There's good news and bad news for emerging networks trying to gain carriage, according to the results of a recent survey of cable operators published in the June Myers Reports Mediaeconomics newsletter.
"For programmers, the good news is that operators are committed to rolling out digital and adding capacity," Myers Reports senior vice president of market analysis Craig Leddy said in an interview. "The bad news is that operators aren't opening up the floodgates to new networks."
Judging from the "Emerging Networks Survey," the typical cable operator plans to add only three new basic-cable networks this year, whether on digital or analog. That's a median number, with 14 percent of operators surveyed saying they plan no new networks and 7 percent saying they'll add 11 or more.
In the crowd of emerging networks, new channels face a tough fight to break through the clutter-a matter that's compounded by operators' scattered focus as they add other new services, such as high-speed data and telephony.
The 10 emerging networks that ranked highest among operators surveyed in terms of brand familiarity and carriage plans included the Discovery Digital Networks package, Speedvision, The Outdoor Channel, ESPN Classic, Outdoor Life Network, Discovery Health Channel, ZDTV, The Independent Film Channel, CNNfn and TV Guide Interactive.
"Out of all of the networks, only five were recognized by 75 percent or more of the operator sample," Leddy said. "A lot of them aren't taking hold in operators' minds. That speaks to how busy operators are today."
The Myers Reports included 71 channels this past spring in its survey on emerging networks, which it defined as having 20 million subscribers or fewer per channel.
The study included only basic, national and commercial-oriented networks, and not regional or religious channels, for example.
Of those included in the survey, at least one, Discovery People, has since given up its fight for carriage.
Since the study was conducted, a number of networks-including Speedvision, Outdoor Life and ESPN Classic-have broken past the 20 million mark, and others, including ZDTV, have plans to hit that goal later this year.
"Most people tend to look at 20 million as the point where maybe you're not established, but maybe you're part of the accepted club," Leddy noted, adding that many advertising executives won't consider a new network seriously until it is in front of at least 15 million homes.
Not every new network faces the same degree of struggle in attracting advertisers, according to programming executives contacted for this story.
Although Oxygen has been on the air for only five months, for example, it has passed the 10 million-homes mark, and 20 percent of its current client base is already doing local ad insertions, Oxygen senior vice president of affiliate sales Mary Murano said.
Ad avails play an important role in negotiating for carriage, programmers said. ZDTV chief operating officer Joe Gillespie said they're especially attractive with a unique channel like ZDTV, which can attract technology advertisers such as local computer stores.
Sports programmers also do well in stressing the value of their networks to attract local advertisers.
Speedvision and Outdoor Life each offer new affiliates three minutes of local ad avails per hour as part of their standard carriage deals, COO Roger Williams said.
"They're perfectly targeted vehicles for advertisers, whether it's a local auto dealer or a cycle shop," he added.
Ad avails are just one element on the table in typical carriage talks between operators and new networks. License fees, launch fees and marketing support play into the overall financial incentives, as well.
And while money still talks, an "attractive financial deal for carriage" ranks second among operators' wish lists of important attributes for adding a basic network, according to the Myers Reports study.
Topping even the financial considerations is whether the new network can help to hedge against competition. The ability of a new network to serve as a retention tool is ranked third, following right behind the money factor.
"Clearly, operators are more concerned with competition than they have been in the past," Leddy said. "The value of subscriber retention has soared over the past several years."
The focus on retention is particularly important in the digital environment, ESPN senior vice president of affiliate sales and marketing Sean Bratches said.
"What our affiliates are looking for is quality product to drive digital boxes and to keep churn at an acceptable level," he said. Unless a network can help keep digital boxes in the home, he added, "it doesn't matter what the launch fees or marketing support or number of ad avails are."
Operators these days are less likely than in recent years to jump at a network just because it offers launch fees, Leddy said. And that's good news for programmers that can find other ways to differentiate their networks.
"There was a time when cash was king, and that's all [the operators] wanted to hear," Murano said. "They were auctioning off channel space. That's no longer true."
Still, programmers are more willing to offer financial incentives to operators that can promise analog slots, rather than digital carriage. But carriage on an expanded-basic analog package is hard to come by.
The Myers Reports study estimated that nearly 70 percent of the carriage operators plan to grant to new networks this year will be in digital, rather than analog.
"Oxygen has made some progress on expanded basic," Leddy noted. "It's certainly not inconceivable to get carriage on expanded basic."
But given the scarcity of analog bandwidth and operators' increased focus on digital, new networks can't count on analog.
"Most programmers have recognized that they cannot be fully resistant to digital distribution rights and that digital is vitally important to the future of the industry," Leddy added.
ZDTV still fights for analog carriage, which, Gillespie said, operators can use to help upsell tech-friendly subscribers to new products such as cable modems. That said, the network would not turn away a strong proposal for digital distribution. "There's no such thing as bad carriage," he added.
But even in digital, there are different degrees of acceptable carriage, programmers contended. Digital basic is one thing-it's another to be relegated to a smaller, theme-based tier.
"With genre tiers, you're slicing the pie a little too thin," Williams said. "The economics will prove that it's more viable for all involved to have a more robust basic package."
Leddy said programmers that embrace digital and represent themselves as partners with operators in driving digital penetration appear to be more successful in gaining carriage.
He pointed to the emerging Discovery networks. "They successfully positioned themselves as a leader in digital cable even as many companies sat on the fence," Leddy said.
IFC, too, is hoping to position itself as a driver of digital, executive vice president of affiliate sales and marketing Gregg Hill said. The company uses its analog sister network, Bravo, The Film and Arts Network, to help drive awareness for the newer network through cross-channel spots and an "IFC Fridays" programming block each week.
IFC started out as an analog channel, but it has since found that its original-programming content has made it successful in helping cable operators to upsell their subscribers to digital.
The network also emphasizes local affiliate marketing support to help drive awareness of the service on a market-by-market basis. "Because we are [part of] a cable company [Cablevision Systems Corp.]," Hill said, "we know how important that support is at the local level."
At the same time, Hill confirmed what the Myers Reports study suggested: Being affiliated with an MSO doesn't guarantee a new network carriage at the system level. "IFC isn't fully carried on Cablevision," Hill said. "We're treated just the same as other networks."