News

Murdoch: New Networks on the Menu

10/10/2004 8:00 PM Eastern

The potential for new networks, advanced services and competitive pressures to retain basic subscribers were all major topics at the Goldman Sachs & Co. Communacopia conference here last week, an annual get-together of some of the biggest names in media.

News Corp. chairman Rupert Murdoch got some tongues wagging early in the session when he said DirecTV Inc. is adding around 10,000 new subscribers per week through its resale agreements with regional Bell operating companies Verizon Communications Inc. and BellSouth Corp.

He added that he was close to signing a similar deal with Qwest Communications Inc. (DirecTV announced last Thursday it had signed a deal with Qwest.)

2M SUBS FOR DIRECTV

Murdoch said that DirecTV is on pace to add 2 million subscribers this year.

In a research note, Citigroup Smith Barney cable analyst Niraj Gupta said subscriber growth through DirecTV’s telco partnerships are outpacing his estimates, and rival the 100,000 subscriber additions EchoStar Communications Corp. gained through its agreement with SBC Communications Corp. in the second quarter.

The DirecTV additions affirm “our belief that DirecTV will continue to enjoy better subscriber momentum than any other pay TV provider over the next couple of years,” Gupta wrote.

News Corp. also is making moves toward creating new cable channels, and Murdoch said the media giant has several ideas on the drawing board, including a reality channel, a financial-news channel and an entertainment channel (the latter two of which he called a “no-brainer”).

Murdoch said he’d love to launch a sports network to rival ESPN, but that would be difficult because he doesn’t have National Football League cable rights. News Corp.’s Fox broadcast network does have over-the-air rights to NFL games.

While Murdoch said that News Corp. would have little problem finding cable partners for such a network, “it is a pointless exercise without an NFL franchise.”

Differentiated programming was the gist of Comcast Corp. chairman and CEO Brian Roberts’ talk, adding that the industry-wide basic-subscriber losses in the second quarter were not the beginning of a trend. He said differentiated services like Comcast’s free video-on-demand service offering would keep customers loyal.

Comcast had 50 million downloads of its VOD product last month — 15 million of which were HBO On Demand. Roberts said that what makes the number even more startling is that only 5 million boxes with VOD capability are in the field.

REGAINING SUBS

Time Warner Inc. Media & Communications division chairman Don Logan said that wining back Time Warner Cable’s 21,000 basic losses in the second quarter were a priority.

“We’re not happy losing customers and we don’t plan on staying in that position over a period of time.” Logan said.

He added that Time Warner could step up it promotional offerings to win back those customers.

“I don’t think our cable companies have done as good a job as we could in making sure that people understand the value that cable brings, vis à vis satellite,” Logan said. “The perception is that satellite is winning a lot of customers because they’re cheaper. If you look at their [average revenue per unit], they’re getting about the same amount that we are. They’re doing a good job bringing people in and then ratcheting them up either on the phone call as they come in or upselling them later. We haven’t been very aggressive at introductory offers and tactics like that. You’re going to see us doing more of that.”

Roberts also praised Comcast’s NFL Network programming deal, adding that the On Demand service had 600,000 downloads in its first week and is on track to reach 2.5 million orders in its first month. That, he said, compares to the 1.5 million total customers for DirecTV’s “NFL Sunday Ticket” out-of-market pay TV package.

Sunday Ticket is coming up for renewal and it has been speculated that Comcast would try to make a play for the NFL package. While Roberts didn’t talk about that possibility, DirecTV Group president Chase Carey said it’s unlikely the NFL would want to undermine its broadcast franchise by broadly distributing games on cable.

Carey said that DirecTV is in discussions with the league, adding they will only pay a reasonable price.

HD IS THE TICKET

He said even if DirecTV lost the contract — which is exclusive through the 2005 season — the DBS provider still has exclusive HDTV rights through the 2006 and 2007 seasons.

“HD would give us an angle to play as being the best in Sunday Ticket,” Carey said after the conference.

Disney CEO Michael Eisner, who announced last month that he would leave the company after his contract expires in 2006, talked about his legacy.

“When I leave, the company will be in good enough shape that it will take decades to screw it up,” Eisner said.

Disney, he said, is on track to post 50% earnings growth this year and double-digit growth for the foreseeable future; theme parks are humming along despite having to weather four hurricanes in six weeks in Florida (home of Walt Disney World); the cable channels are performing better than ever; and the ABC Television Network appears to be climbing out of the ratings cellar.

BET’S OPPORTUNITY

Also on the programming front, Viacom Inc. co-president and co-chief operating officer Tom Freston said there could be some changes afoot for Black Entertainment Television, which Viacom acquired for $3 billion in 2001.

“BET presents a great opportunity, because in a sense about 50% of its programming is paid programming and music video, there is an opportunity to substantially enhance and improve the programming on BET to make it more of a first stop for African-Americans,” Freston said.

Freston noted that BET regularly reports margins in the high 50% range — well in excess of its peer networks — and said some of that money could go towards developing new programming.

“I can’t knock the performance at all,” Freston said. “With a margin that high, you could say it’s almost too high. This is a great time to step back, put a development group in place and develop programming that will really allow you to ramp up that revenue and ramp up the ratings.”

Freston also praised Spike TV, formerly TNN: The National Network, which Viacom transformed into a men’s oriented channel. But he said it’s had a mixed record in developing programming.

“That [Spike] and BET are the two biggest programming opportunities in our portfolio,” Freston said. “I fully expect with things that we have in the works, that we’re going to see solid ratings gains on both of those services.”

VIACOM 'ON LOOKOUT’

Freston added that Viacom could also be in the hunt for channel acquisitions, but said that the company would be more likely to make a small purchase rather than a major one.

Freston said that Viacom looks at acquisitions in two categories — tuck-ins, like its purchase of the 50% in Comedy Central it didn’t already own last year; and outright purchases of networks, like its acquisition of Viva Media AG in Germany and of CTN: College Television Network, which it bought in 2002 and re-christened as mtvU earlier this year.

“We’re always on the lookout,” Freston said. “Any cable network that comes up for sale, we would like to be first in line to take a look at that. We are looking very actively at smaller acquisitions in higher growth categories of the media business that we are not already in, things in the digital world and so forth. But I have nothing to announce.”

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