News

Local Cable News Starts to Turn Corner

2/21/1999 7:00 PM Eastern

Local-cable-news services have been proliferating over the
past few years -- there are more than 30 across the country now -- and although few have
turned a profit yet, that may not be the case for long.

Typically, it takes an investment of $10 million to $11
million to start up a first-rate regional-cable-news network, and another $10 million to
$11 million per year to operate it, according to sources familiar with local-programming
business plans.

And it is unlikely that a cable operator will see a return
on that investment for the first few years of operation.

While that figure may vary depending on the size and scope
of the operation -- one of the newest regional-cable networks, Texas Cable News, spent
about $15 million to launch, and it will spend about the same amount annually to operate
the channel -- most in the industry said the highest cost involves personnel.

And with some of the regional networks, personnel rosters
can get pretty big.

Rainbow Media Holdings Inc., for example, has five
different local-cable-news operations: Long Island, Westchester County, Rochester and New
York, N.Y.; and Fairfield County, Conn. Combined these operations have 425 employees, four
satellite trucks, a helicopter and a microwave vehicle with satellite-uplink capability.

So far, profitable local-cable-news channels are few --
even News 12 Long Island, the granddaddy of local-cable-news networks, has yet to enter
black-ink territory. But this doesn't mean that operators aren't optimistic.

In fact, most of the regional-cable-news channels profiled
here have not turned profits yet, although many said they are on the verge of doing so.
And according to executives, making money is not the first priority when starting up a
local channel, be it news, talk, or entertainment.

"The single most important benefit is
likeability," said Laurie Giddins, senior vice president of Rainbow and the executive
in charge of its MSG Metro Channels. "Likeability becomes loyalty, and loyalty is
sustaining and growing cash flow," Giddins added. "This is a new foundation on
which new platforms and products can be built."

Rainbow, the programming arm of Cablevision Systems Corp.,
launched the Metro Channels in August, and Giddins said it plans to spend about $100
million on the networks over the next three to five years. She added that the Metro
Channels are not expected to be in the black until after that time frame.

The Metro Channels are a little different than some of
their counterparts in that they were intended from the beginning to be syndicated local
programming that can be offered, for a fee, to other cable operators. In New York, for
instance, Rainbow has licensed the networks to Time Warner Cable and its more than 1
million subscribers.

Time Warner has its own original news programming -- New
York 1 News; Bay News 9 in Tampa, Fla.; and a joint venture with the Orlando Sentinel
newspaper in Orlando, Fla. However, the Metro Channels -- which provide traffic, weather
and entertainment reports -- are not expected to infringe on the Time Warner-created news
channels.

John Newton, senior vice president of Time Warner, said NY1
is profitable in its sixth year of operation. The Tampa and Orlando channels, which
launched more than a year ago, are expected to turn profits "well before that,"
he added.

What appears to be changing is the perception among
advertisers -- especially national advertisers -- that regional-cable-news networks can be
a good buy. And according to cable executives, these services are beginning to take away
some of the revenue that larger advertisers had earmarked for local broadcasters.

Craig Marrs, president and general manager of NorthWest
Cable News, a regional-cable-news network in Seattle, and chairman of industry trade group
the Association of Regional Cable News Channels, said many cable operators are starting to
see national advertising take off.

"Advertisers are beginning to see a lot of value in
these news channels," Marrs said. "It offers them a different way of
merchandising their clients."

Marrs added that although regional-cable-news channels
cannot deliver the audience sizes that broadcasters can, cable offers a more targeted
demographic, which can be equally attractive.

"While the audience levels are lower, the fact is that
there is a growing trend to utilize [cable] channels as a frequency buy to supplement
national campaigns for broadcast," Marrs said.

And it seems to be paying off for the cable networks.
Although none would give actual advertising-revenue figures, each cable-news network that
was contacted reported big jumps in advertising sales for 1998, especially in the realm of
national advertising.

At New England Cable News, for example, 1998 advertising
revenue was up 40 percent on a full-year basis. National advertising, however, was up 139
percent. The good news appears to be the same across the board: Viewership of the cable
channels is growing and, with it, ad revenue.

Although profitability may be near for some of the
local-cable services, they are still a small part of their parent organizations'
overall businesses.

Spencer Grimes, an analyst with Salomon Smith Barney in New
York, said that whether an operator has its own regional-cable-news channel doesn't
figure into the overall value of the company.

"I don't look at it as an area where a whole lot
of value is created," Grimes said. "I look at it as principally an exclusive
service that cable operators provide to differentiate themselves."

Grimes added that while regional-news channels do help to
foster subscriber loyalty, keeping down costs is what makes investors happy.

It is for that reason that Grimes favors what many of the
operators said is something to avoid: rerunning the local broadcast station's local
news at different times on a cable channel, also called "repurposing."

"I think that is the way to go," Grimes said.
"You're doing it without committing any capital to it."

Although some operators have chosen that route -- Cox
Communications Inc. is one of its biggest proponents -- most of the cable-news executives
interviewed said rerunning the local broadcast news can be a tricky endeavor.

Keeping an eye solely on costs can come back to haunt a
cable company, said Michael Doyle, senior vice president of Comcast Corp. and head of its
CN8: The Comcast Network, which airs news, talk, public affairs and sports.

"Local programming that is not well-done also makes an
impression," Doyle said. "People will say, 'What kind of company would put
on something like this?' Everybody has to look at what their ability is. If you
can't do a 24-hour channel, but you can do two good hours, you're better off
coming in with something local, focused and well-done."

And that also means committing to quality programming right
from the start.

"If you're going to do this, you've got to
do it right," said Norm Fein, Rainbow's senior vice president of new
development. "You can't start at a low level and build quality as revenue comes
in."

Marrs, however, said "repurposing" can be
successful if it is done correctly.

Texas-based broadcasting and publishing conglomerate A.H.
Belo Corp. has partnered with other cable operators to rerun local broadcast
stations' news with great success, Marrs said. Belo is the parent company of
NorthWest Cable News and Texas Cable News.

"It is a very specific market-to-market
decision," Marrs said. "WWL in New Orleans is a powerhouse of a channel, and it
is a shared effort between Belo and Cox. It gives the audience an opportunity to watch
when they want. That has power."

Still, Marrs agreed that the local-broadcast-news operation
has to be strong in order for repurposing to work.

And he agreed that starting a news channel on the cheap can
do more harm to an operator than good.

"It can backfire. That's why it's important
that professional news organizations are developed," he said.

That point has been illustrated by the relative success of
the regional networks that have already been operating for the past few years. Each one
has established a brand identity and attracted viewers that are surprisingly loyal.

For example, Comcast's CN8, which launched in New
Jersey in 1995, garnered a Nielsen Media Research coincidental 0.7 rating over five
successive nights, according to its most recent ratings research.

Perhaps more telling, however, is the fact that 15 percent
of Comcast's subscribers said they watch CN8 every day, while 72 percent said they
watch the channel at least every month.

"The majority [of subscribers] say it adds value to
their cable system," Doyle said.

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