New Nets Eye MSO Buyouts Warily

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Programmers are worried that short-term, MSO consolidation
and the uncertainty that surrounds it will make it much harder to get new networks
launched. They predicted that it will be nearly impossible for any independent networks --
those not owned by MSOs or major programmers -- to get any channel berths.

More than one programmer compared the current scene -- with
bigger MSOs swallowing up smaller ones like Pac-Man -- with the broadcast landscape years
ago, when there were only the "Big Three" of ABC, CBS and NBC.

Now, cable-network executives said, there will only be a
handful of MSOs -- just a few gatekeepers deciding what programming America sees.

There are several reasons why cable programmers are
pessimistic about that prospect. Many said they are starting to see decisions put on hold
at the cable-system and regional-division levels while mergers are pending, which means
they can't get new programming services launched.

Programmers also predicted that video will move to the back
burner for these new super-MSOs, because they will focus on aggressively pursuing their
new lines of business, such as telephony and high-speed data.

"The one thing that's clear is that if you're a new
network, you're dead," said Susan Packard, executive vice president of affiliate
sales, international and new business development for Scripps Networks, which owns Home
& Garden Television and Food Network.

"The distributors are going to be busier than they
have ever been with the new businesses. I don't think you'll get in the door if you're a
new entrant," she added.

Andy Dale, president of The Outdoor Channel, agreed,
saying, "There will be less opportunity for independent start-ups … Independent
cable networks are going to be extinct."

START-UPS NEED GIANTS

As a start-up network, if you don't get carriage on the
top-tier giant MSOs -- Time Warner Cable, AT&T Broadband & Internet Services,
Comcast Corp. -- it's going to be tough to build a business, said Bill Goodwyn, senior
vice president of affiliate sales and marketing for Discovery Networks U.S.

Before, a programmer could piece together enough
distribution to make a go of it by signing up a number of midsized MSOs.

Dale knows that better than anyone. His Outdoor Channel is
an independent -- a stand-alone network that isn't owned by a cable operator or major
media company.

"It was the Buford Televisions and TCA Cables that
gave us our start," Dale said. "But the breeding ground for new networks now is
going to be the Internet."

Some cable-network executives didn't share that downbeat
take on consolidation. They pointed out that over the long term, consolidation is expected
to create more channel capacity, both analog and digital.

The telcos and cable operators that are on buying binges
plan to quickly upgrade the plant of the cable systems they are acquiring and to roll out
digital set-tops.

This will not only pave the way for the delivery of
services such as telephony, high-speed Internet access and interactivity, but it will
create channel space for cable networks, according to programmers such as MTV Networks
president Mark Rosenthal.

Rosenthal acknowledged, however, that it's a very
competitive landscape.

"It's like survival of the fittest," he said.
"A big part of a network's positioning will be whether we can provide value in terms
of ratings and in helping systems and MSOs to improve their image in the consumer's
mind."

In the here and now, some programmers are already feeling
the effects of consolidation on their rollout plans.

The Forum Network -- a partnership between The Freedom
Forum and public broadcaster WETA -- faces the dilemma of being put on hold pending the
completion of system sales.

The network was originally set to debut this spring in the
Washington, D.C., market. That's been delayed until fall, in part because of the lack of
channel capacity.

But another big obstacle ahead of its hometown launch has
been the fact that there are so many systems changing hands in the Washington DMA.

As a result, Forum has had trouble getting any commitments
from operators. The start-up said it was told by AT&T Broadband's urban Washington
system to talk with Comcast about getting launched there, since Comcast will reportedly
get that system as part of the AT&T-MediaOne Group Inc. deal.

"In the short run, there will be a real paralysis by
people at the system level," ZDTV vice president of sales and marketing Mike Mason
said. "They're asking, 'Who will ultimately end up with this business? Which company
will end up with my property?' Therefore, you get an, 'I don't know if it's a decision I
can make,' or, 'I'm not sure it's one I should make.'"

WISDOM NEEDS PATIENCE

That's the same experience Andrew Orgel, who is trying to
launch Wisdom Television, is having, as MSOs slow down to digest their acquisitions.

"It considerably delays decision-making," Orgel
said. "It's affected our ability to get a decision [from an operator], let alone
launched."

He pointed out that most of the one-dozen MSOs he met with
at the Western Show last year have changed hands.

And for a new programmer to get any decision from AT&T
Broadband or MediaOne on the corporate level prior to their merger -- which is six months
down the road -- is going to be difficult, according to Goodwyn.

"If you're a new network, I doubt you're going to get
a deal done," he said.

There are a number of issues that have to be hashed out
when one MSO acquires another. Some of those have a direct impact on programmers.

Mason pointed out that Media General Inc., which is being
sold to Cox Communications Inc., had no digital strategy, while Cox has been very
aggressive in the digital arena.

"Some real square pegs are going into round
holes," Mason said. "It will take time to shake out. That results in short-term
paralysis. But ultimately, this is good stuff. I'm encouraged that major companies are
putting dollars behind using the cable pipeline to its fullest potential."

Another programmer at a new network maintained that not
every system is putting a hold on launching channels just because its parent MSO is being
sold.

"There are some freezes on any programming
decisions," he said, "but others just do business as usual, because there are
deals that never close."

OWNERSHIP COUNTS

One fact that can't be denied is that MSOs that own pieces
of programming services, such as Cox and Comcast, are getting bigger.

And giant programmers Viacom Inc., Time Warner Inc.,
Liberty Media Group, News Corp., The Walt Disney Co., Discovery Communications Inc. and
NBC are continuing to buy up or start programming services.

In that environment, the few networks that remain
independent see tough times ahead of any upstart channel trying to get a beachhead.

"Small networks are disappearing," Knowledge TV
general manager Bob Jones said, "and the big programmers can use their current stable
to drive distribution for the other networks they are starting up."

It remains to be seen how Oxygen, Geraldine Laybourne's new
women's network, fares in terms of distribution, and whether it unveils any charter
affiliation deals at this week's National Show in Chicago.

Disney's ABC Inc. has invested in Oxygen Media, the
channel's parent company. But as of yet, no MSOs have announced deals to be equity
partners. AT&T Broadband has promised Oxygen 7 million subscribers, contingent on
other cable operators committing to carry it to 5 million subscribers.

Independent programmers contended that networks wholly or
partially owned by MSOs or by MSO-affiliated companies are in the catbird seat in terms of
gaining distribution as consolidation continues.

But MSO-owned networks argued the contrary point, claiming
that they aren't going to have a cakewalk just because their MSO owners are getting
bigger. They said they must still compete for carriage like anyone else -- a stance met
with skepticism in some circles.

"Our partners each had subscriber obligations to us
that they met years ago," said an executive at a network that has several MSO owners.
"Now, when we go to systems or regional heads, they say that while their MSO may have
invested in our network as part of its investment strategy, they've got their own P&Ls
[profits and losses] to be accountable for. And they'll make their decision based on what
their subscribers want or on the deal they cut."

NO CARTE BLANCHE

Black Entertainment Television is 35 percent-owned by
Liberty, an AT&T Broadband affiliate company, but executive vice president of
affiliate sales and marketing Curtis Symonds maintained that this has never given his
network carte blanchefor carriage.

"My life has never been that much easier with TCI
[Tele-Communications Inc., now AT&T Broadband] as a partner," he said. "I
had to battle out there. I do not expect them to say, 'You are guaranteed carriage.' We
have to stand on our own two feet like everybody else."

That confirms what many network affiliate-sales officials
said: Getting a network launched requires a sale on the corporate, regional and system
level. A corporate carriage deal with an MSO is often just a hunting license for a
programmer, and nothing more.

But other network officials said a corporate affiliation
carries a lot of weight, particularly during the consolidation frenzy.

Brad Samuels, Comedy Central's senior vice president of
affiliate relations, said consolidation means programmers that do manage to cut
affiliation deals with the big MSOs will hit the jackpot and perhaps be able to get
quicker rollouts at the companies those big MSOs acquire.

With fewer companies controlling more subscribers, a
network's national promotion can get out in front of many more homes, according to
Samuels. "There's an ability to hit some home runs on a promotional basis," he
said.

Lloyd Werner, executive vice president of sales and
marketing for CBS Cable, which owns The Nashville Network and Country Music Television,
isn't perturbed by MSO consolidation. If fact, he thinks it will help him.

"If you deliver a good product and a good deal, you
can get a network on," he said.

Werner may benefit from MSO consolidation in other ways.
Over the past year, CMT was switched out for rival Great American Country by a number of
operators, such as TCA Cable TV Inc., Buford and FrontierVision Partners L.P.

But now, all three of those MSOs are being acquired by
operators, such as Cox and Adelphia Communications Corp., which Werner characterized as
"big supporters" of CMT.

While Werner said he doesn't necessarily expect
Cox-acquired TCA to take GAC off, "I am sure they will entertain putting CMT
back."

GAC president Jeff Wayne said his network hasn't felt any
negative impact as the result of systems such as TCA's, which have strongly supported his
service, being acquired.

Like Werner, Dale said some of the operators that have
supported Outdoor Channel have become MSO buyers, so that helps him.

"It seems our 'friendlies' are getting bigger, like
TCI," he added.

Another small programmer has had a similar experience so
far with MSO consolidation.

"Of course, you're concerned about it," he said.
"But I have great relationships with the companies that have been doing the
acquiring. Programmers have to be on their toes to keep good relationships with everyone
... The lesson to be learned is: Don't burn any bridges."

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