At 50M Subs, Is 70M a Dream?

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For the handful of networks that have recently reached the
50-million subscriber milestone, the battle cry is: 70-million or bust.

Well, maybe not bust, but at a time when analog space is
increasingly sparse, these growing services face an uphill battle to reach the next major
plateau that such giants as ESPN, Cable News Network, Discovery Channel, TBS Superstation
and Nickelodeon have achieved.

In fact, several networks in the "50-Million Sub
Club" doubt that they can reach 70 million homes in the near term.

"That is a real hard number to crack over the next five years," said Curtis
Symonds, executive vice president of affiliate marketing and sales for Black Entertainment
Television, which reaches about 54.2 million homes. "You have to scratch and
crawl."

As programmers pointed out, once their networks hit
50-million homes they are in the major markets with major MSOs. That means the potential
affiliates they need to focus on next are scattered in smaller DMAs, a patchwork of
classic and rural cable systems, which are often independent operators, that haven't been
rebuilt and have limited channel capacity.

"The last mile [from 50 million to 70 million homes]
is the hardest one," said Rob Stengel, a principal of Continental Consulting Group.

Nonetheless, in most cases the programming services at the
50-million level are rejecting digital carriage. Despite the odds, they maintain they can
get close to the 70-million watershed, and that there is always analog shelf space -- with
more being created by rebuilds -- for quality networks with broad appeal.

Some networks are more optimistic about their prospects
than others.

"There is an opportunity for analog carriage,"
said Brad Samuels, senior vice president of affiliate relations for Comedy Central, now in
more than 51 million homes. "We've got momentum. The environment is good. Rebuilds
are being accelerated with some MSOs."

"Operators are continuing to move pay-per-view
channels to digital ... The one question is who gets that channel," said Debra Green,
E!'s senior vice president of affiliate relations which just broke the 50-million home
mark.

"There is an opportunity for us [Sci-Fi] to grow
substantially. We expect to get to the 90 percent level, at least 66 million to 67
million," said Stephan Brenner, president of operations for USA Networks, which owns
Sci-Fi.

Other programmers are not quite so sanguine about their
chances and there are other skeptics as well.

"It's a stretch to say they can get the 100 percent
distribution like the big guys have," Stengel said. "There are analog spots
available, but the competition is incredibly fierce."

One MSO programming official said the networks will have a
tough go getting way beyond 50 million homes. He noted that as standalones, E! and Comedy
Central don't have the leverage to gain carriage that programmers with a stable of
channels have. And he claimed that services like Cartoon Network, whose sister networks
TBS Superstation and Turner Network Television have raised license fees, could suffer a
backlash from operators.

History Channel, which last week just edged past the 50
million mark, has seen incredible growth but is not setting overly ambitious goals for its
next step.

"To get to 70 million within the next five years would
be kind of pushing it," said Dan Davids, History's executive vice president and
general manager. "But there's a good opportunity to get to 60 million. Then the 10
million between 60 million and 70 million is tricky."

Several programmers, pointed out that their distribution
could get a jump next March, when federal rate re-regulation expires. At that time, some
of the tiers that were created as a result of the re-regulation should melt down, they
said.

And Davids suspects that operators will also collapse
new-product tiers when they debut digital, since it's too hard and cumbersome to market
both offerings.

What are networks doing to grow?

While all are emphasizing their ever-increasing slate of
original programming, some are highlighting their cross-promotional ties or local
marketing outreach programs.

E! points to its ability to help operators by promoting
pay-per-view buyers. The network produces E! Clips, which offer behind-the-scenes
footage from movies being offered on PPV, for operators to use as a tool to boost
buy-rates.

And Home & Garden Television, lacking Manhattan
coverage, is a title sponsor of the Rockefeller Center Flower and Garden Show, and is
running humorous radio ads that have a tough New Yorker talking about not being able to
get the channel. Packard said the HGTV also wants to build a brand in the home of Madison
Avenue and Wall Street.

The poster boy for gaining subscribers through original
programming was Comedy Central, whose South Park turned into a monster hit.

The biggest controversy is cover digital tiers, a step most
of the more established services are reluctant to take.

HGTV and History said they are open to some digital
carriage, under certain circumstances.

"On smaller systems that won't rebuild and are using
digital to expand channel capacity, it is the only way we can get on," said Susan
Packard, chief operating officer of the 42.2 million-subscriber service. "That could
mean 5 million homes. Those homes add up."

But both HGTV and History are forbidding digital at systems
with more bandwidth: HGTV wants analog carriage at 550 megahertz or more systems; History
is not permitting digital on 400 MHz systems, reasoning that systems with that much
capacity should be able to find room on analog.

Even with digital, reaching 70 million will be difficult,
said Packard, who hopes to reach 50 million within nine months.

"It's a completely different business than it was 15
years ago," she said. "It was a different dynamic. But still, in the range of 55
million to 65 million subscribers, you can have a hell of a business."

In contrast, networks such as Comedy Central, Cartoon
Network, Prevue Network, Sci-Fi, BET and E! aren't taking any digital carriage, describing
themselves as basic services, depending on full distribution to support national ad sales.

"Our goal is to reach full distribution as an analog
basic network," said Betty Cohen, president of the 51.3 million-subscriber Cartoon
Network.

But not taking digital carriage creates a quandary, since
50-million-home networks in most cases are available in larger markets, and now have to
target smaller ones.

"We've cracked the urban and suburban markets,"
Symonds said. "What's left are classic and rural systems."

And those small systems may be depending on digital to
increase their channel capacity rather than invest in pricey rebuilds. For example, Buford
Cable TV of Tyler, Texas, is using HITS to bump up channel capacity.

"My strategy is to put some of these networks on
digital and as we expand our systems move them over to analog over time," said Ron
Martin, Buford's chief operating officer. "They're going to have to look at the
remaining subscriber opportunity and say, 'Am I going to get that distribution [through
digital], or not at all.'"

But even some 50-million-home networks have holes in their
distribution in major markets. For example, HGTV isn't available in Manhattan or San
Francisco.

Some networks will never get there. Prevue Channel, at 50.8
million homes, can't and SMATV carriage for technical reasons, said Michelle Forrer,
Prevue's vice president and senior product manager. Still it nd hopes to pick up more
smaller systems when it introduces new PC-based headend equipment next year that will be
less pricey than the current gear, Forrer said.

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