CMTS ACHY-BREAKY HEART To Save Costs, TCA Removes CMT for GAC

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Country Music Television has suffered yet another blow, asTCA Cable TV Inc. last week switched out the network across cable systems representing700,000 subscribers, replacing it with rival Great American Country.

TCA's MSO-wide switch-out of CMT April 28 followed thenetwork's loss of 125,000 subscribers from Coaxial Cable in Columbus, Ohio. CBSCable-owned CMT mounted an aggressive campaign against Coaxial in that market,co-sponsoring a sign-up effort with direct-broadcast satellite provider PrimeStar Inc..

The latest incident represented what some operators said isthe heightening of tensions between MSOs and networks, mainly centering on programmingcosts. Some MSO executives even predicted that there will more switch-outs -- not only ofCMT, but of higher-priced networks -- as operators try to trim their costs so that theycan absorb the impact of a 20 percent license-fee hike coming from ESPN.

TCA chairman and CEO Fred Nichols said his MSO, likeothers, is under pressure to watch its costs, and GAC's package just made financial sense.He also said he didn't know whether or not CMT would try the retaliatory tactics that ithas used with other operators, such as Coaxial. TCA gave its subscribers 30 days' noticeof the CMT switch-out, before the flare-up in Columbus.

"We studied it long and hard," Nichols said."CMT is a good service. Its quality has not gone down. But GAC, for the price andvalue, was the better choice. Garth Brooks singing on a video is the same on CMT orGAC."

Tyler, Texas-based TCA, the 16th-biggest MSO, has 867,000subscribers. The CMT switch-out only involves about 700,000, because it was carried mainlyon expanded basic. TCA owns mainly classic systems in Arkansas, Louisiana and Texas.

Several TCA marketing managers last week said they had onlyreceived a few phone calls from subscribers either inquiring about, or complaining about,CMT being dropped from their systems.

A number of TCA systems have being runningcross-promotional spots, and even some radio ad campaigns, talking about GAC, which isowned by Jones International Inc. The spots, which don't mention CMT at all, say that GACruns more country-music videos per week and airs fewer commercials.

"People really haven't noticed it," said TinaGabbard, regional marketing manager for northwest Arkansas, where TCA has roughly 105,000subscribers. "There's been very little feedback."

CMT officials disputed the number of subscribers that thenetwork is losing from TCA. Lloyd Werner, executive vice president of sales and marketingfor CBS Cable, said the amount is closer to 400,000, and not 700,000, due mostly toTele-Communications Inc.'s interest in several TCA systems as part of a system-swap dealbetween the two MSOs.

"We're not happy about it [the TCA switch-out], butwe're not sitting on our hands and doing nothing," Werner said, although he declinedto reveal how CBS would combat the TCA cuts.

Aside from Coaxial and TCA, Rifkin & Associates Inc.switched out CMT for GAC in January. GAC, which won't comment on its affiliation deals, isreportedly offering systems $1 per subscriber at launch and five years' free carriage.Sources said CMT was offering 5 cents to 8 cents per subscriber.

Werner said he extended deals to Rifkin, Coaxial and TCAthat would have made each operator more money over a five-year period than GAC's deal, butthe MSOs took the upfront cash. He would not reveal the specifics of CMT's offer.

With the switch-outs, CMT remains in about 42 millionhomes. Prior to the switch-outs, the network had been on a roll, having posted 11 percentsubscriber growth last year.

RISING TENSIONS

Aside from CMT's teaming up with PrimeStar, severalsituations this year have caused operator-programmer strains.

"The relationships are increasingly difficult,"said Jedd Palmer, senior vice president of programming at MediaOne. "A lot of theassumptions about operator-programmer relationships are being challenged, explicitly orimplicitly."

At the National Cable TV Co-Op, senior vice president ofprogramming Frank Hughes said, "It's harder. It's more complicated. We want to haveharmonious relationships, but there are a finite number of channels and so many servicesnow."

At the start of the year, Turner Broadcasting System Inc.converted TBS Superstation to a basic channel, to the displeasure of some MSOs.

Operator mettle was then severely tested twice morerecently: ESPN rolled out a 20 percent increase to help cover its unprecedentedeight-year, $600 million National Football League package; and Turner Network Televisionasked for a modest increase to subsidize its four-year, $890 million National BasketballAssociation deal.

Those increases came on top of a steady escalation oflicensing fees from regional-sports networks, a number of which cost operators well over$1 per subscriber, possibly approaching the $2 mark by the end of the century.

MSO officials seemed to be divided as to how they perceivedthis year's events, with some taking them in stride and others saying that tension withnetworks has increased.

According to Tele-Communications Inc. president and chiefoperating officer Leo J. Hindery Jr., the relationships between operators and programmers"are better than they have ever been. It's unfair for any analyst to suggest that askirmish here or there represents the dynamic of our industry."

However, saying that he "is not naive," Hinderyacknowledged that "the ESPN issue is on a lot of people's minds. That [ESPN increase]is more of a phenomenon of sports rights. And there are some hurt feelings."

Just about every cable operator would agree that they areunder extreme pressure to keep their costs down.

"Below the surface [with MSOs and networks], there isa lot of tension," said Ron Martin, chief operating officer at Buford Cable TV."The cable operator is getting squeezed by customers and Congress, and then, thereare rate increases from programmers. And I don't see an end to it."

SWITCH-OUTS OFFSET SPORTS

That's why many MSO officials predicted that there willmore network switch-outs, of CMT and other programmers, as operators try to offset theESPN increases by cutting costs elsewhere, replacing one service, like CMT, with a cheaperone of the same genre, like GAC.

GAC general manager Jeff Wayne said operators are beginningto really focus on licensing fees.

"They'll try to save a penny here or there because itadds up to a lot of money when you have 50 to 60 channels," he said. "That's whywe're finding a lot of success with GAC."

Hughes agreed with Wayne.

"It's a pennies business," Hughes said."When ESPN's programming costs go up 20 percent, you have to find it [money]somewhere. You have to balance things."

CMT dropped its master-affiliation deal with the NCTC,which represents small, independent cable operators, Dec. 31, 1995. But the NCTC has adeal with GAC.

"GAC has come out with a product that is as good orbetter on the programming side and less expensive on the licensing side [than CMT],"Hughes said.

Of course, Werner had another take on the situation, sayingthat operators are settling for the "short-term financial benefits" ofswitch-outs.

'SHORTSIGHTED' OPERATORS

"Tensions are being caused by a certain number ofshortsighted operators that are using [cable] programming as a commodity business,"Werner said. "We spent a great deal of money building CMT and the country-musicmarket, and to have some operators give it away because of the money is unfair to thecustomers."

But Nichols, who declined to comment on whether he wasgetting launch fees from GAC, said he is operating under constraints.

"Every cable company has to watch its costs, and oneof the largest costs is programming," he said. "We basically have become themiddleman for programmers to pass on costs to consumers."

According to Nichols, the ESPN increase "has moved usover the top. And ESPN knows that it has a product that we can't drop."

In defense of ESPN, its senior vice president ofcommunications, Rosa Gatti, said the increased fees "reflect the value of sportsprogramming and the revenue that ESPN and its networks generate for affiliates throughsubscription, retention and local advertising."

Palmer said that when alternative distribution outlets,such as direct-broadcast satellite, came into play, "the sense of the industry wasthat programmer power was growing astronomically ... But the proliferation of channels hasdiluted the leverage of the programmers."

With the exception of ESPN, the regional-sports servicesand Home Box Office, "there are alternatives to everyone out there," accordingto Palmer.

The rising cost of sports rights is still a major issue foroperators, and recent increases in both regional- and national-sports networks have pushedoperator budgets and patience to the limit.

"My concern is that there's no end in the foreseeablefuture," said Classic Cable CEO Steve Seach.

Yet sports executives insisted that their dealings withoperators are as strong as ever.

"Our relationships are strong in that ESPN continuesto be a growing revenue source for its affiliates," said Sean Bratches, vicepresident of affiliate sales and marketing for ESPN, in a prepared statement.

Jim Martin, executive vice president and head of businessoperations for Fox/Liberty Networks, which oversees more than 20 regional-sports networks,also said relationships are better than they have been in the past.

"We've made an effort over the last 11 to 12 months tobetter our relationship with operators. Of course, we still have operators that wantbetter rates, but we've gone out of our way to better these relationships," Martinsaid.

"Yes, prices are going up, because the costs of sportsrights continue to rise, but we're trying to take on more of the rate responsibility forthose rights, and I think that operators appreciate that," he said.

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