Beaming Into the Digital-TV Darkness

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If a TV show is televised in a forest and no one is there to hear it, does it make a sound? The forest these days is the digital universe, and there are numerous fledgling networks struggling with that existential business question.

With distribution slowed to a trickle, networks are in far fewer homes than they'd anticipated or hoped for by this point, and they have met resistance from operators in negotiations over rates.

Numerous networks have backed out of or delayed launches. Those that have taken the plunge said they decided to make the investments-albeit cautious ones-knowing that the road would be bumpy, and they will continue forward on the presumption that things can only get better.

And they all vowed to press ahead with their original and exclusive programming, confident that those shows will ultimately drive their success.

"We're really optimistic," Fox Family Channels senior vice president and general manager Tracy Lawrence said. She was recently promoted from senior vice president and GM of Fox Family's digital efforts, boyzChannel and girlzChannel, which are in a mere few hundred-thousand homes in scattered cities, including some in the San Francisco Bay area, nearly six months after their launch. "This is not the time to back out," she added.

Ironically, the Fox Family offspring are both finalists for the Broadcast Design Association's award for best on-air total package.

"It's important to have a place in the digital universe," Do It Yourself general manager Jim Zarchin said. "It's a similar place to where cable once was. When digital gets traction, it'll take off. We have to continue on the same track and make up [our investment] in the long run."

WISHING FOR ROLLOUTS

"We all wish distribution would roll out faster," said Herb Scannell, president of Nickelodeon, which has three digital networks-Nick Too (a time-shifted feed of Nickelodeon), GAS (Nick Games & Sports) and Noggin, which is co-owned by Nick and Children's Television Workshop.

Scannell said GAS is in about 1 million homes and Noggin is in 4.5 million, but all digital numbers are somewhat speculative, often referring to potential homes if all of those pulled down the specified tier.

One key to sticking with it, all of the executives agreed, was entering this brave new world with eyes open. "Scripps was realistic about what they didn't know," Zarchin said, referring to E.W. Scripps Co., which owns Home & Garden Television and Food Network in addition to DIY. "We didn't have enormous expectations."

"We're making a bet on the future, but we don't know how big digital is going to be, so it has to be a smart bet," Scannell added.

"We had a conservative plan in light of how difficult we knew distribution would be," said Mark Norman, senior vice president and general manager for Boomerang, Cartoon Network's digital effort. "We're able to live with limited distribution. We were able to launch cost-effectively since we're using the Hanna-Barbara [Cartoons Inc.] library," which, like Boomerang, is owned by Time Warner Inc.

Boomerang is on EchoStar Communications Corp.'s Dish Network and DirecTV Inc. tiers, and the network is negotiating with cable operators. "We're close on some," Norman said.

The digital difficulties have various causes. While many networks are available on tiers from places like EchoStar and DirecTV, there is no precise way to measure how many viewers choose those tiers and watch specific networks. Also, many potential viewers are turned off by the notion of paying for tiers, while others have churned out of the digital world after finding too many networks marking time with "time-shifts" and other marketing terms for repeats.

Many in the industry believe parent companies are simply using their brand names to snatch up shelf space and biding their time until the digital market becomes a place where they can generate some revenue before they put money into programming and marketing. However, Norman said: "Those that are weaker won't last. Those that are just holding shelf space and running duplicative programming will either upgrade or just fade away."

Cable operators want digital networks offering more than just repurposed repeat programming, and with minimal penetration, they aren't willing to pay substantial license fees. The digital networks have argued that with low penetration, there's no ad revenue, and they must rely on repeats or charge operators high fees to help pay for original and exclusive programming.

HOLDING FIRM ON FEES

While Boomerang is practically giving itself away (which is easier to do because it costs little to recycle a cartoon library), boyzChannel and girlzChannel are among those charging rates some operators have deemed too high, but Lawrence said Fox is standing firm.

"We're still negotiating. We're still talking to the same people, and we haven't changed our stance," she said. "It just takes a long time to do a deal."

Lawrence said "the sheer logistics of a digital rebuild" have impeded progress, but many operators have slowed down. "They've stopped to re-evaluate," she added, especially because of the amount of churn.

Zarchin agreed, saying, "Cable companies are taking it one chunk at a time and looking to see what customers want."

Also, Lawrence said, many operators are trying to balance their lineups because they're being pressured by "large corporations that have the leverage to push their services through, even though it may not be the best service for the digital lineup."

Although she wouldn't name names, Lawrence may have been referring to Time Warner and The Walt Disney Co., which have been particularly aggressive in pushing their digital networks on operators.

Despite the problems, all of the networks insisted that they're continuing to go ahead with their original and exclusive programming, and that morale is fine at the start-ups.

"People aren't complaining, No one is watching us,'" Zachrin said. "It was very apparent when we started that this is the development phase for digital."

Scannell added that the networks have a different feel-they're more like little dot-com start-ups than big-budget, mainstream entertainment enterprises. He pointed out that GAS has 10 employees while Nickelodeon has 400.

And while viewers may not get to see the new digital networks, they are seeing much of the programming. Much of the boyzChannel and girlzChannel original programming has aired on Fox Family Channel, for example.

"Of course, the producers and talent would all love to be seen more," Scannell acknowledged, "but they all have a connection with Nickelodeon." Nickelodeon has been using GAS programming as interstitials, and it also runs a Noggin block.

That tried-and-true tactic of using the start-up's programming on the mainstay networks boosts morale and generates awareness of the digi-nets.

"We'll use the programming as a marketing effort throughout the year," Lawrence said, adding that in light of the limited access to distribution, she'll emphasize the Web sites more in the short term "to get straight to the people."

WEB KEEPS THEM BUSY

Zarchin-who said he's considering the "nesting" strategy for DIY's programming on HGTV and Food-said Internet outlets have helped to keep his producers satisfied. "They're working on projects for television and online simultaneously. This channel is tailor-made for the Internet," he added.

Eventually, Lawrence said, distribution should start picking up. She expects "a lot of progress within the year."

But digital networks are still years away from breaking the 20 million-home barrier that will enable these networks to begin generating advertising revenue. Norman said he would not hazard a prediction as to how long it will take, "But it certainly won't be this year."

The long haul won't deter these major players, Lawrence said, as they knew from the beginning that "this is a marathon, not a sprint."

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