Merger Mania Among Nets Causes Concern for MSOs

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Viacom Inc.'s $37 billion buyout of CBS Corp.
represents more of what's become a troublesome trend for cable operators: the
continuing consolidation of programming companies into media juggernauts.

A number of cable-industry officials predicted that as a
result of the merger, CBS Cable -- a small, independent stable of cable channels with its
own management -- will be folded into one of the most savvy and powerful affiliate-sales
and ad-sales infrastructures in cable: Viacom's MTV Networks.

In broad industrywide strokes, the merger trend means that
a handful of giant programming companies in essence will have large slices of MSO
bandwidth under their control for their groups of networks.

"[The Viacom-CBS merger is] yet another step in
programmer consolidation," said Rob Stengel, a consultant and former chief of
programming at Continental Cablevision Inc. (now MediaOne Group Inc.). "You're
going to continue to see, from the operator perspective, them continuing to feel
discomfort over the relatively small number of programming companies [left]."

Currently, CBS Cable's holdings include The Nashville
Network, Country Music Television and several regional sports networks -- Midwest Sports
Channel and a majority stake in Home Team Sports. CBS is also slated to get a small
stake in SoapCity, the 24-hour soap-opera channel that Sony Corp. is launching next year.

On Viacom's side, MTVN has under its wing a vast array
of basic services, including cash cow MTV: Music Television, M2: Music Television,
Nickelodeon, VH1, TV Land and a suite of digital services, as well as stakes in Noggin and
Comedy Central.

Last week, MSO officials expressed several concerns about
the Viacom-CBS merger. The new entity, with its combined MTVN-CBS Cable networks, will
have greater leverage, and it can try to package the networks in ways that would drive
distribution for the less-penetrated services, some operators said.

Cable operators also voiced worries about the
cross-promotion opportunities that will be available to the CBS broadcast network and all
of the cable properties.

Lastly, some cable operators weren't thrilled about
the possibility that previously exclusive marquee programming from Nick, for example, or
Nick-produced and branded shows, could air on CBS' anemic Saturday-morning kids block
in the future.

"It does not help us at all if the competition has
this stuff," an executive at one top 10 operator said.

Just as MSOs are undergoing merger mania, the same trend is
continuing on the programming side, with more and more cable networks winding up in fewer
and fewer hands. In the past few years, The Walt Disney Co. bought Capital Cities/ABC Inc.
and Time Warner Inc. bought Turner Broadcasting System Inc.

"The Viacom-CBS deal doesn't make it any easier
for the cable operator," said Jedd Palmer, a media consultant and former head of
programming for Tele-Communications Inc. (now AT&T Broadband & Internet Services).
"The operator is now facing another mega-conglomerate."

Having more channels under one owner always raises the
specter of programmers wielding more power, enabling them to bundle their networks in ways
that compel operators to carry young, weaker services in order to get strong ones.

MSOs have long complained about this bundling, and the
practice was even the subject of a lawsuit filed against MTVN last year -- and later
settled -- by the National Cable Television Cooperative.

"Viacom has a lot of leverage with Nickelodeon and
MTV, and now, they'll have The Box [Music Network, recently bought from TCI Music],
TNN and CMT, and they can use that leverage," the top 10 operator said. "MTV has
a very smart affiliate staff, and the merger gives them a lot of possibilities. They have
a complete music arsenal."

Of all the broadcasters, CBS' cable strategy has been
the most ill-conceived. Now, MTVN's strategic expertise in cable can come to bear for
TNN and its smaller sibling, CMT.

CMT in particular has faced trouble during the past year,
as rival Great American Country has convinced cable operators to switch out CMT and carry
GAC. As a result, GAC has been on a roll in terms of distribution, currently reaching 10
million homes.

After the merger, to boost CMT's distribution, MTVN
could package it and offer operators breaks on license fees for its other networks.

On the other hand, some operators argued that they might be
in the catbird seat, as they could command lower rate cards for core MTVN services such as
Nick or MTV by threatening to drop CMT or TNN.

GAC president Jeff Wayne said he will keep plugging for his
network. "We were the underdog yesterday, and we're the underdog today," he
said.

TNN is repositioning its programming, moving away from just
country-music videos to more general-entertainment programming such as Extreme
Championship Wrestling, the roller derby, off-network series and theatrical movies.

The network recently canceled several country-music shows,
which Wayne said raised questions in Nashville, Tenn., about TNN's commitment to
country music.

The strategy has some cable operators complaining, too.
"We don't like the direction they're going," one top 10 MSO official
said.

But that more general format would make TNN a perfect venue
for programming from Viacom's Paramount studio.

In terms of synergy, the prospect of cable programming
being shifted to CBS -- with Nick shows airing on CBS mornings being the scenario most
often cited -- doesn't thrill some MSO officials.

Bill Carroll, director of programming for rep firm Katz
Television, said he doesn't see Nick shows merely being repeated on CBS per se.Instead,
he envisioned Nick-produced or Nick-branded programming -- which would perhaps incorporate
Nick characters from shows such as Rugrats -- airing on CBS.

"There are ways of extending the [Nick] brand in a
positive way," Carroll said.

But one cable programmer believes the talk about Nick
programming airing on CBS is all hype. "If it's such a great idea, why
didn't they do it with UPN [United Paramount Network]?" he asked.

Nonetheless, cable-broadcasting programming crossovers are
already in place. For example, VH1 has had promotional deals with several broadcast
networks, including CBS, to air their made-for-TV movies.

MSO officials also expressed fears last week about CBS
programming like the Super Bowl and Grammy Awards being promoted on MTV or VH1, and the
prospect of Viacom cable networks they don't carry getting heavily cross-promoted on
the CBS broadcast network.

But several skeptics said only the naïve would expect CBS
radio stations, TV stations or the CBS network to suddenly give Viacom cable networks tons
of cross-promotional time that they could be selling to advertisers at a premium.

And CBS has already committed $806 million in promotional
time to Internet companies that it has bought stakes in, one source said.

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