The Pitch Isn’t Easy for Independent Nets

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A number of independent networks have made the trek to Atlanta and the National Show this week, looking to buck the odds and gain vital cable-operator carriage deals in an environment of limited channel capacity.

Executives at networks such as The Documentary Channel, Russia Today TV and The America Channel believe they have the goods to break through a landscape thoroughly dominated by multimedia conglomerates or cable operator-owned networks.

Meanwhile, more established independent networks like The Outdoor Channel and GSN are looking over their shoulders, as operators like Time Warner Cable examine their value more closely in an effort to determine whether they should be moved to less-penetrated tiers or dropped altogether in favor of other services.

HOPE IN HOTLANTA

New networks hitting Hotlanta this week understand the odds stacked against them, but nevertheless believe that there are distribution opportunities if they can latch on with either Comcast Corp. or Time Warner Cable, the two biggest cable operators.

Still, they realize that without corporate ties to an MSO or multimedia owner like The Walt Disney Co. or MTV Networks, which can leverage more-popular networks to gain carriage for fledgling services, they face a very steep uphill battle. With a few exceptions, such as distaff-targeted network Oxygen or, more recently, NFL Network, few independent networks have managed to surpass the 30 million-subscriber mark.

“Competition from independent channels has all but been shut down by the top two cable operators because independent channels compete with their networks for eyeballs, [bandwidth] capacity and advertising dollars,” said The America Channel CEO Doron Gorshein, who has been trying to launch his reality-TV channel, showcasing communities ordinary people and heroes around the country, for the past three years.

In 2005, the network asked the Federal Communications Commission to block the takeover of Adelphia Communications Corp. by Comcast and Time Warner, saying that the deal would hurt independent networks seeking cable carriage.

“Independent channels cost roughly one-third of what an affiliated channel costs, so they [operators] apply downward pricing pressure,” he noted.

But even if these networks succeed in securing the cable distribution they’re looking for, there’s no guarantee of future bliss. One only has to look at the recent carriage battles between The Outdoor Channel, GSN, American Life Network and Time Warner Cable over the past month to see how perilous the landscape can be — even for established independent networks.

Outdoor, American Life and GSN are among several independent networks that have recently fought hard to maintain their current distribution within Time Warner systems, despite the MSO’s decision to move the services to an expanded tier or drop them outright in several markets to make room for new networks.

No. 2 U.S. operator Time Warner has said it is basing the moves on many factors, including cost, the network’s investment in new programming and ratings. The MSO is also shifting networks to make room for new, “potentially more popular networks” that are often affiliated with parent Time Warner Inc. or the operator itself.

For example, Time Warner Cable moved GSN to a less-penetrated tier in its Binghamton, N.Y., system in an effort to launch regional channel SportsNet New York, which Time Warner owns in conjunction with Comcast Corp. and Major League Baseball’s New York Mets.

In many instances, independent network executives say operators have the ability within their carriage agreements to move around or even drop the service when it desires, a luxury the MSO doesn’t enjoy with networks like ESPN or Discovery Channel, backed by leverage-wielding multimedia companies.

Outdoor and GSN, however, have been able to stave off a loss of subscribers in several Time Warner systems by appealing to its core audience through aggressive promotional ads and grass-roots marketing efforts.

“The only leverage we have is popularity,” said Outdoor Channel president and CEO Andrew Dale. “We’ve given them flexibility on carrying our channel because we don’t have [retransmission consent] and we don’t have the big clubs that the big conglomerates can use on Time Warner.”

FAN BASE NEEDED

Bob Reid, executive vice president and general manager of the upstart Africa Channel, added that to be a successful independent network in today’s environment, you have to effectively reach — and, when necessary, mobilize and motivate — your core viewers.

“We get on the system by going out to the local community, by talking to the churches and meeting people on the ground,” said Reid, whose network offers entertainment, news and sports programming from the continent.

“There are clauses in the agreement that say [operators] can take you off after a certain period of time, depending on how well you perform,” Reid said. “But because we’re going to help local cable systems drive their own businesses, rather than taking us off, the question might be 'Who do they want to take off to make room for us?’ ”

While independent channels face distribution hurdles in the cable arena, the telco video marketplace can provide carriage relief.

Executives say telephone-company video services, like Verizon Communications Inc.’s FiOS TV, have virtually no channel-capacity problems and therefore represent very attractive options for independent startups.

“The telcos have unlimited capacity, so they can take up a lot, and so most new networks are getting distribution on that side,” said Cathy Rasenberger, president of Rasenberger Media, a company that represents startup networks, including Universal Music’s Group’s music video-oriented network IMF: The International Music Feed. The network, which features music from around the world as well as the Universal domestic music video library, currently airs on EchoStar Communications Corp.’s Dish Network.

“That will shake up the traditional cable operators. If you have the right economic model that can survive, and even thrive, with limited revenue from license fees and ad revenue,” she added.

EDGE VS. TELCOS

Despite its desire to gain full cable distribution, Reid said the Africa Channel — which currently has “hunting license” agreements with Comcast and Cox Communications Inc. — will just as quickly give a competing telco the edge in key markets, if cable doesn’t step up to the plate.

“We’ll always give the local cable system the first go, but the reality is that we’re going to take the distribution method that can best help us drive our business and bring out content to consumers,” said Reid.

America Channel’s Gorshein say the telcos are more receptive to independent channels because they’re focused on providing a better value to consumers than operators.

“The telcos also don’t own channels. They don’t view independent channels as competitors, so the success that we’ve had in getting [telco deals] is not surprising,” said Gorshein, adding that America Channel has carriage deals with Verizon and AT&T Inc. “At the same time, 90% of the cable space is reserved for people who have been in the industry for 25 years.”

Nevertheless, Gorshein said few startups can totally hang their business plans on the success of that platform alone.

“We don’t think we can be viable in just the telco space,” Gorshein said. “The situation may be different five years from now, but we’re not going to be able to survive that period of time. We don’t have five years to wait.”

Africa Channel’s Reid — who spent nearly 20 years at Discovery Networks U.S. — believes the industry will see fewer independent linear networks debut over the next few years.

“I think you’ll see a declining number of networks launched in the traditional fashion — those networks that count on reaching 40 million to 50 million households to achieve success,” he said. “Instead, you’ll see more niche networks that will operate on smaller numbers and whose business plan is based on a different model.”

Those options include the Internet broadband and/or video on demand.

Women’s-targeted adult service 2 Hearts is pursuing the VOD path as it prepares to launch this fall. Network CEO Sandra Staggs said VOD, with its direct-to-the-consumer relationship, rather than traditional linear carriage, provides a better distribution platform for its service.

2 Hearts will feature “editor’s cut” versions of the Zalman King-produced and erotic-themed Red Shoe Diaries series that first aired on Showtime in the 1990s. The network will also air a new version of Red Shoe Diaries based out of Las Vegas.

“I know its much tougher being one channel rather than a group of networks, but because we’re offering something really unique that’s not out there, we’ll be judged on that merit,” Staggs said. “We’re delivering content that women want to see that’s not available from any female-targeted network on basic cable.”

Two years ago, gay-and-lesbian aimed network Here! TV’s decision to launch primarily as a VOD service was considered a bold move by many in the industry, who felt a new service could not survive financially without the advertising and affiliate-fee revenue that comes with basic tier carriage.

But Here! TV president and CEO Paul Colichman said operators are looking for innovative ways to increase revenue opportunities. Now in front of 50 million cable and satellite subscribers through various distribution platforms, including VOD, pay-per-view or, in some cases, as a linear service, Here! TV’s carriage flexibility may serve as the template for future independents.

“Going in to try to sell a cable system and satellite provider on another linear basic channel when that entire model is in question didn’t seem like the best way to base our company’s future on,” he said.

Indeed, executives say new networks have to offer operators a multi-platform play.

“It’s a tough environment for independents out there. We know capacity is beyond limited and will be until the cable systems switch to digital, so the key is to find networks that can develop multiplatform deals,” said IMF’s Rasenberger. “If you can find networks that can cross linear, VOD, mobile, broadband, you’ve got a winner.”

To that end, Nashville-based The Documentary Channel will offer operators a linear service with the ability to eventually branch out into VOD, video broadband and wireless platforms.

“I see documentaries as a unique venue that could fit into all these future forms of distribution that are clearly beginning to propagate,” said CEO Tom Neff. “I think the landscape in five years will be different that it is today, so I would not sing the death knell of linear TV just yet. It’s a big tree to fall and it could take a long time.”

But not everyone is convinced alternative distribution platforms are a financial panacea for independent networks.

One-year old World Championship Sports Network has survived as an Internet broadband service by charging subscribers a fee to access its nearly 1000 hours of Olympics-oriented tournament programming, mostly from international tournaments. But network CEO Claude Rubal said broadband is an interim step toward the network’s main goal of gaining cable carriage by the end of this year.

“Our expectation is that we will get [a linear service] up this year. We think we offer very valuable, high-quality content,” said Rubal, whose network charges subscription fees ranging from $19.95 for access to a specific tournament to $49.95 for a full access to a particular sport’s tournament season. “But we could survive for a while as a pure broadband play.”

Africast TV will also look to parlay its broadband subscription service, featuring live feeds of TV stations from more than 25 African nations, into a compilation pay-TV service, according to the network founder John Sarpong. The network will sell the combined online feeds, which cost $9.95 per channel via broadband — as well as a second channel, featuring movies from the continent — on a subscription basis.

“Never before has there been a U.S. multimedia entertainment and information network devoted solely to Africa,” said Sarpong. “We’re filling a void in the global Africa market by providing intelligent and appealing entertainment to a community that is aware of its heritage and hungry for quality programming.”

NICHE SELL

Ultimately, some executives say the success of any network — independent or otherwise — still comes down to the old-fashioned concepts of having product that appeals to a wide audience or fills a niche not served by other networks.

Neff believes the increasing popularity of non-fiction movies like March of the Penguins, Super Size Me and Fahrenheit 9/11 has created an audience for a 24-hour documentary-base service.

“Our strategy is simple: If you show great content that reaches a strong, grassroots audience, then people will want to carry us,” said Neff, whose network is currently distributed by EchoStar’s Dish Network. “It’s hard to muscle your way onto the scene.”

Russia Today TV’s news-based service aspires to better educate viewers about their homeland culture and roots.

“We realize the challenge of distributing our network, but we’ve had success in other parts of the world [and] we believe that a quality news service from Russia will grow to be a source of news and information about the country,” said RTTV marketing director Sergey Maksimov.

Southern Entertainment Television CEO Harold Brown says the company’s new The Blues Music Channel, featuring never-before-seen product from both vintage and contemporary genre artists, will hit the right chord with operators. Nevertheless, he says operators often ignore small independent networks that could help boost subscriber satisfaction in niche markets.

“Some of the cable operators make the major programming decisions don’t know who lives in their markets and therefore don’t know the best networks that will best serve those viewers,” said Brown.

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