When Nets Get Dropped, They Pull Out All Stops

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When Doug Herzog came to Comedy Central as president in 1995, he didn't know anything about affiliate relations. So he set up a lunch with then-MTV Networks affiliate-relations chief Mark Rosenthal for a crash course.

"I said to Mark, 'What are the three things I need to know about affiliate sales?' " recalled Herzog, now the president of USA Network. "One of the things Mark said was, 'Once they put you on, they'll never take you off.' In the summer of '95, that was still a truism. But it did not turn out to be that way."

Eighteen months later, the giant MSO Tele-Communications Inc. started to drop Comedy Central — owned by MTVN parent Viacom Inc. and Time Warner Inc. (now AOL Time Warner Inc.) — in markets across the U.S., slashing nearly 2 million subscribers from its ranks.

Throughout a period that stretched from the fall of 1996 to 1997, TCI also dropped other networks from scattered systems, including VH1 and Lifetime Television. The cable operator was freeing up bandwidth for its new digital tiers, as well as for networks in which it or its Liberty Media Corp. unit held a stake, or for those it had deals with — such as the Fox News Channel.

Several of the programmers on TCI's hit list mounted aggressive public campaigns to either stop the drops or get reinstated. Rock singers performed on behalf of VH1 at public protests. And women's groups and politicians, such as then-U.S. Sen. Bill Bradley (D-N.J.), rallied to Lifetime's defense.

The programmer also ran ads which said, "Don't let TCI pull the plug on Lifetime, the only television network for women."

Not going quietly

The history of network drops is a chronicle of some very contentious public battles. And in that respect, network deletions are no different today than they were in the mid- to late 1990s.
Platitudes about programmer-MSO partnerships can quickly fall by the wayside in such squabbles, as services fight to be reinstated.

"They're [programmers] your best friend yesterday, and today they're your worst enemy," said Frank Hughes, senior vice president of programming for the National Cable Television Cooperative, which represents small cable operators. "That's the game you play."

Rosenthal said he doesn't recall the exact specifics of his lunch with Herzog seven years ago. But back then, he said, he thought it was difficult — though not impossible — for a network to get dropped.

Either way, for years programmers generally have enjoyed a sense of incumbency, with the feeling that once they were on a cable system's lineup, they were permanently safe and secure — despite scattered switch-outs here and there, like TCI's drops in the 1990s.

Historically, programmers who've been dropped haven't taken it lying down, especially from larger systems. Cable networks play hardball, using a variety of tactics — running newspaper ads, rallying special-interest groups or filing lawsuits — to get back on a distributor's lineup.

In 1998, when MediaOne Group Inc.'s New England division dropped Court TV, the programmer lobbied for and won the support of the entire Massachusetts congressional delegation, including Democratic U.S. Sen. Ted Kennedy.

"From the programmer side, a drop is the kiss of death, and you do anything to prevent it," said consultant John Burns, the former president of distribution of Fox Family Channel. "There is nothing more important than maintaining your base, because you want everybody to think that your product fills a very important customer niche, whether you're sports or females or family."

Voiding 'incumbency'

For cable operators, the stakes are now high as well. Officials at MSOs, under intense pressure to maintain their margins, now argue that networks should no longer assume "incumbency."

They say programmers should no longer be essentially guaranteed an analog slot in perpetuity, as if they "homesteaded" that bandwidth, as the NCTC's Hughes put it.

Today, it's become a Darwinian environment, and networks that aren't performing well enough to justify their license fee should be pushed off analog — to digital, tiers, or removed from entirely, according to cable operators.

But MSOs that opt to drop a network must face the consequences.

They include: complaints from angry subscribers, which MTVN claims is what's driven reinstatements for its channels; negative publicity; and aggressive campaigns from displaced programmers, who have even teamed up with direct-broadcast satellite providers to hawk dishes to cable subscribers.

"When somebody takes Cream of Wheat off the store shelf at the grocery store, you don't find the company coming in and running those sorts of campaigns," one MSO executive lamented.

A case in point is Cablevision Systems Corp.'s switchout this month of TV Guide Channel, owned by Gemstar-TV Guide International Inc., in 1 million homes. In response, the network is running a crawl with a phone number that switches subscribers to the MSO's local office, "so you can let Cablevision know you want to keep TV Guide Channel."

The courts are often called in to intervene when a network is deleted. The Walt Disney Co. sued EchoStar Communications Corp. at the end of last year, when the DBS provider dropped ESPN Classic and was about to pull ABC Family from its channel lineup.

"One of the things that goes into the thinking at the MSO level [when considering dropping a network] is not just what is the worthiness of the channel, necessarily, but the ability of the channel to retaliate," said the affiliate-sales chief for one programmer. "A network has to really dig in and fight. And the bigger they are, the more they'll be able to bring to the market.

"VH1 was able to get all these musicians and radio stations to rally around their cause [when TCI dropped it in the mid-1990s]."

Added a second affiliate-sales official, "Obviously, it's always a little riskier to drop someone who can have John Mellencamp show up in Denver and do an 'I want my VH1' campaign."

Comedy's campaign

Unlike VH1 in the 1990s, Comedy Central didn't have much recourse when TCI dropped the network, according to Herzog. The network's president and his fellow executives were "just devastated" when TCI deleted it, he said.

"We were being taken advantage of because even though we were owned by two large corporations, neither was going to fall on the sword for us," Herzog said. "We were afraid to get the press going too much, for fear of retribution. Our parents had their hands kind of tied. They had their own problems — VH1 was dropped at the same time.

"At that time Comedy Central was not what it is today," he added. "People were not going to be marching outside of their cable company for it."

Things quickly changed in the late summer of 1997,
when Comedy Central debuted a crude animated show called South Park,
created by two young Colorado men, Matt Stone and Trey Parker. The show was a huge hit, and TCI subscribers became angry that they couldn't see it because the operator wouldn't carry Comedy Central — particularly in Colorado.

"The Denver area, all on its own — by way of local radio, local press and television — became so outraged that they didn't have Comedy Central, that we didn't have to do a thing except sit back and wait for the phone to ring," Herzog said.

"And let me tell you something. TCI could not add us fast enough. Radio was unmerciful; the rock DJs. The public pressure was unbearable."

By mid-1998, Comedy Central had gained back its 2 million TCI homes.

Loyalty dividends

The fact that Comedy Central and VH1 were reinstated by TCI — "It's all back and it was back very quickly" — was ultimately a testament to the networks' brands, and consumers' connection to them, said Nicole Browning, MTVN president of affiliate sales and marketing.

"There was a ton of consumer reaction [to VH1's drop], and that's what really motivated the John Cougar Mellencamp concert," Browning said. "And I think there were some other musicians at other locations.

"There are real must-carry brands in our portfolio. … You don't get away with this [dropping them] very easily at all on the system level."

MTV: Music Television and Nickelodeon also inspire special loyalty from subscribers, according to Browning.

"The response when MTV gets dropped is unbelievable," she said. "There's a lot of heat a cable system has to take. That's why we are so driven in building brands.

"We understand that when you have that connection with an audience, you have a lot of security in terms of carriage. … Take ESPN. Operators don't feel they can get away with dropping ESPN because it's got a real, strong vocal audience."

Court TV didn't have much of an audience when MediaOne deleted it from systems with roughly 1 million subscribers in 1998.

At the time, the struggling network was averaging a 0.1 rating, but was just starting to turn around under new CEO Henry Schleiff. Court TV sprang into action when it learned MediaOne was pulling the plug.

"You lose a chunk of subs like that, you've got to fight," said Bob Rose, Court TV's executive vice president of affiliate relations. "You have to."

Although MediaOne had legitimate complaints about Court TV's low ratings, according to Rose, the MSO underestimated the network's public-service value. It ran trial coverage, which made it unique, Rose said. Thus, subscribers complained when they lost it.

Court TV also actively marshaled its own forces, sources familiar with the situation recalled. Not only did MediaOne CEO Chuck Lillis get a letter from the Massachusetts congressional delegation on behalf of the network, but Court TV anchor Rikki Klieman rallied her lawyer colleagues from Boston.

MediaOne wound up reinstating Court TV in the summer of 1999.

The most newsworthy drops of the past year — moves that have garnered national attention — have involved services owned by Disney.

EchoStar cited ESPN's annual double-digit rate increased when it dumped ESPN Classic.

A year ago, Charter Communications Inc. deleted ESPNews in systems with roughly 235,000 subscribers. That squabble was ostensibly over the programmer's decision to offer streaming video from the sports-news network.

The backdrop for the dispute, though, was then-Charter CEO Jerald Kent's very vocal displeasure with skyrocketing sports-programming costs — and particularly with the price of ESPN. ESPNews was never put back on Charter's systems.

Sean Bratches, ESPN's executive vice president of affiliate sales and marketing, doesn't see the ESPN Classic and ESPNews drops as representing any kind of a trend.

"At that point in time, we were involved in much broader negotiations with those customers," Bratches said. "There's a number of elements to negotiations.

"As we stand today, we've got great relationships with both EchoStar and Charter, and we've moved forward."

Charter declined to comment. But Browning believes that ultimately, confrontations involving network deletions hurt both distributors and programmers.

"Maybe I'm naïve, but I really do feel that at the end of the day, the smart operators are the ones that are not going to want to get into the war territory," Browning said. "They are going to try to find ways to bring value to the programmers and for the programmers to bring value to them, and make it a win-win situation. Otherwise, you get into these drop wars and no one wins."

Indies vulnerable

Cable-industry veterans believe that independent networks that don't have substantial backing from media giants — like Hallmark Channel or Oxygen — will be particularly vulnerable to drops in the coming years, since they have little leverage with distributors.

Several years ago, before Odyssey Network was relaunched as Hallmark, it was taken off a number of systems, including Time Warner Cable in New York City. It has since been reinstated in many of those markets; Time Warner now offers it on digital in the Big Apple.

Hallmark boasts that it has gained nearly 8 million subscribers in the past 12 months. But this summer, sources said Hallmark was looking for a strategic partner, preferably a media company with the clout to continue to drive its distribution.

Networks that have totally changed their programming mission deserve a good, close look when their contracts come up for renewal, Hughes said. For example, TNN offered country music as The Nashville Network. Now, under Viacom, it's doing pop culture as The National Network.

"Networks that are going through big transitions, or that have really low ratings, they're vulnerable [to drops]," one cable-network president said. "It's hard. It used to be that once you were on, you were on. I don't think there's that guarantee today."

A veteran affiliate-sales official said, "The little guys will suffer, the small independents, the wanna-bes and startups that aren't aligned with a big media company."

Browning maintains that even MTVN has to constantly demonstrate to MSOs that its services are worthy of continued carriage. She argued that the license fees for Nick, the No. 1-rated network for total day, are not as high as those for ESPN or Disney Channel.

"Everybody has to approach these relationships with suppliers and distributors with a sense that there is equal vulnerability, otherwise you wouldn't get anywhere," Browning said. "At the end of the day, we want to be carried, and they want us to be carried."

Backs to wall

Nonetheless Ben Hooks, CEO of Buford Media Group LLC, is a small cable operator who predicts there will be more network drops down the line, because rising programming costs are so out of line that tiny MSOs don't have any choice.

"I'm not saying operators will be more willing to drop networks — I'm saying they're going to be forced to," Hooks said. "Customers want to get all the programming they can, so it's not a favored position to take something away. But it's that versus survival."

Several years ago, Hooks noted, Buford switched out one music channel for a cheaper one, replacing CMT: Country Music Television with Great American Country to save money.

"But what do you switch ESPN out for?" he asked.

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