New Nets Squeeze Into Consolidated Market

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Soft ad market and tough distribution landscape be damned, programmers are still launching new networks. At Multichannel News's annual new-network roundtable, five very different programmers offered arguments as to why services that target consumer "passions" will gain traction in this slippery environment. Participants were: Joshua Sapan, president of Rainbow Media Holdings Inc., which just launched the Mag Rack video-on-demand service; Lee Chaffin, senior vice president of affiliate sales for Black Entertainment Television, which will roll out a suite of digital services in January; Ken Solomon, president of Fine Living, the new Scripps Network set to debut in March; Gary Thorne, president of Moviewatch, to premiere next year; and David Meister, CEO of The Tennis Channel, which will arrive next fall. An edited transcript of the interview, conducted by editor-at-large Linda Moss and news editor Mike Reynolds, follows.

MCN: How will [EchoStar Communications Corp. chairman] Charlie Ergen's purchase of DirecTV [Inc.], if that does go through, either help or hurt the launches of your networks?

Ken Solomon:
The biggest thing that stymies all of us is indecision. There's a lot of change going on in the business, and it's hard to get anything done when you don't know who you're supposed to be getting it done with. Once we know who it is that we're sitting at the table with, we probably all will have a better chance of getting our initiatives moved forward.

David Meister:
There's at least three MSOs that are involved with management changes, so you have that situation besides the DBS [direct-broadcast satellite]. But in terms of a trend, it's what we were seeing among the cable operators. We're seeing consolidations. So you're seeing a single source now — potentially, when the deal goes through — holding instead of 5 million or 10 million, 15 million cards, if you will, in his hand.

So in one sense it's business as usual, consolidation, and the other sense is, is it good or bad? It depends. If you do a deal with them, it's great, and if you're not doing a deal...

MCN: It's not so great.

Solomon:
It also depends — candidly — on who you are. There are certain companies, because of verticalization, that it's going to have different implications for than others.

If you're a pure program provider and you have a good idea, it takes a lot of work. It's a lot of hard negotiating. But at the end of the day, you can probably get it done, regardless of the size of the person sitting on the other end of the table. They still need good programming. They still need good ideas to drive their businesses, otherwise those distribution chains can't be maximized in terms of value.

Gary Thorne:
The other thing that's advantageous in this, and the combination of these two companies, if it does go through, is that the additional spectrum at least gives us opportunities to place networks. Because if there was — if there is — one place where spectrum eventually does get used up, it's on the satellite side of the world.

Lee Chaffin:
From a BET perspective, we are not really concerned with [distributors] getting larger.

MCN: But aren't any of you nervous about the prospect of having somebody who will almost dwarf AT&T and Time Warner Cable, with 16 million subscribers, and probably, when the deal is completed — if it's completed — more than 20 million subscribers? Won't you need Ergen, then, to launch your new services?

Meister:
But some of us are old enough to remember when we were concerned about people like Columbia Cablevision and TelePrompTer and so forth, because whomever is big is very, very important to you, and is somewhat more important to you than the person who isn't quite as big. And that's still the same process.

As Ken is saying, you must have a good service and it must make sense. If you don't, it doesn't matter. And if you do, it still makes sense, and it is just going to be a different process with a different individual and maybe it's better because maybe you're going to get 15 million now instead of 5 [million], 5 [million] and 5 [million], and that could make it easier.

Solomon:
Streamline your process that way.

Meister:
Sure. The real issue is not so much the consolidation and the ownership anymore than, does it matter who owns us? The real issue is, they need brands. They need brands to motivate subscribers. When they get those brands and the subscribers are motivated, then they will reach out, the subscribers will, and demand more in the way of cable.

And when that happens, that's good for the cable operator, and it's our job to give them those dynamic brands that will do that.

Chaffin:
I agree with David. Branding is everything —particularly what operators are looking for. And one of the things that BET has is a strong brand to our core audience. So the digital networks that we're launching have a brand associated with them. So with gospel programming, it's BET Gospel.

So with these providers becoming larger, it's good from our standpoint. We know that if the product is good, and it's going to help them accomplish reach in a market that maybe they are not targeting right now, we think [it] is a good thing.

Joshua Sapan:
Consolidated companies tend to act — because they can pool expertise — in many cases with more depth of understanding of the marketplace, and more depth of understanding of what they do and don't execute from a content point of view.

So in a certain sense, they become more expert. Larger sometimes means more expert. They make decisions that are in the interest of their business, in the interest of the consumer. If you're good enough to play a role, you may be able to actually accelerate your own agenda. So there is a sort of positive side to consolidation.

MCN: You mentioned something that I wanted to follow-up on: brand Now, with Mag Rack, that's something that was just launched. That's not a brand that my mother is going to recognize as a Cablevision subscriber. So how do you go to an MSO, or Charlie Ergen, or whomever it may be and position your video-on-demand channels, your services?

Sapan:
As we sit here today, there is not a branded VOD service in America, and there is not today a branded VOD service in the world. So we sit as an absolute anomaly. So our grand challenge in one sense is enormous. In another sense, it's the most inviting. It's novelty.

MCN: Because no one else is there?

Sapan:
Nobody else is there.

MCN: What would [Starz Encore Group LLC chairman] John Sie say to that, though?

Sapan:
Coming forward with something that the consumer loves, the consumer just adores — which is a series of special-interest magazines available on television at their own choice, by their own desires — is terribly compelling.

So we think that we will build a brand that stands for something. And the interesting thing about our challenge, it's a brand built against a backdrop of no other options, so the slate is clean. The space is clean.

Meister:
The jury is out regarding NVOD [near video-on-demand]. Not only are they the first but, by definition, there are no returns yet, so we don't know if that's going to succeed a little [or] a lot. Nobody knew about pay television until 1972 when HBO [Home Box Office] launched. That worked. Some other things have been tried that frankly haven't worked to the same extent.

So, yes, you're being an evangelist by need. You have the resources of a cable operator behind you. So if you fall, you're going to be cushioned in some way. For those of us who are creating something that's a proven model, if you will, a traditional ad-supported basic channel, we're going down a road which is a much more reliable, a much more proven road.

Maybe the upside is as great, maybe it isn't, but it's a different path. What Josh is up to is something that is very different.

MCN: Three of you in this room are doing something very different. Some people would say you'd be crazy to be an independent and try to launch a network in this environment. Why do you three think that there's an opening for your services?

Thorne:
Well, certainly Scripps is one of our models. They came to market seven years ago with HGTV [Home & Garden Television] in the same environment, in many respects. No one needed another channel. They don't need another network from us. All of those factors are there, yet Scripps is now, or HGTV, at 70 million subscribers.

I think it goes to the issue of you have to prove your worth in the marketplace, and that's one of the reasons, as we put our business plan together, we are taking quite a few gambles in what we're doing because no one needs another independent network. And in the consolidation that's been going on on the distribution side, all that consolidation has been going on in the programming side, too.

After all, Lee used to be an independent. Now he's part of Viacom. If you look around, you can populate a complete [cable] system today with seven companies, very easily, probably less than that if you wanted to settle for something a little bit different.

So it does make it more challenging to break in, but I think that the business is also at a time — as spectrum has become available — that there are probably more opportunities and this is a unique time in this industry. And I don't think there will be another time like this.

MCN: More spectrum because of digital?

Thorne:
Because of digital, yes. As you look at it, one of the things that as we talked earlier about Charlie Ergen, what they have is a completely digitally deployed network. Cable is now in the process of catching up and adding features that play to a whole new set of programming, like Josh is talking about.

I don't think we'll have the kind of quantum leap we are seeing today where systems, cable systems, go from 30 to 70 channels to 200-plus, plus their VOD offering, where the consumer can sit down and choose from 500 different titles I can watch right this minute.

That is part of where Moviewatch comes from, because the likelihood is the majority of those choices will be movies. So what we want to be is the destination to help you find the ones that are worth watching.

It is a unique time in the business. It remains to be seen whether we can be successful as an independent. The last one was certainly Scripps, and most recently Oxygen [Media], as they fight the fight.

Sapan:
We are at a time of dramatic technological change, that what existed for the past 15 years — which is the expansion of bandwidth and what was essentially a one-way video cable system — is now changing. That change is occurring today. We launched five weeks ago and people are now experiencing Mag Rack exclusively on an interactive basis. It's the only way you can have it.

Back to the question of independence. Someone responds to dramatic technological change, history would suggest, with some piece of innovation. And in some cases incumbents are less likely to do that because the very adaptation or exploitation of a technological change in some cases jeopardizes existing business models.

When that technology is realized with a new content or new consumer experience, it is frequently independents that do it.

Solomon:
To use Scripps, what they did that was interesting is they identified an underserved need. As programmers, it's never easy to find a real niche that isn't being served. It was easier in the beginning. Hey, let's do news! That's air and water for people. So let's do CNN [Cable News Network], and let's hit all the categories that really matter to people. As you get down to it, that certainly gets harder and harder.

The new technology will only be important as far as we are able to program to it. And when we don't come up with new ideas, we throw movies in there.

MCN: They're great for Gary.

Solomon:
As a stand-alone, I guess, just back to the original concept, what really is needed is innovation and new ideas, both on the technology side and on the programming side.

Sapan:
The ideas represented in the enterprises around this table, it seems to me, really are just a magnificent sort of taking of what can be done with technology and history — BET and tennis all the time, and I'm a tennis player, what a great idea — and Fine Living, and Moviewatch to guide you through.

All of those ideas at time of launch perhaps seemed too specific and too marginal. But it speaks to what Ken just mentioned, and that is the stickiness — to use an overused word — or the magnificence of good ideas.

And the reason we're doing Mag Rack is because we think that this trend so well represented here of ever-more specific, if you will, personal television is not close to coming to the end. If you look at the first 10 categories of Mag Rack, you'll see motorcycle lifestyle, Photography Close-up, something for photography buffs. Even bird watching, [which] you will find has significant numbers who are sometimes not admitting it publicly all the time. But they really are people who are passionate.

MCN: I want to ask David something. Why are you so optimistic about your odds, being an independent, and about your whole category? There's tennis coverage on broadcast networks and on cable.

Meister:
I like being an independent. I wear it as a badge of honor, and I think not being independent slows down a lot of thinking in a lot of other places.

Those of us who have worked in big places and small places understand that in a smaller place, you can do things quicker, more decisively, and be more flexible. You don't have to go through layers of committees.

I look at it and I say, 'Where does creativity come from?' That doesn't come from boardrooms with 15 and 20 people studying spreadsheets. It really comes from people with passions and ideas. And if you look at it, our industry, you see that. You see other independent channels in the sports category — Outdoor Life [Network], Speedvision, Golf Channel — these are recent additions to the scene [over] the last six, seven years basically.

They have all represented a vision. They were all independent. What happens to them ultimately is somebody says, 'I love this, here's a lot of money.' And then you wind up working for one of those companies that we had worked at when we were younger.

Solomon:
With our company, there was plenty of home-and-garden segments, all over television, in magazines, everywhere you could look. Same thing with food. The difference, and what this medium that we are all in allows us to do, is put them all under one roof.

So if I'm a tennis fan — I happen to be — when I want my tennis it will be there if, in fact, they're successful. And that's what we did with HG[TV] and Food [Network] that blew the doors off the thing. It's like the original TiVo [Inc.] on steroids. It is always there for you, but you don't need a box, because there's a network that's programming to your interest 24 hours a day.

Meister:
You used a word before — I think it was you, Ken — you said niche. I don't like that word. We're not a niche network.

MCN: How many people are passionate about tennis?

Meister:
Sixty-six million American adults. Ninety-two million Americans watched the U.S. Open at some point a couple of months ago. That's not a niche. That's a target.

MCN: Have you been talking to [E.W. Scripps Co. CEO] Ken Lowe? [Laughter]

Meister:
Not only that, but we're launching the Respiratory Channel for people who breathe. We have 285 million. [Laughter] Our slogan is, 'A breath of fresh air.'

Solomon:
You took my No. 1 point.

Meister:
But it's everybody's No. 1 point, because what you're doing is, you're packaging it and you're presenting it in, A, a way that it makes sense, and, B, it's a destination.

I can find some of what's going to be on Fine Living, or HGTV or whatever elsewhere. But if I'm seeking it out, I know where to go now. Before I didn't have that choice. And some of us, myself at least, I've been involved in these targeted networks before. I did it with Cinemax. Sundance [Channel] was my idea.

At the end of the day for the cable operator, he needs to know two things. He needs to know, 'Is this a good channel for my subscribers and are you the guys who can execute?'

MCN: Is that all they want to know? I've heard programmers complain things are deal-driven. It's very good to talk about lofty, good programming, but a lot of things are deal-driven.

Meister:
No one is going to put a contract on the air. You know you've got 'X' number of channels. You click around. I don't see pieces of paper scanned. If you have a good contract and a lousy program service, good luck to you. What are you going to do with it?

MCN: There are a lot of good services out there who are all vying for that same space. [Time Warner Cable executive vice president of programming] Fred Dressler can't put everyone on.

Meister:
He has a lot of spectrum that he didn't have before. And that's why we're all here. We wouldn't have been here five years ago.

Chaffin:
Let me go back to the independents. I was at BET when we were independent, and now part of Viacom, and one of the main benefits of being part of Viacom was controlling operational costs. We are launching four digital networks in January.

Now would that have happened if we were independent? It may not have. But because we can really work on the way we control costs, we have people backing us, it really is going to be beneficial.

MCN: You're using their infrastructure or using their resources?

Chaffin:
Yes, a lot of the resources, and learning the way that they have done business in the past and so forth, that we're able to get these networks up and going. From that standpoint, that's what the benefit is.

BET, a lot of times, people look at it as a niche. But we're in over 70 million homes. And we believe that based on how our ratings have increased over the years, particularly this year — up 25 percent from last year — that people want to see more programming targeted to our audience, and that's why we're launching these digital services.

But I agree with Dave from the standpoint of if you have a good product, that's what you're going to have to have going. Because even talking to some operators who've launched digital early on, they are getting complaints.

MCN: Complaints about the quality of the content?

Chaffin:
The quality of the content. It's like, 'OK, this is the same thing that I've had on my basic cable. Provide me something that's innovative and something new.' The brand can get you there, but it's what you have on those channels that's going to keep you there.

Solomon:
The line really comes today in terms of general-entertainment networks and targeted networks, and I think we all want to banish the word 'niche.'

What we're all doing is addressing a specific need that we know exists in the world. That is a world away, and a completely different business, than launching a new library-based network.

If he [Chaffin] were part of Viacom, trying to slice Paramount's library thinner with a marketing skin over it that's more transparent than this cup — I'm not saying they're doing that — but there are corporate initiatives that drive that, that say let's put another box on the end of the pro forma, and that's what won't work. That's not a brand.

MCN: You're all planning to produce a lot of original programming for your services. Financially, how does that model work with services that are digital, that are going to have, initially, probably very limited penetration?

Solomon:
We all have different models. You'll have five answers.

Thorne:
One of the things that goes on today is because the history of video distribution is cable, and there's analog and there's digital, and today there's very little digital compared to analog.

But in the long-term, everything is going to be digital. I don't think there's any doubt about that. The economics say — once you get to over 50 percent — the spectrum pickup and the additional revenue-generating units you can develop as a cable operator make the conversion of the whole system, as a mathematical exercise, quite easy.

MCN: You just have to hang in for those years until it happens?Thorne:
The fact of the matter is, look at how fast the industry is moving. Today, if you wanted to be just digitally deployed, you'd be in 16 million satellite homes. They're all digital, right?

Plus, you'd be in approximately 20 million other homes because that's how many other homes are now digitally served and are subscribers today. Sixteen [million] in satellite. And 20 [million] in cable. That's 36 million homes. And I think any one of us at launch would be quite satisfied with that as a start.

Sapan:
I'll give you an honest answer. Our original programming is, in a word, challenging. It is challenging. We are producing expensive programming.

Thorne:
We're all doing that. In the short-term, you can look at that and say, 'Wow, that's really ludicrous in this world we live in today,' even though this world is really pretty substantial, the digital world. But the digital world will be in five, seven years — maybe it won't be 100 percent everywhere — but it'll be certainly in the neighborhood of 70 million homes.

Sapan:
Just to focus on VOD because I said challenging... The second piece of it is that if you look at the various projections of VOD, and our world is limited to VOD...

MCN: It's smaller, right.

Sapan:
But there will be, if you read Forrester [Research Inc.], 37, 40 million homes, VOD-enabled by 2006. That's not that long a horizon. So our evaluation of original programming is, it's imperative. It's expensive. It's challenging. And it will pay off. Early entrée will have its rewards.

And if we can establish a leadership position — my guess is you'll find similar answers around the room — if original programming does establish leadership, in an editorial area. And by the way, I'm probably the proudest person to say 'niche' in the room.

MCN: Probably the only one. [Laughter]

Sapan:
I would in fact say 'sub-niche' with levity and with sobriety, because our entire proposition is to find the very personal enthusiasms that are nowhere served in that aggregate and manner on television.

Thorne:
There's one other factor that needs to be said. The reality is the amount of existing programming that is available for any one of us to buy is just about zero. I mean particularly when you look at the consolidations. You look at Viacom, AOL Time Warner, Disney, ABC. They own it all.

Meister:
If you look at the viewers' habits, they tend to watch five to eight channels primarily, and those five to eight will vary. As you have more and more choices available, somebody's passion is going to be hit right on the button. I don't know how many birdwatchers there are.

MCN: Josh does.

Sapan:
Actually there's 18 million [U.S. households with at least one bird-watching enthusiast].

Meister:
There you go, 18 million.

Solomon:
He didn't mean Robin Byrd.

Meister:
If you go back a few years to when Josh

was starting out in this business and there were only 12 channels available on cable, you couldn't expect to have a targeted audience, no matter what you called it, if it was serving so small a constituency.

What we've been able to do now is to fragment, if you will, through compression and digitization and be able to offer many, many more choices.

How do you make that work as a good business model? We all want to put out the quality programming that we've done in the past and that we expect to do in the future. The question is, how can you do this? And the answer is because the tufted [titmouse] doesn't cost as much as Tom Cruise. And if we're talking about a broad entertainment service launching today, that's going to be expensive. But if we're talking about something and we say, 'We can get this content and make it look really great on a sound economic basis,' it works.

MCN: Let me ask Lee, because you were doing — one of your services is hip-hop, right? BET Hip-Hop?

Chaffin:
Yes.

MCN: Now, MTV airs a fair number of hip-hop videos. So what's your…

Chaffin:
What's the model here?

MCN: Yes.

Chaffin:
One of the challenges for BET is because it is the only African-American targeted network of any substantial size that's out there, you have a lot of people who watch us who want to see more of something that they cannot get in the 24 hours, 7 days a week of BET.

So when we looked at developing these digital channels, we look at gospel programming on BET. We get anywhere from a 0.8 to a 1.0 for our gospel programming that comes on Sunday.

And there's a following of people who would love to see gospel every day on the network. So for that person who watches gospel on BET, now there's a 24-hour service that will be totally gospel programming.

MCN: Why should you be a digital service versus a VOD service, like the model that Josh is using?

Meister:
That model doesn't exist, and is unproven, and it's a risk now. He works for a guy who's taken some big risks, been successful on a lot of occasions. If you work independently, and you need to prove your point to people who support independent ventures, that's harder to do. And if you work corporately, then you need to make your point to people who are running large corporate organizations, that's really hard to do.

Solomon:
There's another point to the last question, at least from our formula that is a slightly different answer, and it's two-pronged. The first is that what we are able to do now, that Ken Lowe and [Scripps Networks president] Ed Spray and all those guys couldn't do before, is we're able to leverage efficiencies in production so that if we have teams in Europe for Food [Network] and HG[TV], we [Fine Living] can do completely different programs that are entirely different, with different hosts, different writers.

So we can create a show for — in the tens of thousands of dollars — that would cost $60,000, $70,000, $100,000 per-half hour if you had to do it as a stand-alone. So we are able to leverage infrastructure, but not recycle programming.

The second thing and the most important thing is that once you have a targeted audience, it's not enough to have them. It's knowing how to convert them and get value out of that eyeball. What we're all trying to do is identify a differentiated eyeball as opposed to an undifferentiated eyeball.

VH1's 0.9 — and that's a fantastic service, I watch it all the time, I'm going to say that up front — is not worth as much to Sherwin-Williams as the 0.9 on the restoring your home show on HGTV.

Sapan:
David mentioned [that] 18 years ago, when David was at Cinemax, it was radical that there would be proposed a second pay TV channel.

It was quite a radical notion because all the movies were there on one, and then Showtime was playing the same ones. Well, why on earth would you want a second one? Of course the story there is there are two, and now three, major premium movie groups, each of whom operate, I believe, about 10 channels on a 24/7 basis.

Then, a few years later, we were in that world where we launched the channels that we operate. It was considered at least radical, if not heretical, that we would take niches like classic movies, and the arts on television and independent film and turn them into channels.

It seems that if you're in response to something that the consumer is interested in and you are serving it up in a way that is compatible with the advancement of a technology, then you will do something that people will embrace.

Solomon:
I have to make just one point. For many, the name specifically describes exactly what they are — Food [Network], you understand, HG[TV]. Fine Living doesn't necessarily, and so people assume they know what we are doing who haven't sat with us and seen.

Our point of view is whatever the particular articulation of your passion is. It's not about Lifestyles of the Rich and Famous
. It's not, 'Let's take a beauty shot of this fancy car and then go to the Lear jet.' That's not what Fine Living is about at all. It's about a point of view that a majority of Americans have today.

Meister:
But you have to be careful that you don't become too broad and now you're trying to serve all of us, because everybody in America…

Solomon:
I'm not trying to serve all of you.

Meister:
But what we're all saying is the operable word is passion. Forget the word niche. I threw that out at the beginning. Target — everybody thought was a good word. No, it's passion. These are passion networks, you know?

I don't think anybody's passionate about NBC. We all wished we owned them. Sure, you know, but that's a broadcasting operation and they are many things at many times.

Solomon:
It's not that they don't do a fantastic job.

Meister:
Sure, but they're broad. And what we're talking about is something that speaks to consumers. And cable subscribers are consumers. So we can deliver advertisers whether it's car advertisers who would like us because we're an upscale audience or car advertisers who like any of the rest of them because they all deliver people who buy cars. We all drive cars.

MCN: I know at least three of you are going to be selling advertising. Gary, could you talk about what your model is, and then we'll get to some of the others…

Thorne:
Our single source of revenue is ad sales. We're the biggest gambler at the table. No license fee.

MCN: What's your ad pitch, when everyone starting out is going to have such limited distribution right off the bat?

Thorne:
I think obviously we'll have to develop a different pitch than the standard Nielsen {Media Research] rating pitch. But certainly, the movie industry has quite a following, and it's the No. 1 thing people want to watch on television. We believe there are lots of good advertisers for us to talk to.

As it was pointed out earlier, there are some good examples out there, too. There are some programs that are extremely successful. Entertainment Tonight
is a very successful syndicated program that doesn't have any difficulty selling advertising. We don't think we will have either.

That's one reason why we believe, too, that we have to have original programming, because we won't be able to attract the advertisers we need unless they can see the value in the service that we bring to the consumer and the point of view.

But we'll be challenged just as every new network is. We've got to entertain consumers No. 1. If we don't do that, if we can't keep viewers, we won't have a viable service. We've got to do that first.

But secondly, we have to inform them, in ways they can't otherwise learn, to capitalize on the passion issue. That's a good word, because there is definitely a passion. And then the third piece we're bringing to this, which is unique, is using technology in a different way.

MCN: Your service is going to be localized, right?

Thorne:
Yes. And we're not talking about doing all of that, but we are talking about bringing localization, which is, if you will, sort of point-of-purchase material to the air — so with the emotion of movies, the where and when and how you can get that movie, on this system tonight.

MCN: Now, Lee, are you selling advertising in your services?

Chaffin:
Yes. We will have advertising, but that's not really a major revenue [source] that we'll be looking at in the beginning. Our main revenue source is primarily license fees for these digital networks.

MCN: David, you have some advertisers on board already?

Meister:
Yes. A key point is that if you look at a tennis tournament, which is a large part of our programming and our content, it's not a weekend event. It is a during-the-week-and-weekend event. It is seven days. It's during the day and it's at night.

One of the things that we are cognizant of, that we are making the point to the advertising community about, is that not only are half of the frequent tennis players women, but by definition if they're out on the tennis court, they're not staying home to watch Oprah.

They are hard to reach. They are very desirable, because they're very upscale. We have a very, very upscale audience, and we will deliver them. So don't think of The Tennis Channel as only being some of the obvious advertisers, the automotives and financial services, but think of it as also serving packaged-goods advertisers because we are making those deals.

Solomon:
Scripps's stock in trade has been positioning the advertiser. If you look at the numbers that television people use, people [who] come to Scripps programming are a prequalified audience who says, 'I'm interested in what you're going to tell me, not just in terms of editorial but in terms of the advertising.'

They look at it as a resource. So you start with sort of a heightened sense of awareness for the advertisers, that they know converts a viewer into a consumer.

We are targeting at the core $75,000-a-year-plus household, which actually Food [Network] and HG[TV] have done a surprising phenomenal job of doing. We now start with a network called Fine Living. Obviously it starts by speaking at its core to an audience that is the most elusive — as you've heard around the table — certainly the hardest to reach and certainly the most valuable.

Now we can go to the people who are spending millions in print because print is more targeted and say, you know, what? To someone who's been in the Robb Report
and Town & Country
and the Dupont Registry, we've got a network that reaches those same people that reads those magazines. How'd you like to make a two-and-a-half minute lifestyle piece and put that on your air?

MCN: Gary and David, are you willing to talk to operators about getting equity in your channels? Is that necessary and are you open to it?

Thorne:
Well, I'll speak first and say that at this point our venture has been totally funded by the Hubbards [Hubbard Media Group], and they have the capacity to fund this entire venture. At this point, no, we're not out selling equity to anybody.

Meister:
We've had inquiries, some of our early conversations, because cable operators have seen the ability of independents to create a channel business that serves their constituencies and, in many cases, have wound up in their portfolio at the end of the day.

So if this were 10 or 20 years ago, there might have been a little of that interest. More recently, there's a lot of that interest. Any conversation that could lead to something that advances our business is something we want to talk about.

MCN: Launch fees? Still the thing of the moment, or no?

Meister:
It's an environment where again it's a combination. You said before the deal drives it. The deal really doesn't drive it. The deal may stop it if you can't get a deal done. So first you've got to establish that this is something that they want and then once you do it, sanity has to set in.

If either party is irrational, no deal is going to get done. If they want to get launch support that's up here, then they can't afford to only pay us fees that are down there. Because we're not going to deliver them — we're not going to be able to deliver to them content and a quality that they are looking for.

We had a conversation very recently with an MSO who said, 'I know I've got to make a deal that works for you because if it doesn't, it's not going to work for me.' And that's absolutely right.

MCN: Who was that?

Meister:
I'll tell you the last digit of the area code [Laughter]. But whether it's free carriage for a period of time or whether it's launch support…

MCN: What are you finding operators want most?

Meister:
It depends on the operators. Go back 10, 20 years — 10 anyway — and you had the two biggest, TCI [Tele-Communications Inc.] and Time Warner, and TCI wanted the equity. They wanted to participate in the back end and Time Warner wanted the discount. They wanted to enhance their operational numbers up-front. At the end of the day, we would all do the arithmetic and said, all right, I can do it on this basis.

You want it front-ended? OK. You want it back-ended? OK. If we don't create a deal that works for everybody, something is going to fall apart sooner or later, regardless of the idea. The execution has to be there and it has to operate.

The point that I think Ken was making, maybe it was you Josh, about the consolidation and now we've got maybe more expertise at the tops of these MSOs. Great. Because the more that they own cable networks, the more we as cable-network owners benefit, because they in turn understand our business better and that's great.

If they understand our business better, they can buy into what we are explaining and it makes our job easier.

Solomon:
Everybody is going to make the best deal that they can. But the real point is, you can't put an independent programmer out of business because if the model doesn't work, we're not going to be here. And then you're going to be forced to spend all that capital, but do it yourself.

And Columbia [Pictures] Television just went out of the primetime-network business, as a metaphor, because the broadcast business went a little too far perhaps in grinding and squeezing every last cent out of license fees for network-television shows.

MCN: You have your television models and then there's the Web models, how do these things work? How integral is that to what you're doing and some of the other projects around the room?

Solomon:
I think that there's a sobriety, as Josh mentioned earlier, with what the proper place and complement of different platforms is.

Nobody knows where it's going to end up, but I think we all know it's not that new media is going to gobble up old media.

It's that there is a certain proper order and for us, we're actually taking a fully integrated approach to the launch. And that always sounds like gobbledygook, but we really mean it.

We are also going to be announcing the purchase of a high-end lifestyle magazine that was about to launch itself, whose name is going to be changed to Fine Living
. It was called Cachet.

It is not a subscription model. It is a model based on distribution that you purchase and we're going to have edit distributed along with newspapers.

So we're going to deliver this Fine Living
magazine, which is not a copy of what's on the air. It's not a copy of what's on the Web. It's a first-rate editorial team; the editor used to be editor of Condé Nast Traveler, Maggie Simmons, who is creating a 30-page gorgeous glossy book that you're going to want to read and putting it on the doorstep of 1.3 million homes [on] the fourth Friday of every month.

And we can pick which homes it's going to because we're targeting by ZIP code. Therefore, you say, OK, now I've got three platforms here.

MCN: Josh, do you have — I know yours is a different model, but is there a Web element?

Sapan:
There is a Web element for Mag Rack, specifically, vs. our other channels.

MCN: Yes, that's what I mean.

Sapan:
We've been approached by a number of incumbents in other media who are interested in working with us, so our situation is somewhat different, because it's vast. We have 10 magazines today. We have been invited to participate with several companies who are leaders in other fields, who are not in the television business.

MCN: You provide them content for their Web sites?

Sapan:
We may share back and forth. But our fundamental notion is that we are absolutely a television-centric proposition. We are a VOD, SVOD service.

MCN: Gary, don't you have a Web element, and what's the play there for you?

Thorne:
In today's world, anybody who is developing media will develop concurrently all of the media, and we also are looking at the analog, if you will, which are the magazine relationships.

So we're looking at that element, but certainly a Web element because as the media provides the opportunity for a community, for personalization, and for drill-down and all of those things are important to people who have 'passion,' as David put it.

Solomon:
Right now, the MSOs are all frightened to death that we're going to go around them and run all of our half-hour television shows — stream them — when the pipes get big enough, if they ever do. That's not the best application. That's the worst application you could ever use those pipes for; it just doesn't make sense. What does make sense is to find the right complementary services to augment what you're doing on air.

Meister:
We may be a little bit different than the other guys in terms of the Internet. First of all, tennis is huge in terms of personalities. Our stars are known on a first-name basis: Anna, Martina, Andre and Pete, Venus and Serena. Anna Kournikova is the most downloaded sports Web site.

Solomon:
Why is that? [Laughter]

Meister:
Ask me why Martina Hingis is No. 7 and ask me why Andre Agassi and Patrick Rafter and Layton Hewitt, it's because they are stars and they're glamorous.

We are not going to use the Internet to deliver content. We're just not going to do it. Our economic livelihood is based on a relationship with the distributors, and we are not going to set up the situation where they are going to feel uncomfortable that maybe someday we're going to go around them. We are going to use the Internet for promotion.

Chaffin:
On the interactive part with us is that we have BET Interactive, which of course is the No. 1 portal for African-Americans. They go online, and what we are looking at is part of that partnership element, is that we actually are working with operators on how we can promote high-speed modems and how we can have a link, because we know that there's research that shows that African-Americans are more likely than the average consumer to purchase digital, to purchase modems and so forth. So from that standpoint it is appealing to the cable provider.

There's no way in the world that we would want to stream down our video, because it would pretty much destroy our digital services out there.

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