The Battle for Fifth Place - Broadcasting & Cable

The Battle for Fifth Place

When My Network TV and CW square off, will either succeed?
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Left in the cold with nine stations abandoned by UPN, News Corp. Chairman Rupert Murdoch turned up the heat on rivals and burnished his reputation as a daredevil, launching a broadcast network called My Network TV into a crowded field.

The audacious move by the owner of Fox, one of the Big Four broadcast networks, is a direct challenge to the network being created from the remains of CBS' UPN and Time Warner's The WB, The CW, which critics say has a better chance of gaining a larger audience.

More than anything, the race for fifth place underscores the glut of broadcast stations in the U.S., where most markets have more stations than good programming to fill them. Neither The WB nor UPN could earn enough to stay in business, and the future of The CW is not certain. And despite its lower costs and simple business model, My Network TV could very likely meet the same fate as those preceding it.

News Corp. predicts that, loaded—at first—with sex-laden soap operas, the new network will succeed just as Fox TV and Fox News Channel did—against the odds. The company has built a reputation on turning doubtful startups into roaring successes. The owned-and-operated My Network TV stations cover 24% of U.S. TV homes in major markets, such as New York, Los Angeles, San Francisco and Dallas. News Corp. executives predict they'll sign up enough affiliates in other markets by the September launch to reach 90%. The CW's coverage is yet to be determined but will probably reach 92%.

The immediate clash is over TV stations. Both My Network TV and The CW are battling to snag the strongest affiliates in markets where they don't already have stations lined up. Once that is settled over the next couple of months, the fight will be for viewers as both channels court younger, largely female audiences.

In the long run

But the long-term battle will be against red ink. The WB and UPN lost more than $1.1 billion each over the past 12 years before shuttering in defeat. Despite becoming the No. 1 broadcast network in 2004, Fox TV itself lost around $140 million during the 2005 fiscal year.

Neither My Network TV or The CW has much hope of displacing the Big Four broadcast networks: Fox, CBS, ABC and NBC. Can News Corp. still earn a profit as My Network TV battles with The CW for bragging rights to fifth place?

Yes, insists News Corp. President Peter Chernin. The network's success hinges on fresh, low-cost programming and terms that are generous to stations, including the nine News Corp. stations left orphaned by UPN.

Whereas other networks keep the vast majority of ad time for themselves, My Network TV will hew to the rules of the syndication world, allotting 65% of the inventory for stations to sell in their market.

“It's a model that can be profitable from day one,” Chernin says. “And I mean profitable from the News Corp. level, for our local stations and local affiliates.” My Network TV will “spend our money on the shows, the marketing of the shows and the stations, not on old business models,” where high-cost programming leaves little room for big profits.

CBS President Leslie Moonves minimizes the threat of the new rival, contending that News Corp. is underestimating the financial challenges My Network TV faces. He contends that The CW will prevail with the strongest station lineup and programming. “It took UPN 12 years and WB 12 years, and they are better off together,” he says. Still, he acknowledges that selling News Corp. short would be a mistake.

News Corp. has been racing against the clock since it was caught short Jan. 24, the day Time Warner and CBS announced they were closing The WB and UPN in September and creating The CW. Nine of the Fox Television Stations' 35 properties are UPN affiliates. (Of the remaining, 25 are Fox O&Os, one is an independent.) Stations Group chief Roger Ailes suddenly needed programming to fill those prime time hours.

Ailes says he already had been considering alternatives to the UPN network and had not yet agreed to renew the stations' affiliation. Nevertheless, until news of The CW broke, Twentieth Television's syndication sales reps were on the cusp of letting other stations buy programming that is now the backbone of Ailes' new network. It will air on all nine UPN affiliates plus the Dallas independent.

The two telenovela series—Desire and Secrets—will run five nights a week with storylines that arc for 13 weeks. Saturdays will feature hour-long recaps. Almost every episode ends with a cliffhanger, and, unlike American soap operas, which run for years, these stories wrap up quickly, and the show cycles often through new actors, new characters and a new storyline. My Network TV summarizes the first round of Desire features as “two brothers on the run from the Mafia find themselves in a heated battle of passion, betrayal, deceit and murder over the woman they both love.”

My Network TV also has backup programs in the wings, mostly relatively inexpensive reality shows synthesized from other inexpensive reality shows. Examples include Celebrity Love Island (Surreal Life meets Temptation Island) and Catwalk (America's Next Top Model). One exception: a crime newsmagazine to be produced by Fox News Channel.

“It is all over the place,” says Brad Adgate, audience researcher for Horizon Media. “The impression I get is, they are just going to see what works and doesn't work.”

How can News Corp. succeed where Time Warner and CBS failed? A big part of the equation is low costs. Even the relatively frugal WB and UPN filled their schedules with $1.8 million-an-hour dramas and $700,000-an-hour reality shows.

The telenovelas cost far less, $100,000-$120,000 per hour-long episode, industry executives estimate. The actors are unknowns who settle for scale, and the shows are shot quickly in cheap locations. News Corp.'s syndication division, Twentieth TV, is adapting scripts from series that have been already succeeded on Latin American TV, so there's no high-paid writing staff. The financial downside: no repeats.

“The key thing is strip programming,” says Fox Stations Group President Jack Abernethy. Strips can be cheaper to make and market. My Network TV has to promote only two shows, not the 15 or 20 a conventional network has to push.

“All the sense in the world”

If My Network TV can draw even half the 2.3 million viewers UPN averages, the network could more than cover programming costs. If it matches UPN's ratings, revenues could exceed programming, sales, marketing and overhead costs, resulting in a modest profit.

Morgan Stanley media analyst Richard Bilotti says the My Network TV model “makes all the sense in the world.” He adds, “You're not going to get huge ad rates on that stuff, but you can make it work.”

A major broadcast network strengthens a broadcaster's owned-and-operated stations, where it makes most of its money. Bilotti estimates that the Fox station group, for example, generates an enviable 47% operating-cash-flow margin on $2.2 billion annual sales. That more than offsets modest losses at the Fox network.

Ad buyers are fairly receptive to the idea of My Network TV, whose success will hinge on whether it can secure wide distribution. Elizabeth Herbst-Brady, director of broadcast investment with Starcom USA, likes the telenovela idea in part because bilingual viewers may cross over from the Spanish-language networks.

My Network TV could find itself in a glut of telenovelas, since ABC, CBS and NBC have all been considering launching their own versions.

For now, My Network TV is programmed with shows the News Corp. crew happened to have available. The big question is, if the telenovelas don't work, how will the network morph over time? Ailes says he's driven to win: “Failure, as a learning experience, is overrated.”

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