DBS Providers Reach For Launch Fees

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As their distribution grows and their bandwidth shrinks,
direct-broadcast satellite providers are getting upfront launch fees from new networks.

Using the leverage of their size, DirecTv Inc.,
EchoStar Communications Corp. and PrimeStar Inc. are
looking to receive what their cable-operator rivals have collected in recent years:
cash-incentive launch fees from some programmers, said officials at a number of networks.

"It's a trend," according to a spokesman for one
start-up programming service, which was asked about upfront launch fees in exchange for
carriage by EchoStar's Dish Network.

"We are becoming more and more challenging in our
negotiations with programming services," said Denny Wilkinson, senior vice president
of marketing and programming for PrimeStar. "We expect no less treatment now than
somebody else our size."

The launch fees most recently sought by DBS companies are
hovering in the $3- to $6-per-subscriber range. But Rupert Murdoch's Fox News Channel
anted up $10 per subscriber to DirecTv to get added to its lineup in 1996 — similar
to what it paid cable operators — according to sources.

Several years ago, it seemed like programmers wouldn't have
to sweat getting carried by DBS. But new networks looking to launch now face a tough time
even on that front because DBS providers are getting channel-locked and saying that they
have to be more choosy about which networks they carry.

"There is limited bandwidth," said Michael
Schwimmer, Dish Network's vice president of programming. "We're all working with a
limited piece of property on which to put channels."

DirecTv is currently the most persistent and consistent in
seeking launch fees, a number of programmer sources said. In fact, two programmers used
the same word, "aggressive," to describe DirecTv's approach in negotiations
regarding upfront payments, saying that DirecTv asked for $5 to $6 per subscriber from
some networks.

DirecTv is touting itself as the equivalent of the
fifth-biggest MSO, in terms of its distribution of roughly 3.5 million homes. Therefore,
it is looking for the same treatment and terms that major cable operators enjoy regarding
cash for carriage, network officials said.

"They've [DirecTv] taken a very aggressive position,
and they've got a bit of a chip on their shoulder," said one source. "A lot of
new networks have agreed to pay upfront. Getting on DTH [direct-to-home] is an important
part of their strategy. And DirecTv is the TCI [Tele-Communications Inc.] of DTH."

And new networks aren't the only ones being asked to pay
cash launch fees for carriage by DBS providers: Established ones are, too. In fall 1996,
The Travel Channel was the first network ever dropped from DirecTv's lineup. Travel's
contract with DirecTv was up for renewal, and the DBS company asked for cash compensation
in order to renew, according to sources familiar with the situation. But Travel's owner at
the time, Landmark Communications Inc., refused to write the check to DirecTv, and the DBS
service promptly dumped Travel and inserted FNC after its launch that Oct. 7.

DirecTv's senior vice president of programming, Stephanie
Campbell, said she "could not agree" that her company was asking some networks
for $5 to $6 per subscriber for carriage.

However, Campbell also said negotiating upfront launch fees
is "not something that DBS is doing apart from the rest of the industry. It can be a
part of negotiations for us and for every other distributor in America."

DirecTv uses a combination of criteria when choosing a new
channel, Campbell said. The decision is based primarily on what makes the customer happy
and what makes good business sense, she added.

Dish Network, with about 1 million homes, is comparable in
size to the 12th-largest MSO, while PrimeStar, with 2 million subscribers, would be the
8th largest MSO.

Sources said Dish Network is being less aggressive than
DirecTv about upfront launch fees, using them as just one piece of a complicated formula
that helps it to decide whether or not to carry a network.

Schwimmer said there are a variety of factors that he
weighs when deciding whether to add a programming service: a free carriage period; the
license fee when payments start; subscriber interest; the extent of its cable
distribution; the opportunity to drive new subscribers; the possibility of getting rate
breaks on sister services of the new network; and upfront launch support.

"That's [upfront launch fees] one of the
variables," he said, and they become more or less important, depending on the outcome
when the other factors are weighed together.

Wilkinson agreed that launch fees play just one part in the
equation. "We don't go after things that don't fit in our lineup."

Newer networks are particularly vulnerable to DBS
companies' requests for cash upfront. Some fledgling services — often those without
deep-pocketed parents or sister services — have even paid DBS for carriage on tiers,
and not for broad distribution, one programmer said.

Curtis Symonds, executive vice president of affiliate sales
and marketing for Black Entertainment Television and BET on Jazz, said he wasn't aware of
DBS looking for launch fees. But, he noted, "DBS companies have made it a point to
drive home the fact that space is premium. And they know that they can keep new channels
alive."

The Outdoor Channel, an independent programmer that has
slowly, but steadily, increased its distribution to 1.8 million homes this year, isn't
paying any upfront launch fees to DBS providers, according to president and chief
operating officer Andy Dale.

"We don't play that game," he said. The attitude
of some DBS providers is, "Show me the money," according to Dale, adding that
they "are getting across the fact that their bandwidth is rare, too [like cable
systems]."

As bandwidth becomes more limited even for DBS systems,
companies such as DirecTv have more of a challenge when deciding which channels to add,
according to Campbell. "It's important to choose wisely, because we don't want to
take a channel down once it's up there," she said.

The notion that every channel was once guaranteed carriage
on DirecTv when bandwidth was more readily available is untrue, according to Campbell.

"We were never particularly capricious about adding a
new channel," she said. MCN

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