By the end of the year, Discovery Communications Inc. expects to make a decision on whether to merge its newest acquisition, The Health Network, with its own health channel — or turn one outlet into a commerce-oriented fitness service, officials said last week.
During the next 90 to 120 days, DCI plans to talk to distributors to seek out feedback on the future of THN and Discovery Health Channel, according to Bill Goodwyn, executive vice president of affiliate sales and marketing for Discovery Networks U.S.
All along, some skeptical cable operators have questioned the need for two cable health networks. They and sources familiar with the situation expect DCI ultimately to forge ahead and merge THN with Discovery Health.
"There is just not room in the genre for multiple networks," said Bob Gessner, president of Massillon Cable TV in Massillon, Ohio, which carries THN on analog. "We need one strong network that people can turn to."
Last week, DCI formally announced its purchase of THN, Discovery Health's chief rival, from the Fox Cable Networks Group, for $155 million in cash paid over the course of this year and next. Fox will also get a 10 percent equity stake in Discovery Health and its worldwide programming services. That stake is valued at a minimum of $100 million, putting THN's purchase price at $255 million at the very least.
News Corp.'s Fox Cable — which created THN in 1999by merging America's Health Network and Fit TV — has invested about $110 million in the service, a source said, so it comes out ahead in the $255 million sale. Fox Cable will continue to program and manage THN until DCI decides what to do with it.
According to DCI's press release, the company "is evaluating all options about how to take full advantage of The Health Network and maximize the investment to both distributors and Discovery Health Channel."
Rather than merge the two networks, DCI is also considering making THN into a commerce-oriented health-and-fitness/nutrition channel, according to Goodwyn.
Cable operators would get a split of revenue from transactions and product sales, he said. Discovery Health would continue as a programming-driven medical channel.
Goodwyn is now trying to determine how many operators carry both THN and Discovery Health. If the channels are merged, DCI would seek to use the overlap and retain THN's bandwidth for one of its other networks — perhaps Travel Channel or BBC America.
Discovery Health is in 28 million homes, with commitments that would take it to 55 million by the end of 2004. THN is in 24.5 million homes, with commitments for a total of 44 million by 2006.
"There are so many pieces to figure this out until we get our arms around this bear," Goodwyn said.
Though THN and Discovery Health both have some digital carriage, in some cases they may be on different digital tiers. That complicates the task of mapping out each channel's distribution.
"We may be carried on one level of digital, while they [THN] may be carried on another level," Goodwyn said.
For example, Discovery Health is now carried on AT&T's digital platform, Headend in the Sky, on Transponder 1, while THN is carried on Transponder 7. AT&T couldn't be reached for comment on what it would do with THN's HITS pod 7 slot, if the network is merged with Discovery Health.
The National Cable Television Cooperative has affiliation agreements with both Discovery Health and THN, according to senior vice president of programming Frank Hughes. But there isn't much overlap in carriage, with most NCTC members carrying either THN or Discovery Health, not both, Hughes said.
If DCI does merge the networks, Hughes predicted that NCTC members that offer THN probably would be amenable to offering Discovery Health instead, depending on the deal terms.
SIMILAR RATE CARDS
Right now, the rate cards for THN and Discovery Health are very similar, with both shelling out up-front cash launch fees. THN's launch fees per subscriber range from $3 to $5, with the higher amount for deals in which there is no free-carriage period. THN's monthly license fee is in the range of seven cents a subscriber.
Discovery Health, which recently named Discovery Channel veteran Bob Reid its general manager, is offering launch fees of $3 to $4, with eight-cent license fees.
DirecTV Inc. offers both THN and Discovery Health as part of its $31.99 Total Choice package. In fact, DirecTV made room for Discovery Health in December 1999 by switching out a network that DCI eventually folded, Discovery People. DirecTV officials couldn't be reached for comment. Gessner said he's not sure what his THN contract requires him to do, should that network be folded into Discovery Health.
"Discovery has a strong reputation and a good brand name," he said. But he doesn't think consumers would welcome a home-shopping type channel for fitness, if that's DCI's plan.
Charter Communications Inc. — which carries THN in 1.5 million analog homes and Discovery Health in 1.2 million digital households — declined to comment on DCI's acquisition of THN. A spokesman for Cablevision Systems Corp., which only carries THN, said the MSO had just learned about the network's sale and declined to comment.
In a prepared statement last week, DCI president Judith Hale said, "Discovery Health Channel is undoubtedly the world's premiere media and entertainment brand for health, medicine and wellness, and this purchase consolidates DCI's position as the No. 1 health network in the world."
As part of the sale, Fox Cable parent News Corp. will carry Discovery Health Channel on its international distribution platforms.