The Distribution Race

Mike Reynolds

With analog apertures remaining relatively few and far between, the race for distribution between extant channels and newcomers for positions on basic or expanded basic tiers continues to intensify.

"It's like sharks smelling blood. When the programmers hear that some analog space may become available, they're all over you," said one veteran MSO programming executive. "Clearly, we're in a position to extract some very favorable terms."

Those include cash incentives ranging from $2-$9 per subscriber, attractive launch support programs, discounts on existing services, free carriage and/or nominal license fees.

This tough environment has claimed its share of network casualties or delayed debuts. Failing to obtain adequate carriage in the Washington D.C. DMA has quieted the plans of Freedom Forum and WETA-TV to launch regional public affairs aspirant, Forum Network.

Moreover, WETA's other proposed cable entry, Fanfare, has been delayed until the second quarter. Touted at last year's Western Show, the classical music proponent, slated to sound off for the first time this Thanksgiving, is still seeking digital carriage.

The art of the deal Even services carrying more clout and fanfare are finding the distribution air somewhat heavy, forcing them to veer from traditional approaches to securing carriage. Hailed as a legitimate threat to Lifetime Television's distaff dominance, Oxygen Media has scored deals with AT&T Broadband & Internet Services, MediaOne Group, Insight Communications Co. Inc. and Charter Communications Inc. The Gerry Laybourne-led network will bow Feb. 2 in some 8-10 million homes, according to a spokeswoman. However, the Charter carriage commitment emanates from the equity position it now holds in Oxygen.

Similarly, Discovery Communications has been offering MSOs stakes in its fledgling Discovery Health Network, which premiered in August, as a penetration prescription.

"We have been offering some equity positions to MSOs and some free carriage arrangements; we've been creative," said Bill Goodwyn, DCI's SVP-affiliate sales and marketing. He noted that with several deals nearing completion at press time, Discovery Health was well on its way to meeting its goal of being in 10-15 million homes by year's-end. DCI recently took a major step in that direction when Discovery Health assumed Discovery People's slot on DirecTV.

Along those lines, Goodwyn notes that DCI will push Discovery People and BBC America as digital networks, while continuing to seek analog gains for Animal Planet, Travel Channel and TLC. "We don't want to give discounts on our core networks. Our plan continues to be for each network to stand on its own merit and not to link to something else,' said Goodwyn. "In this environment, especially with consolidation, we have to be flexible in terms of working with operators as to how they want to build their businesses and balance that with our company's goals."

Despite constrained capacity, these and other services carrying the right combination of cash, incentives, content and/or other amenities have been able to open doors.

Lana Corbi, COO-Odyssey Channel, said the revamped network, which has inked deals with AT&T BIS, NCTC and Time Warner since last December, is in the process of negotiating new corporate contracts with the other major MSOs, "so we can get out to the systems, the regional and local levels." Corbi said Odyssey currently has commitments to boost its sub base to 36 million from 29 million.

In addition to offering "modest launch" incentives, Corbi said Odyssey has been able to "connect with operators because the 18-54 family demo is underserved, we have programming and programs that have value in the local community and are offering increasingly valuable local advertising inventory. No operator is going to give up analog space for the long term just to gain a short-term financial benefit," she said.

The value of reaching its highly affluent viewer base has also lifted Bravo's position. Greg Hill, EVP-affiliate sales and marketing, said that the network added 12 million analog subs in 1999, surpassing the 50 million plateau in the process. Programming improvements aside, Hill pointed to Bravo's recent movement into the commercial world as a key driving force behind the growth. "Advertisers want to reach our prized audience. We've added 14 million insertable homes since we started the initiative in June," he said. "We're expecting great things in 2000 as well."

Digital jockeying While analog spots are tough to come by, the land rush to plant flags in the digital realm has not been so easy either. Complicating matters has been the digital tack taken by some operators.

"A lot of digital is being used for additional PPV channels and mutiplexing of premium services, or for high-speed Internet access or telephony," said Sandra Kresch, a partner at Pricewater-houseCoopers Entertainment & Media Practice, explaining that many operators are using digital to stimulate cash flow in the short term. "This kind of deployment will bring a more immediate return than the addition of basic digital tiers."

For its part, Cox Communications Inc. said it has been pleased with its digital investments thus far, as it offers services to select areas in a dozen markets, including recent additions in Roanoke, Va., and Macon, Ga. Lynne Elander, director-product development, reported penetration levels of 4.5% overall, a ratio that is significantly higher in markets where the service has a bit of history.

"We're getting a good return, double-digit rates, in the markets where the packages have been available for 18 months," she said. Cox proffers PPV services amounting to what Elander calls "near video on demand; we have more movies than anything else out there." Additionally, Cox supplies an on-screen guide, plus three other levels: a premium-plex, a sports/info tier of services and variety suite of "digi-nets." All told, Cox digital customers buying the whole package, receive over 200 video/audio services for some $65 monthly. "We're delivering on our choice promise," said Elander.

Ironically, the digital doings have paid some reverse dividends for Court TV. "We've seen several cases where slots have become available because channels are migrating to digital," said EVP-affiliate sales Bob Rose, noting that the legal network's goal is to reach the 50 million subscriber mark in 2000.

With some 2.5 million additions expected from a variety of MSO systems during November, December and into the first quarter of the New Year, Court is closing in on the 40 million subscriber plateau. "We're being very aggressive and with ratings that continue to rise, we have a good story to tell. Our focus is on analog, analog, analog," stated Rose.

Conversely, the gaze of executives flagging Fox Family Channel's fledgling Boyz and Girlz channels is principally on the digital side of the spectrum. The single-gender nets debuted in late October sans distribution. However, Fox Family has since struck a deal with the National Cable Television Cooperative, signed a letter of intent with Telesynergy, and continues to home in on contracts with AT&T and DirecTV.

Creating value "We could have had carriage if were willing to do the kind of deals where the services were offered free for a couple of years and then had very limited license fees," said Fox Family president Rich Cronin, "In the long run, we felt it was important to get license fees, so we can continue to invest in the programming."

"Our strategy is to provide real value for viewers and operators. The channels have launched with over 35% original programming, and 85% exclusive content. That will help operators sell boxes, not repurposed programming," added Tracey Lawrence, SVP-affiliate sales at Fox Family. "We're still shooting to be in front of 1 million households in the second quarter."

That's a sound approach, according to Pricewaterhouse's Kresch, who noted that to the depth consumers perceive new digital channels to merely be "repurposed editions" of existing channels, digital cable may become "devalued in the minds of customers."

Not content to rely solely on AT&T Headend in the Sky (HITS) digital platform as a distribution vehicle, networks are banding together to offer their own pods of digitally compressed services.

The first "independent" transponder, the so-called "A&E pod," is already in the air and features compressed slots for A&E's History Channel International, the Biography Channel, DIY, ZDTV, Independent Film Channel, Lifetime Movie Network and MuchMusic USA. Additionally, a slot is reserved for CNBC2 when it launches.

Meanwhile, at press time, Lawrence said that Fox Family was continuing to negotiate with other networks for "a cooperative pod" that would offer an array of services cutting across "various genres. This will allow us to be available to other operators not involved with HITS," she averred.

Elsewhere, E! is reportedly looking to add Romance Classics, Country Music Television, SoapNet, ESPNEWS, ESPN Classic and Toon Disney, among others, to its satellite housing its spinoff Style network.

Speaking of Toon Disney, the animated network that was launched with digital positioning in mind, has also been successful in picking up analog coverage, recently gaining on Cox systems reaching 340,000 households in the Las Vegas market. At press time, Toon Disney was in 15 million cable and satellite homes.

Another kids newcomer, Noggin, the joint venture between Nickelodeon and Children's Television Workshop, recently inked a pact with AT&T to become part of a digital basic package (the contract includes the 24-hour educational network with MTV Networks' Digital Suite that is available through HITS). As such, the channel, which bowed in February, will finish 1999 in some 4.2 million cable and satellite homes.

Relative to satellite, which has largely been a safe haven for new networks, that delivery system's availability could tighten considerably in the wake of legislation that would require carriage of local broadcast affiliates' signals.

"Must carry for digital is a great unknown for cable and satellite providers. Channel capacity may have to go to local broadcasters and their multiplexes," said Kresch. "There may be a lot of pent-up demand for new programming services because there hasn't been that much room on analog. Now, digital could get taken up pretty quickly as well."'