New York -- Claiming that the service has been undervalued
for some time, A&E Network is asking cable operators for a double-digit rate increase,
which will hit 33 percent for some MSOs.
The network -- the lineup of which includes one of
cable's marquee series, Biography -- reportedly wants its license fee to
reflect the true value of its original programming, which now includes made-for-TV movies,
as well as its imported period dramas and mysteries. A&E is trying to get operators to
ante up the license-fee increase for the year 2000, sources said.
While a number of MSO officials conceded that A&E has
been a bargain, others were nonetheless upset about the timing -- and size -- of the
network's proposed rate hike.
"They're taking it in one bite," one
operator source said.
Several cable operators complained that they are under
scrutiny from consumers and from Washington, D.C., to keep their rates in check. And they
repeated their mantra that they can't easily pass rising programming costs on to
subscribers. A&E's new price would be in the neighborhood of 20 cents or so per
month, per subscriber for some MSOs, sources said.
"All rate increases are a problem when we are under
retail-margin pressure, and A&E's is particularly troubling," said Jeff
Abbas, vice president of programming for Adelphia Communications Corp. "No cable
channel is indispensable in a 100-channel universe. You have to do the calculus to figure
out what the change in cash flow is [with a license-fee increase], versus how many
subscribers you might lose if your drop a service."
A&E officials declined to comment last week. "We
do not negotiate in the press," an A&E spokesman said.
In some cases, operators have talked about going so far as
to replace A&E with Bravo, the Rainbow Media Holdings Inc. arts network, due to the
proposed rate increase.
The pressure is especially rough now on operators, they
said, because cable-rate reregulation "sunsets," or expires, March 31, and
government officials will be keeping their eye on what cable does.
A&E's license fees and carriage deals vary widely,
depending on when an MSO signed up for the service. Some small MSOs, for example, pay as
much as 28 cents to 30 cents per month, per subscriber, one source said.
But in most cases, operators are paying license fees in the
14-cent range, according to sources. That rises to 15 cents this year, and it would then
jump by about five cents under A&E's new rate card, to 20 cents in 2000, sources
said -- a 33 percent increase.
A&E is under pressure from its board to increase its
revenue, one source said. The network is owned by The Walt Disney Co., NBC Inc. and Hearst
Corp. At 20 cents, A&E's license fee would be on a par with that of Lifetime
Television, which is also owned by Disney and Hearst. Sources said Lifetime's rate
card is in the 18- to 19-cent range.
Even at 20 cents, A&E's rate would be way below
that of a service such as Turner Network Television, for example. TNT's rate card is
between 50 and 60 cents.
Many of A&E's carriage deals with MSOs expire the
end of this year, sources said, which is why the network put out its new rate card now.
Cox Communications Inc., for example, confirmed that it is discussing a new rate structure
with A&E, but it declined further comment.
A&E has been ramping up the amount of original
programming that it is doing, and some cable operators privately admitted that the network
hasn't been getting compensated for the true value of its quality offerings.
But on the flip side of the argument, MSO officials said
they are being bombarded with rate increases from a lot of networks, and they all add up
-- and they can't easily be passed on to subscribers.
Other operators expressed concerns that about an increase
that will in effect help to underwrite the cost of A&E's two new digital
networks, The Biography Channel and History Channel International. Those networks -- which
are being carried on Tele-Communications Inc.'s Headend in the Sky -- currently have
very limited distribution.
But sources said A&E is working with a group of other
programmers to create a "boutique" of digital services that will be carried on
its own transponder.
Operators will be able to pull down that entire pod
directly and get eight or more digital networks, which will be efficient for them in terms
of bandwidth, and which would be another option to HITS. If cable systems were to pull
down the digital signals for those networks individually, rather than off one transponder,
it would waste bandwidth.
Last year, top-10-rated A&E's primetime ratings
were a 1.3 -- flat compared with the prior year -- according to Nielsen Media Research.
Paul Kagan Associates Inc. projected that A&E will generate $245 million in ad revenue
this year and $144 million in license fees.
Operators frequently tell networks to recoup their rising
programming costs by going to Madison Avenue and raising their ad rates. But media buyers
seem to think that A&E is already getting a premium.
"Given the landscape of viewing and pricing of all of
the national options, A&E is more than fairly priced," said Tim Spengler, senior
vice president and general manager of national TV at Western Initiative Media Worldwide.