Rainbow brightens its stripes
Channels like Bravo rarely push the envelope; under Sapan, though, there's a more ambitious agenda—and NBC may want Bravo
By Alison Romano -- Broadcasting & Cable, 10/6/2002 8:00:00 PM
For years, the cornerstone show on Bravo has been Inside the Actor's Studio, an hour-long, endlessly fawning interview of some major movie stars. It costs the network around $125,000 an episode. And for years, that was pretty much at the high end of Bravo's programming budget.
That will change. Next fall, Bravo takes a huge financial plunge, debuting off-net episodes of one of NBC's signature series, The West Wing. Bravo is paying a hair-raising $1.2 million per episode. That's at least $105 million for four seasons' worth of episodes, a record price for an hour drama at the time the deal was cut.
That bet isn't limited to Bravo, but a reflection of a philosophical transformation at the network's parent, Rainbow Media. For years, Rainbow networks' approach has been get it cheap, be it old movies for its American Movie Classics or more recent—but not too expensively recent—artsy product for IFC (previously, the Independent Film Channel). Forget advertising and rely on cable operators to pay above-average license fees.
No more. Bravo, which went ad-supported two years ago, is further along than the others. AMC, long a commercial-free haven for movie junkies, moved to a full commercial load last Monday and is playing up newer movies and original programming. And WE: Women's Entertainment, still shaking off its Romance Classics past, is sprinkling in some off-network acquired fare, trying to grab a piece of the Lifetime-dominated women's niche. Rainbow networks are flashing the big acquisition dollars usually thrown around by the USA Network and Turner's TNT and TBS.
"The goal is to keep the brand identity and reach the demographic of appeal but have more of them watch," said Rainbow CEO Josh Sapan.
But Sapan may not get the chance to see if the strategy works. Rainbow's owner, Cablevision Systems, is in financial trouble and is getting offers to buy parts of the network operation. NBC, already a minority owner of Rainbow and covetous of a cable entertainment outlet, wants to buy Bravo, and Wall Street executives say the studio MGM is sniffing around as well.
Bravo's artsy, low-cost original programming and acquired films certainly deliver the upscale viewers that advertisers covet. But the net has never delivered very many of them and, to grow ratings and ad revenue, needs the muscle of tested, brand-name shows.
"They can't survive on their narrow targets," said veteran media buyer Howard Nass, principal of HN Media. With West Wing, "Bravo will be open to three times the advertisers."
The logic is simple. Without advertising, Rainbow's networks needed to increase license fees or add subscribers to grow. The networks started out as "mini-pays," sold to consumers like Home Box Office but cheaper, $4 or so monthly. Now they're all sold as channels for basic cable, seeking 20-40 cents a month from cable operators. Cable operators fiercely fight paying any more per subscriber than they have to, especially for weak programming. Further, cable subscriber growth has stalled, and even DBS services are starting to slow. In the long run, if Rainbow is to generate much financial growth, its networks need to start generating ad revenue.
A big cloud over the strategy is Cablevision's financial woes. After separating Rainbow as a separate "tracking-stock" company two years ago, overleveraged and cash-starved Cablevision reeled the programming unit back in, paying Rainbow shareholders just $800 million in Cablevision stock.
The main goal is to use Rainbow's $187 million cash reserves immediately. Initially, speculation swirled that Cablevision would sell all—or at least pieces—of Rainbow, which includes MuchMusic USA and five Fox Sports regional nets. Analysts say it is more likely that Cablevision will borrow against debt-free Rainbow's balance sheet to ease its own liquidity crisis.
Then there's NBC. It has approached Cablevision Chairman Chuck Dolan about buying Bravo, offering $1 billion, or $16 per subscriber. Industry executives say Dolan wants twice that. MGM, also a part owner in AMC and Bravo, is expressing interest, too, but is not likely to cough up $2 billion.
"Chuck needs some problems solved," said one media investment banker who works with Cablevision. "This would solve all his problems."
Dolan has said publicly that he'd consider selling all of his cable systems, though many of his peers believe he's more interested in talking his stock price up than selling into a down market.
At the very least, Hollywood executives said, Cablevision's crisis and the Rainbow buy-in have the networks closing their acquisition wallets.
Sapan wouldn't talk about the deal discussions: "We're marching ahead." He added that Cablevision isn't holding back Rainbow. "The stock intake has no effect whatsoever on our programming plans."
AMC is Rainbow's most financially sound network, projected to generate $246 million in revenue this year, according to Morgan Stanley estimates. Bravo will produce $150.6 million, and WE and IFC will generate about $52 million each. Because Bravo offers advertisers hard-to-reach upscale viewers, it has weathered the advertising downturn, posting single-digit CPM increases in the latest upfront.
Rainbow received a sizable cash infusion in April when MGM invested $825 million for a 20% stake in AMC, Bravo, IFC and WE. Some of it went to pay down debts, the rest into network coffers. The MGM cash, ad revenue and license fees are fueling new programming and acquisitions.
Bravo a player
Bravo raised industry eyebrows last year when it purchased cable rights to West Wing. Beginning next fall, it will strip the first four seasons in prime and take future deliveries of new seasons.
"The West Wing was an impressive buy," said Tim Spengler, executive vice president, director of national broadcast, Initiative Media North America. "Bravo bought a brand-name show, and that lends credibility."
It could be a risky purchase: Serialized dramas, like ER, don't repeat as well on cable as close-ended episodes like Law & Order.
"The West Wing is very topical. Will viewers want to see a 9/11 story or a Middle East plot three or four years from now?" wondered Tom DeCabia, EVP of media buyer AdvanswersNY.
Even modest ratings should perk up Bravo's prime time marks, which hover around 0.4, according to Nielsen Media Research. The channel wants its acquired fare to guide more viewers to its originals like upcoming Page to Screen, which analyzes books made into movies, and a show on Chicago's famed comedy house, Second City Presents. Early next year, reality series The IT Factor, following struggling actors trying to make it in Los Angeles, returns for a second season.
Bravo's strategy starts to take form this week when reruns of HBO's off-beat comedy The Larry Sanders Show join the prime time schedule. Bravo plunked down $200,000 per episode for its first basic-cable run.
This year, Bravo is spending $50.5 million on programming, according to Kagan World Media estimates, a 7% increase from 2001. But it isn't shopping for just any acquired product. Sapan wants shows that contribute to Bravo's "smart TV" brand.
Apparently, not many shows fit the bill. Of the last 10 or 15 big network shows being sold to cable, Sapan says he bid only on The West Wing.
AMC opens up
Rainbow doesn't want this to be your parents' American Movie Classics any longer. The network, known simply as AMC now, is putting finishing touches on a year-long evolution, gradually introducing ads and trading older films for newer flicks. It's not just about movies, it's about the movie experience, network execs explain, pointing to a new tagline "TV for movie people."
It's also about business. AMC now accepts 10 minutes of advertising per hour (that's still a few minutes less than other ad-supported cable channels). Many of the black-and-whites are back in the vault, replaced by movies from the '70s, '80s and even the '90s.
Moving to an ad-supported model and freshening programming may chase off some disgruntled old viewers, but many industry execs admire the moves as smart business. "They need to be relevant to younger consumers," notes Laura Caraccioli, VP of Starcomm Entertainment.
AMC's median age in prime for the 2001-02 TV season was a creaky 53.5, according to Magna Global's analysis of Nielsen data. The goal is to dip down to the 35- to 45-year-old range, said network chief Noreen O'Loughlin. "We want to expand our audience," she said. "That drives us to more-contemporary product." Indeed, many young viewers consider The Breakfast Club a classic.
Media buyers and research execs say they'll be watching AMC's ratings closely to see if its Nielsen marks slip because of fleeing viewers. Said Initiative Media's Spengler, "They have to be careful not to water down the brand in search of the Holy Grail advertising dollars."
AMC always seemed like an untapped resource. It's fully distributed, in 82.7 million homes, and collects Nielsen ratings that range from a 0.7 to a 0.9.
More-recent movies are more expensive, but AMC's $82.5 million programming budget, according to Kagan, and new ad revenue should support pricier buys.
"If they generate a second source of revenue, we'd look for a commensurate payment in our license fee," said Jerry McKenna, vice president of strategic marketing for MSO Cable One.
WE aims to grow
Of Rainbow's national outlets, WE is the least established. As the second incarnation of old-skewing Romance Classics, "We still have a bit of a hangover," admits EVP/GM Marty Von Ruden. WE's median age hovers around 55 in prime time.
That doesn't jibe with the median ages for WE's first newly acquired shows: college drama Felicity and relationship sitcom Two Guys and a Girl. Both shows boasted median viewers around 30 years old during their broadcast plays. WE is hoping these series, plus movies and original lifestyle programs, can entice younger viewers and attract more ad dollars.
To get there, WE is using the Bravo blueprint: Build a niche following, support it with ad revenue and expand programming offerings. WE is spending $43.9 million on programming this year, according to Kagan estimates.
In the crowded women's space, WE's positioning is particularly important. Lifetime is the women's cable juggernaut, and Oxygen takes aim with smart, often instructional programming. WE is trying to be a more whimsical entertainment outlet. "Television for women who want a time-out," explains Sapan.
Two new originals embody the approach: Animated Committed, which plays on life's challenges for working moms, bows Oct. 7, and game show Spend It Fast kicked off Sept. 30.
WE purchased its first two off-nets at bargain-basement prices, paying $175,000 per episode for Felicity and $75,000 for Two Guys and a Girl. The series, which debuted last week, air in fringe, setting up movies in prime time. "These shows will help market the network and make it look contemporary," said Von Ruden.
Advertisers are just beginning to look at WE. Its ratings are slight, averaging a 0.3 in prime time. Still, the audience is larger than Oxygen's, said to be a 0.1 (Oxygen doesn't publish ratings yet). Rainbow took WE into the upfront market for the first time this year and signed up 51 advertisers. "Women dominate TV viewing," said AdvanswersNY's DeCabia. "There is room for another outlet."
To attract more ad dollars, WE needs to bulk up its distribution, which stands at 47 million. Its biggest hold is on Comcast, but it is still wrangling for basic carriage on other MSOs.
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