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Davatzes Works To Bring A&E Back to Where It Once Belonged

6/08/2003 08:00:00 PM Eastern

Last fall, with A&E mired in a two-year slide, A&E Television Networks President and CEO Nick Davatzes brought his board of directors an unusual proposition for resuscitating his prized asset: Parachute in the History Channel's general manager to shore up A&E and turn the healthy History Channel over to the former A&E chief.

A&E's Prime Time Slide
Quarter HH Rating
Source: Nielsen Media Research
1Q '00 1.5
2Q '00 1.3
3Q '00 1.5
4Q '00 1.3
1Q '01 1.2
2Q '01 1.2
3Q '01 1.2
4Q '01 1.1
1Q '02 1.1
2Q '02 1.1
3Q '02 1.1
4Q '02 0.9
1Q '03 1.0

It was an unorthodox proposition, but Davatzes, who over 20 years has built AETN from a single U.S. network into an international empire of networks in 70 countries, has built home video and even a magazine to the point that ancillary income constitutes 7% of AETN's total business.

Along the way, he has earned considerable latitude from a diverse board that includes representatives of Hearst, Disney and NBC, all of which own a piece of AETN.

Redefining A&E

The job swap he proposed was part of the big plan. Earlier last July, he had dismissed A&E programming chief Allen Sabinson and canceled high-brow but thinly viewed original dramas Nero Wolfe
and 100 Centre Street. A&E rejiggered its schedule and tried to lean on its fading Biography
series. But none of that made much difference.

"We needed to take another view of programming within A&E Networks," Davatzes recalls. While sister net the History Channel had a clear focus, A&E's definition was murky. "What some people have wanted is for A&E to be a single-genre network, but A&E is not a single genre."

He wanted the network to be arts and
entertainment again. And he wanted Abbe Raven, a veteran AETN programmer heading the History Channel, to run the show. "The vision [for A&E]," Davatzes explains, "is focusing on a better-educated audience that is looking for the art of entertainment."

But, as one former AETN executive notes, "money has not been the issue at A&E. Lack of vision has." In recent years, A&E programming budget has increased about 10% each year, according to Kagan, putting the 2003 budget around $225 million.

Long considered one of the cable elite, A&E has seen its ratings suffer since 2000. The audience is older (median age is 56 in prime) and skews female. The upscale viewers that A&E once sold to advertisers have become increasingly scarce. Repurposing ABC's gabfest The View
was considered a low point. A&E and The History Channel reach more than 80 million homes each, but History, once the startup network, attracted, on average, only 300,000 fewer prime time viewers in May than the much more established A&E.

"They lost their direction, and the brand has suffered," a major media buyer said of A&E. "The industry doesn't know if they are upscale or more broad-based."

Raven, who took over in late October, wants to revitalize A&E by focusing on dramas, documentaries and Biography, with an aim to make each a little more contemporary. She chooses the word "contemporary" carefully. It means younger but not too young, current rather than hip—like Biography
episodes ahead that chronicle the lives of Condoleezza Rice and George Clooney. The idea is to broaden A&E's audience without shocking existing viewers.

Top priority: The viewer

Raven eschews spinoffs—short-lived TV-Ography
told stories behind TV shows—preferring two-hour Sunday-night Biography
specials to showcase more in-depth stories. So far this year, Biography ratings are up 10% from last year, to a 1.1 average.

"My first priority is the viewer," she says. "Quality programming delivers quality viewers."

Davatzes says he understands where things went wrong at A&E: A cable network is only as good as its programming, and A&E went slack.

He likens the television business to any advertising campaign. "If you don't have a good product, you have nothing. You can bring people to the store, but you can't make them buy."

Losing Law & Order
was a big blunder and illustrates his point. In 2001, A&E scoffed at paying a hefty new license fee for the show (about $800,000 per episode for recent seasons compared with A&E's old $150,000 per episode), and TNT scooped it up. A&E has sorely missed Law & Order's
solid ratings and promotional platform. It hastily bought up offnet runs of Third Watch
and Crossing Jordan, but, where Law & Order
could regularly pop a 2.0 household rating, the two new dramas rarely score above a 1.0. Old repeats of Murder, She Wrote
routinely nab higher ratings than either of those shows.

Davatzes is confident that A&E is buying the right product now. The net will pony up $1 million per episode to strip CSI: Miami
in prime come 2006. (It also will begin repurposing the early seasons this fall). And, like Law & Order's
popular format of closed-ended storylines, each episode of A&E's new upcoming original drama MI-5,
which bows July 22,
will feature a single story. And A&E has made a deal to acquire artsy Miramax titles. Upcoming documentaries include In Harm's Way, the story of four female war correspondents, from filmmaker Barbara Kopple.

This week, Davatzes, along with BET President Debra Lee, will receive NCTA's Vanguard award for industry leadership at the National Show in Chicago.

The plaudit comes, in part, because his networks don't enjoy many of the advantages as their wholly owned cousins. Disney's ABC Family, for example, gets a boost from ESPN's leverage with MSOs. NBC can repurpose shows on Bravo and use retransmission consent to build out Bravo's distribution. Privately owned Hearst is best-known for its newspaper and TV-station business, although it also owns half of Lifetime and a stake in ESPN with Disney. AETN is rarely brought into cross-platform advertising deals.

Hearst and ABC each control 37.5% of the company, and NBC has the remaining 25% stake.

Still, A&E generated an estimated $226 million in profits in 2002, and History added another $95.2 million, according to Kagan World Media. Those results earn Davatzes the room to run his company. He has been leading A&E since its 1984 launch, after the former Arts network merged with the pay Entertainment channel.

Hearst Entertainment President Ray Joslin, a long-time board member and the chairman, says Davatzes leads AETN by providing "consistency sprinkled with new people, new ideas, new programming." The GM swap, he added, was the right move for the company.

ABC Cable Networks President Anne Sweeney, who represents Disney on the board, said, "Nick made changes to address downturn. He was frank about what needed to be done."

AETN is becoming something of an island in the cable industry as other joint ventures are being dissolved. Viacom eagerly bought out AOL Time Warner's stake in Comedy Central. Court TV, owned by AOL and Liberty Media, will likely belong to just one company in the near future.

"In a world with fragmented audiences, you need to find the best ways to maximize cost controls and reduce overhead," said media analyst Tom Wolzien of Sanford Bernstein. "It doesn't make sense to have standalone cable entities."

NBC, which acquired Bravo from Cablevision and MGM for $1.25 billion last December, may be interested in expanding its cable holdings, and Chairman Bob Wright takes an active role in AETN.

Disney could be the most likely to sell out, some analysts say, as it looks to free cash from non-core assets. But ABC's Sweeney says Disney is content with its stake in a "widely distributed, successful, profitable networks group."

Whoever the corporate parents are, Davatzes insists, they're likely to be satisfied with AETN's results. In 20 years, he says, AETN has missed profit goals only one time: in 2001, a tough year for most networks. And he doesn't feel neglected. "We have always been given the resources we've asked for to grow the business."

Executive shuffle

When Raven took over in October, A&E's former GM Dan Davids, a long-time AETN executive with a sales background, moved over to History. Each brought some top executives with them. Davids' move to History perplexed some industry observers, given A&E's struggles under his watch. But Davatzes is known to be fiercely loyal to his long-time staffers. Raven and Davids have been at the company virtually since the beginning.

Another AETN vet, Executive Vice President Whitney Goit, who oversees ad sales, says having such veteran executives carries valuable sway with affiliates and advertisers. "We're survivors. Having this kind of grit and depth is important."

Making progress

But some observers say the veteran leadership holds back change. "The people at the top wield too much decision-making power," says a former staffer.

It's a contention the current leadership vehemently disputes. Raven says she was given complete freedom to retool A&E and points to her new staff, which includes former TNT programmer Bob DeBitetto heading original programming, and fresh programming slate.
So far, A&E is making slight progress. Viewership in May was up 16% compared with the fourth quarter last year, when Raven took over. May's rating, a 1.1 average in prime, were flat compared with last year but was the highest since January. The third quarter—when new programming, which includes four non-scripted prime time shows and a weekend lifestyle block, arrives—will be a true test.

"They have some good product on the air now and will have more going forward," said media buyer Tom DeCabia, executive vice president of PHD. "A lot of advertisers could buy them."

But others on the buy side want to see changes play out on-screen first. "They are trying to fix a network that is broken in every single daypart," said Kathryn Thomas, associate director of Starcom Entertainment Media. "They are working hard to do something in prime time, but weekends and daytime are a wasteland."

The skepticism frustrates Davatzes. "We have done what we say we're going to do. Like everyone else, you go through a period where there is some lull in creative juices."