Disney's Family Approach Has Some MSOs Worried7/29/2001 8:00 PM Eastern
Cable operators last week were wary about The Walt Disney Co.'s plans to overhaul what the media giant calls a "diamond in the rough," Fox Family Channel, with an infusion of programming from the ABC Television Network, Disney Channel and ESPN.
After Disney announced its $5.3 billion acquisition of Fox Family Worldwide — which includes the cable network — several distributors expressed concern.
While operators want to see Fox Family's ratings improve, they weren't thrilled about it evolving into a rerun channel for so-called "repurposed" ABC broadcast fare. A few MSO officials also voiced worries about content king Disney becoming even bigger by adding yet another network to its large cable stable.
But mostly, operators are already predicting that Disney will jack up the rate card for Fox Family, which now charges license fees in the moderate range of 17 to 20 cents a month, per subscriber.
Disney's relationship with MSOs has already been strained, and last year erupted into war with Time Warner Cable over rising program costs. Disney's ESPN levies 20-percent annual rate hikes, and Disney Channel — as a basic service rather than a premium channel — boasts one of the priciest license fees outside of sports programming.
"Once Disney gets their hands on it [Fox Family], those license fees will be in the 40-cent range," said Bob Gessner, president of Massillon Cable TV in Ohio.
At least four MSOs — Charter Communications Inc., Cable One Inc., Mediacom Communications Corp. and Cablevision Systems Corp. — have carriage deals with Fox Family that have expired. Those operators must negotiate affiliation renewals, now with ABC Family.
"Since we are out of contract with Fox Family, I'll be interested in what they say their rates will be going forward," said Charter CEO Jerry Kent, who has been a vocal critic of Disney-owned ESPN's rate hike this spring.
Mediacom senior vice president of programming and human resources Italia Commisso Weinand fears Disney will seek significant increases for ABC Family.
"These days when someone puts their name on a service, it's like an excuse for highway robbery," she said.
Without a contract, the four MSOs could just drop Fox Family/ABC Family. Cablevision declined to comment on whether it has a contract in place with Fox Family, but a source said their pact had expired.
For months now, Fox Family's owners — Haim Saban and News Corp. — have been searching for a buyer for Fox Family Worldwide. Disney is acquiring Fox Family, 76 percent of Fox Kids Europe, Fox Kids in Latin America and the Saban library and production company.
Disney will pay $3 billion in cash and assume $2.3 billion in debt.
Disney chairman and CEO Michael Eisner, who last week complained that programmers are being unfairly treated as "whipping horses" for rising cable rates, said Fox Family would be rebranded as ABC Family. He said ABC Family will run original content and possibly shows evolved from Disney-owned magazines such as Family Fun
and Discover, as well as re-air entertainment, news and sports programming from ABC, Disney Channel and ESPN.
Disney officials said ABC shows such as Good Morning America, The View, My Wife and Kids
could get runs on ABC Family, with GMA
possibly extended for a live segment on ABC Family.
Disney plans to resurrect ABC's defunct "TGIF" family-programming block on its new acquisition as well.
"This will give us an opportunity to take the best of our new programs, air them first on ABC and give them a second airing within a fairly brief period of time on what we're calling ABC Family," Disney president Robert Iger said of the purchase.
PAYING 'A SECOND TIME'
Disney's repurposing strategy for Fox Family is particularly troublesome for some MSO officials, who already pay hefty license fees for Disney cable services.
"Now we are going to have to pay a second time for programming that's already on ESPN and Disney Channel," Gessner said.
Cable One will listen closely to what Disney has to say about the future of the network, according to Jerry McKenna, the MSO's vice president of strategic marketing.
"ABC Family has to lay out its plans for Fox Family very clearly," McKenna said. "We are not simply going to pay license fees for reruns of ABC programming."
The key is for Disney to craft a unique identity and brand for ABC Family and to bring the cable network "true family programming," according to McKenna.
"That part is good," he said. "Fox Family Channel has been floundering for a number of years. It has never recovered the ratings it had as Family Channel. But hopefully, Disney will build a distinctive personality for the channel and not have it just be a recycling outlet for ABC and ESPN programming."
A quick second run for broadcast shows on cable is nothing new, as broadcasters typically try to amortize the high cost of their programming over several outlets. For example, ABC's Once and Again
re-airs on Lifetime Television just days after its premiere broadcast showing.
ABC has permission from its TV station affiliates to repurpose 25 percent of its primetime programming on cable.
Cable operators are wondering just how much of ABC Family's lineup will consist of reruns.
"What are they going to turn this thing [Fox Family] into?" asked Frank Hughes, senior vice president of programming for the National Cable Television Cooperative.
ABC Cable Networks president Anne Sweeney said ABC Family's program schedule is now being drawn, and she doesn't know what percent of the programming will be re-purposed from ABC, ESPN or Disney Channel. But Iger did say that within two years, at least half of Fox Family's current programming will be gone. Sweeney added that she had talked to a number of MSOs after the announcement, and that "by and large, the response was that Disney is the right home for this [Fox Family]."
For example Time Warner Cable, which warred with Disney more than a year ago over Disney Channel and SoapNet (which offers repurposed ABC soap operas), was upbeat about what Disney can do for Fox Family.
"Hopefully, if they develop some good quality programming of interest to our customers, it will be a good thing," a Time Warner spokeswoman said.
RATINGS UPSIDE SEEN
Saban and Rupert Murdoch acquired the Family Channel from televangelist Pat Robertson for $1.9 billion, and three years ago relaunched it as Fox Family Channel. The network scuttled virtually all of its former programming, alienating its old-but-core audience. The channel's ratings took a nose dive and never recovered.
Fox Family posted a 0.7 primetime rating in the second quarter, flat versus the year-ago quarter, according to Nielsen Media Research.
Disney chief financial officer Tom Staggs said that while networks such as TBS Superstation and USA Network average a 0.5 total-day rating for 18-to-49-year-olds, Fox Family only posts a 0.13 rating. Fox Family accounts for 75 percent of Fox Family Worldwide's $150 million in operating cash flow.
Regardless of its ratings, Eisner described Fox Family as "beachfront property" because it has 81 million subscribers.
Disney — which has plans to consolidate ad sales for Fox Family within its corporate sales team — projects it can increase the network's ad sales, which were $200 million for fiscal 2001 by 50 percent by 2003.
Staggs also expects Disney to double cash flow in two years and generate $50 million in savings through consolidation and the sharing of programming.
Disney's goals are a little lofty, according to Sanford Bernstein & Co. Inc. cable analyst Tom Wolzien.
"At $5.3 billion in cash and debt, that's assuming they can create a lot of additional revenue and costs savings," he said.
That's a tough order in the current advertising climate, Wolzien added.
"Part of the difficulty here is right now, with the advertising market being the way it is, we're seeing the general-purpose cable networks having a tougher time than the more nichey services in this rather disastrous cable upfront," Wolzien said. "That suggests to me that what they're creating here is really more of a general-purpose network, which may have a hard time getting traction in this environment."
Although ABC Family will have repurposed news, sports and entertainment programming, it will be positioned as a family-oriented network and not as a broad general-entertainment service, according to Sweeney.
"It is absolutely a family channel," Sweeney said. "That's the legacy that's going to continue."
ABC pulled the plug on its Friday-night family-targeted "TGIF" sitcom block last spring,
claiming the franchise wasn't growing. But Sweeney said the block's odds for success would be better on ABC Family.
"Remember, it was living on a general-entertainment network," she said. "Now we have a channel that is dedicated to family, so it is absolutely the perfect programming strategy to bring back, because of the context it will be living in."
Asked whether Disney will seek higher license fees for ABC Family from operators, Sweeney said, "That's certainly part of the conversation we'll have with them when those contracts do go up."
Some operator sources also lamented the fact that Fox Family will be part of the Disney vast conglomeration of networks, which not only includes ESPN and its spin-offs but Toon Disney, SoapNet and the new Playhouse Disney preschool channel.
It is expected that not only Fox Family ad sales, but also affiliate sales will be consolidated into Disney's overall organization.
Even though Fox Family was part owned by News Corp., its affiliate sales operation had been independent. And Fox Family didn't have the benefit of retransmission consent for Fox Broadcasting Co.-owned TV stations as a bargaining chip.
"Maybe ABC Family will be [Disney's] next retransmission channel," said Matt Polka, president of the American Cable Association, which represents 930 independent operators with 7.5 million subscribers. "The big get bigger, as the Disney programming cartel gathers more momentum and leverage. We clearly see this as giving Disney another arrow in its quiver."
Disney's ABC Family will inherit several programming pieces from Fox Family. First, it will be obligated to continue to air Robertson's The 700 Club.
ABC Family will also have Fox Family's rights to Major League Baseball games on Thursday nights, and to eight to 11 first-round playoff games, which will be produced by ESPN and carry the ESPN brand.
Mike Farrell contributed to this story.