Cable Programmers Increase International Focus

Foreign markets represent upside amidst recession

Are Rachael Ray and Candice Olson poised for global exposure? More American cable programmers are taking a fresh look at international expansion as domestic growth strategies become increasingly challenging. Scripps Networks and Cablevision's Rainbow Media are among the newcomers seeking the rewards of foreign markets alongside old hands such as Turner Broadcasting and Discovery Communications.

At home, cable programming operations with their dual revenue streams are proving more resilient than their broadcast brethren at weathering the recession. That's not to suggest cable is having an easy time of the recession, but their parent companies such as Time Warner are looking to replicate their models in less mature markets and find financial growth abroad.

Rainbow Media got its first overseas channel venture off the ground in March with Sundance Channel in France, and Scripps Networks isn't far behind. In December, the company hired its first international president, Greg Moyer, to help jump-start the Knoxville, Tenn.-based company's rollout of Food Network and HGTV.

The more established names still think there's plenty of juice left in continuing to roll out their channels abroad and are taking a fresh look at their strategies. NBC Universal is revamping its channel portfolio, and Discovery, which already has 12 channels in the U.K., is adding another this month. Turner Broadcasting is in the midst of launching reality channel TruTV in Latin America, while A&E Television Networks is taking a renewed look at the global viability of its flagship entertainment channel, A&E.

The potential rewards of cable channel rollouts are hard to quantify, but SNL Kagan has projections on revenue from the international sale of U.S.-produced programming at $9.9 billion in 2009, up $500 million from last year. As indigenous channels see domestic-program budget cuts as a result of the recession, they're expected to turn to a cheaper way of filling the schedule: program acquisition. International revenue is projected to be up 5.2% this year compared with a 3.4% increase in 2007, when international revenue was $8.9 billion.

At Discovery Communications, international accounts for a third of all revenue. In 2008, the international segment grew slightly faster than domestic, up 12% to $1.15 billion versus 10% at U.S. networks to $2 billion.

Conventional wisdom might suggest that after 20 years of expansion in pay-TV in WesternEurope, every conceivable programming concept has been launched. Yet, some 200 new channels debuted in Europe in 2008, according to the European Union's information service European Audiovisual Observatory, which also reports that the continent supports some 6,000 TV channels.

When asked why the renewed interest from U.S. media companies in overseas ventures, Morgan Stanley media analyst Benjamin Swinburne quips, “Because it is so bad at home. The international opportunities go in fits and starts. Discovery has a lot of compelling programming that they get paid for in the U.S., and international is gravy.”

According to Tim Westcott, a London-based senior analyst for Screen Digest, which produces reports on overseas TV markets: “As cable programmers reach the limits of their growth in the U.S., they're reaching abroad. It's a natural objective.”

Scripps is on the verge of some substantial deals, Moyer says: “For the first time, we're going to seriously explore how we might syndicate our channels rather than just our programming. “You're going to hear a lot more about it over the next few months.”

Moyer, a former president and chief operating officer of Discovery Communications, worked closely with the BBC in tying up a landmark 10-year programming deal between Discovery and the British broadcaster. He says it is too soon to say how Scripps will proceed in the market, but admits the firm has held talks with the BBC about a possible regional channel partnership, though he says there are still thoughts about other ways of forging ahead.

Scripps might actually be viewed by some as a laggard on the international scene. In June, Discovery celebrates the 20th anniversary of Discovery Channel U.K.—its first overseas outlet. Screen Digest's Westcott says of Scripps, “You could argue they have missed a trick; local operators have launched similarly branded channels.”

Moyer doesn't see that as a hurdle: “There are many opportunities to still play. There is far from no room at the inn…I'm exploring the very real opportunity to put our brands in six of the seven continents.”

NBCU, which acquired the Hallmark Channels outside the U.S., is in the midst of refocusing its portfolio. “There are three areas of growth,” says international president Peter Smith. “First is our cable networks; partly because we haven't been focused on our networks, we're fixing them right now. We've been putting up channels or spending time to build scale. The next phase of our development is strengthening our brands and getting them exclusive content.”

The company has set a goal to increase international revenue from $3.7 billion in 2008 to $5 billion by 2010, and wants to increase the number of channels from 14 to more than 100 over the same period.

A rebrand for the Hallmark Channels is likely. The company is targeting Japan, the U.K., Russia and India for growth.

At Discovery Communications' base in Silver Spring, Md., CEO David Zaslav has been spending much more of his time on international. Discovery's growth is in a different phase to most; it's already in 170 countries.

Greg Ricca, CEO and president of Discovery Networks International, says revenue has generally been more weighted toward subscription fees from platform distributors. That's a good thing in a recession, but the company is putting much more of an emphasis on growing its advertising sales operations overseas in anticipation of better times. “You look at international and, excluding the U.K., ad growth is up 22%,” says Ricca, who helped get Viacom's MTV on the map in the 1980s. “Advertising has become more important, and we're really focused on it.”

Looking for growth

At Turner, where brands such as CNN and Cartoon Network are more fully distributed than most competing channels, finding growth is a much tougher job. The company is in 200 countries. Turner Broadcasting System International's president Louise Sams says Turner's focus is on India and Latin America. “We see a lot of growth in Brazil, where the pay-TV penetration is 9%,” she says. “We're trying to look at the glass half-full and see that as an opportunity.”

The plan at A&E Television Networks, owned by Hearst, NBCU and Disney, is to keep expanding. “Our CEO, Abbe Raven, is very bullish about international prospects,” says Steve Ronson, Executive VP, AETN Enterprises. “She is asking us to be aggressive about plans to roll out more channels and augment the growth of the domestic market.”

High-definition channels have been a driver for the company. “They are not simulcasts, they're distinct channel lineups,” Ronson says. “We think HD will continue to grow.” He adds that A&E is expecting dramatic growth from international over the next three to four years.