Ops, Nets Buy Into Retail Stores

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Sweetly perfumed incense wafts through the air. Haunting
Middle Eastern music plays in the background. Sundials, teapots and Amish quilts are on
display. Turn around and on one side, there's a collection of Peruvian
"retablos" -- portable altars with tiny cut-out figures depicting scenes of
South American life. On the other side, there's an exquisite, hand-carved wooden
birdcage.

Inspirational quotes from Chinese proverbs, Proust, Darwin
and Madame Curie are on the wall: "Do not follow where the path may lead," urges
one anonymous sage. "Go instead where there is no path. And leave a trail."

Where the heck are we, anyway?

A museum? An art gallery? A performance space?

Actually, a store right in the middle of downtown
Washington, D.C. -- the new, 30,000-square-foot Discovery Channel Destination Store, the
retail anchor of the MCI Center, which opened late last year as the home of the National
Basketball Association's Washington Wizards and the National Hockey League's
Washington Capitols, and as the centerpiece of a dramatic urban revival.

Mary Bridges, a tourist from Goldsboro, N.C., who had just
been in the American Museum of Art next door and who was on her way to have lunch in
neighboring Chinatown, called the store "pretty neat. It's a sensory experience.
For some people, it might be kind of overwhelming, but to me, it's pretty
interesting."

Robin Ashworth, who lives an hour away in Richmond, Va.,
was in the city for the day with her three-year-old daughter, who squealed with delight as
she chased a collapsible ball. Ashworth said she was enjoying herself and she found the
store "very similar" to Richmond's Science Museum.

This is exactly the kind of grassroots feedback that
Discovery and other cable networks and operators that are getting into the retail business
are praying for.

Whether the initial enthusiasm translates into
profitability is, however, another question altogether.

For now, media and communications companies are in the
first flush of opening or acquiring retail outlets.

Before opening its $20 million flagship store in Washington
earlier this month, Discovery first purchased an 11-store chain, coincidentally named
"Discovery," in 1995, and it then bought the 124-store The Nature Co. chain in
1996. Comcast Corp. opened its first retail "Communication Center" store that
same year.

Last year, Viacom Inc. opened its flagship store in
Chicago, and ESPN opened its ESPN-The Store at the Glendale Galleria in Glendale, Calif.
Wireless phone companies have opened hundreds of stores in cities and malls across the
country over the past two years.

And Cablevision Systems Corp. shocked the industry earlier
this year when it spent approximately $95 million to buy bankrupt consumer-electronics
chain Nobody Beats the Wiz.

PROFITS IN STORE?

Retail consultant Howard Davidowitz believes that stores
run by cable companies will ultimately prove to be brand-builders, rather than profit
centers.

"In principal," Davidowitz said, "[cable
companies] are in the right place, because entertainment-themed retailing is taking over
America right now. There is the potential for high margins, but they're not
retailers. They'll have to hire heavy hitters, like [The Walt] Disney [Co.] did, and
we'll see how they execute.

"My gut is that they won't [make money], but
it's totally a win for them in either case, because brand-building is damn important.
That's how these companies are valued."

Cable executives agreed that they want to extend and
enhance their brands, but they maintained that their retail investments will bring
additional benefits and revenue.

Cablevision CEO James Dolan has said that he sees retail
outlets as invaluable marketing tools for cable operators as they begin to sell new
digital services and they find the need to demonstrate items like cable modems and
advanced digital set-top boxes.

Andy Addis, Comcast's vice president of marketing, new
products, agreed. Noting that Comcast plans to sell high-speed Internet access, digital
boxes and interactive games in its stores, in addition to cellular phones, paging
services, tickets to sports and entertainment events and PrimeStar Partners L.P. satellite
dishes, he said, "You can't sell these things the same old way. Seeing really is
believing."

TRAIL BLAZERS

While Cablevision is just beginning to figure out its
actual retail strategy, Comcast and Discovery have already begun blazing trails that may
well determine what the latest configuration of the cable business will look like.

Located inside the upscale King of Prussia Mall in suburban
Philadelphia, Comcast's Communication Center, despite its sleek, futuristic design,
clearly remains a work in progress after being open for a year-and-a-half.

At lunchtime on a winter Monday, the store was nearly
deserted. The lone customer, Ann Gordon, a middle-aged homemaker from the nearby suburb of
Lafayette Hill, was only getting her cellular phone upgraded.

Although she regularly comes to King of Prussia Mall, she
had not been in the store before, and she said she probably wouldn't come in again.

Sure, the store, with its rainbow-colored, fiber-optic
archways and flickering nine-screen video wall, is eye-catching and beautifully designed,
but there simply wasn't much there that interested her besides taking care of her
cell phone.

In fact, cell phones and paging services are the
Communication Centers' main stock-in-trade right now. The store is "ahead of its
time," Addis admitted. "We need products to sell."

But cable modems, digital boxes and games for interactive
TV are coming, he insisted.

"There's an inherent technological play
there," Addis declared. "We feel pretty strongly that we're going to need a
destination to send people to. They are going to have to touch and feel and see these new
products."

The store even has computer terminals that allow customers
to order products from Comcast-owned QVC and to surf the Web via the company's
high-speed Internet connection. Once wowed, customers can sign up for Comcast's @Home
Network high-speed online service right then and there.

Not only will the store generate revenues, Addis said, but
it will be critical to Comcast's efforts to leverage its "value
proposition" for the inevitable day when a competitor like Bell Atlantic Corp.
finally rolls out video and Internet products of its own.

DISCOVERY'S IDEAS

Discovery, according to president and chief editorial
officer Greg Moyer, sees retailing as critical in its efforts to "globalize" the
company and to expand its lines of business outside of cable.

The huge downtown Washington store, right in the Bethesda,
Md.-based company's backyard, will, Moyer said, act as an incubator and laboratory
for the conversion of the 124 The Nature Co. stores in shopping malls across the country
to Discovery Channel stores -- a process that should be completed in about two years.

While most of the mall stores will be about one-tenth the
size of the 30,000-square-foot flagship, Moyer hopes that the spirit of the unusual and
eclectic store can be transferred to smaller venues.

"It has to be a family experience," Moyer said,
"that has an 'aha' moment -- where you realize viscerally and
experientially after walking around that there's something that you want or
need."

Clearly, design, theatrics and a dazzling array of unusual
displays and products are considered critical to the store's appeal.

Each of the store's five floors is geared toward a
specific theme, beginning with "Paleo World" on the ground floor, replete with
fossils, minerals and dinosaur skeletons. The "Ocean Planet" mezzanine displays
famous shipwrecks (as well as a plentiful assortment of clothes, toys and games), and
"Wild Discovery World Cultures," on the second floor, features a giant ant
colony; the music of Morocco, Tibet, Cuba and other exotic countries on compact discs; and
travel gear (including a $400 canvas duffel bag).

"Sky & Space Science Frontiers," on the third
floor, has a life-size, Smithsonian-like replica of the nose of a B-52 bomber; model
airplanes ranging from $99 to $699; an $18,000 computerized telescope; science kits; and
T-shirts emblazoned with the periodic table.

The store's top floor features the 80-seat
"Discovery Channel Theater," which shows "Destination D.C.," a
high-definition tour of the nation's capital, which attracts 21 million tourists a
year -- a market that Discovery is hoping to tap through ads in guidebooks, billboards and
ads on the company's growing portfolio of cable channels.

The suspicion that the store is designed as much for
looking as for buying was confirmed by John Farnum, a creative consultant who worked on
the Niketown stores and who collaborated on the Discovery store design with New York-based
firm Pompeii A.D.

The designers weren't "thinking directly about
getting people to buy," Farnum said. Instead, the store was "intended to be a
call to action to do something."

But Moyer also sees some practical and pragmatic uses for
the stores, such as location shooting for network segments and boosting Discovery Online.
The network also plans to use the stores to promote the network in local markets around
the country through events in collaboration with institutions like zoos, aquariums and
observatories.

Discovery also sees the stores as an opportunity to work
more closely with cable operators, Moyer said. Stores can be the site of cobranded and
cosponsored promotional events, or demonstration sites for new technology products such as
cable modems.

In fact, he said, Discovery and Comcast are teaming up in
Towson, Md., on such a collaboration.

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