How About the Fat Chance Channel?

New cable networks face tough road
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Jokevision President Stephen Cunningham heard a good one the other day. "What's the difference between launching a cable network and touching the moon?" a cable executive asked wryly. The answer: "Nothing."

For the more than 20 new or almost new networks chasing carriage—from the Anime Network to The Ice Channel to The Tennis Channel—the moon may seem more attainable than digital basic on Comcast or Cox. Nonetheless, executives from many of these new entries will descend on the final Western Show in Anaheim, Calif., this week to persuade cable operators to launch their service.

In the 1990s, cable and DBS companies desperately needed channels to fill their digital tiers. That was then. Operators are now focused on lowering programming costs and experimenting with new packaging. Bandwidth is limited, they still point out.

"We're at 12 million customers right now, and clearly we got here without whatever network," says Michael Thornton, DirecTV senior vice president of program acquisitions. "There isn't anything we truly need."

The road is a particularly tough for startups that operate as independents, without the muscle of a Disney or Viacom behind them to tie carriage into other renewals or retransmission consents.

When Fox Cable Networks distribution chief Lindsay Gardner goes out to pitch action sports network Fuel, for example, he may have other cards to play. Comcast's G4 and TV One are getting broad carriage on the MSO's systems, which helps sway other operators.

When a big media company starts a channel, "we know they have the deep pockets to grow it, support it and keep it growing through the lean times," says MSO Millennium Digital Media's Senior Vice President of Programming Peter Smith.

Independent startups try to focus on the underserved niches. The key, says Jokevision's Cunningham, is to offer operators a service that "will help increase revenue and reduce churn."

Will Jokevision do that? Here's the premise: Regular people tell their favorite jokes. Camera crews troll malls, New York's Times Square, or any public place where regular Joes might go on camera to tell their favorite jokes. That would provide the programming, with kids jokes in daytime and dirty jokes for late night. It is a cost-efficient model and tests very well, Cunningham boasts.

But independently owned channels generally present unknowns to operators, many of which have an informal checklist for indie channels: Where is the money coming from? Are there cable veterans on board? Is the programming in place? If the shows need to be acquired or produced, how expensive will that be?

An operator needs to be certain "that they can perform and do what they say they can," says Adelphia Senior Vice President of Programming Judy Meyka.

Of course, cable operators also want a deal. For some networks, that will mean forgoing any license fee. If a new channel can wrestle a subscriber fee, it unlikely to be any higher than 10¢ per subscriber; and only after a few years of free carriage.

Niche sports nets may get better rates, between 10¢ and 20¢ per subscriber, if they are carried on a sports tier. But that dramatically shaves their subscriber counts until those tiers grow.

And new nets can't bank on early ad dollars. The more broad-based a new channel is, Initiative Media Senior Vice President Ray Dundas says, "the more subscribers they need to be beneficial to the ad community." With new niche networks, though, "some categories would be open to experiment," although their appeal would be limited. For example, one Initiative client, the Las Vegas Tourism Board, might be interested in the Casino & Gaming Television (CGTV) channel.

These demands are sobering for startups. To survive, new entrants need "a new revenue model based on single-digit rates," says media investor Rick Newberger, whose Vanguard Media Group is currently backing a non-fiction outlet called the America Channel and CGTV. "There are special challenges in a world with so many channels and a whole different economic base."

Nets need at least $100 million to break even. Today everybody's trying to do it more cheaply.

For example, when Tennis Channel was starting out, it cut a deal with Comedy Central to subcontract that channel's affiliate sales team to help with system-level dealings. Now Tennis has deals with Cox, Time Warner, DirecTV and Adelphia. "We wouldn't be here without Comedy," says network chief David Meister.

Owning the programming can help reduce costs, too. The Sportsman Channel, which specializes in hunting and fishing shows, is a cooperative of more than 100 independent producers who own their shows. The model drastically cuts expenses, notes President C. Michael Cooley. "We've cut out the middle man, the channel." He's proof: Cooley produces and hosts shows.

Still, no one has proved it is feasible to launch and succeed cheaply. The Golf Channel and Outdoor Life Network each spent about $100 million, and that was almost 10 years ago.

Along with license fees, the way channels get launched also is changing. Brian Bedol, founder of Classic Sports and now president and CEO of CSTV, sees it. When he was launching Classic, he negotiated carriage deals at the MSO system level, got launched and then did a corporate-level deal. Now nothing happens until that corporate ink is dry. "It forces you to be more patient in the field," says Bedol. The upside, he adds: "The rollouts are coming much quicker." CSTV is already on DirecTV and Adelphia, and insiders expect Time Warner to sign on soon.

But, as new nets sign distribution deals, some executives at more established channels sometimes sniff at the corporate deals as merely rubber stamps. Often executives at the regional and system level make the decisions when and where to launch a channel.

It has taken Jeff Valdez, founder and co-chairman for Sí TV, which is slated to launch in February with English-language Latino-themed programming, five years to get his channel off the ground, in part because he aims for something quite rare: digital basic carriage.

Tell him any part of the process is easy, and he'll laugh. Says Valdez wearily, "You try and get a deal and tell me how easy it is."

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