovation officials claim that the network's new arts programming will attract affluent viewers, and they will attract advertisers. Previously, Ovation has only sold a minuscule amount of direct-response ads and paid programming.

AFFLUENT AUDIENCE

Last year, Ovation's monthly per-subscriber license fee averaged seven cents, according to Kagan Research. The art network had $5.3 million in license-fee revenue and $200,000 in ad revenue. This year, Kagan is projecting that Ovation's license fee will average nine cents, with $7.1 million in license-fee revenue and $200,000 in ad sales.

Having an audience that's “deep,” and passionate about the arts, may not be broad enough to attract ad support, according to Ray Solley, a cable-programming consultant who is also executive director of the Torrance Cultural Arts Center Foundation in California.

“The reason A&E [Network] and Bravo moved to pop culture as opposed to cultural arts is because at some point they looked at their ad revenue and ad sales and said, 'Wait a second, we're going to stagnate and never grow if we don't broaden this out,'” Solley said.

Putting on another hat, as an official at the Torrance arts center, Solley said it would be “great” if Ovation starts to cover local and regional theatre.

“Our subscribers are an audience for Ovation, and our programming is a source for Ovation,” Solley said. “If they can tap into the dozens of place like us across the country, that would be great.”

Derek Baine, a Kagan senior vice president, wondered what kind of a budget Ovation will have to produce or acquire programming, however.

“There is going to be an audience there, but I would question how much money it's going to take them to get to break even,” he said.

SNAPSHOT: Ovation
Full Name: Ovation, The Arts Network
Launched: October 1996
Distribution: 5. 3 million subscribers
New Owners: Hubbard Media Group, The Weinstein Co., Corporate Partners II, Perry Capital and Arcadia Investment Partners.
New Management Team: Chairman Ken Solomon; CEO Charles Segars; COO Ron Garfield; executive vice president Chad Gutstein
Monthly License Fee: 7 cents per subscriber
License-Fee Revenue, 2005: $5.3 million
Ad Revenue, 2005: $200,000
Source: Ovation and Kagan Research

November