A New Breed

Independent programmers with nonlinear savvy are hot with cable operators. By Shirley Brady When it comes to independent programming, it’s not a secret that cable operators’ primary focus is nonlinear. That was the message of CableWorld‘s cover story two years ago and was still the rallying cry at the recent National Show. That’s where cable’s biggest programming czar—a.k.a. Comcast EVP Matt Bond—reiterated his "forget linear launches" mantra and touted Comcast services like Dating on Demand, a VOD exclusive that doesn’t have a linear channel counterpart (nor does it need one). A major reason for operators’ lack of interest in more linear channels is that "many networks launched on digital basic over the past five to seven years just haven’t proven that they can draw an audience," Kagan Research senior analyst Derek Baine says. "It doesn’t make sense to add networks to a basic lineup unless you think the majority of your subs are going to sample or watch. And you can’t pass incremental license fees to consumers without eating into margins." That harsh reality, combined with the recent explosion in mobile devices and broadband video, has given rise to a new breed of independents. This group is responding to cable’s tough linear stance by putting VOD and broadband first, sometimes instead of linear carriage. Multiplatform programmers such as Ripe, Concert, DriverTV and CNET TV could do an end run around cable. Instead they’re embracing operators and helping cable forge a new business model, one where independents don’t depend on linear carriage or subscriber fees, and subsist mainly on advertising revenue. What are operators looking for from independents embracing nonlinear platforms? Programmers that make money from advertisers, not operators; Unique, targeted programming that meets underserved niches in their subscriber base; Local content and marketing that communicates the value of cable’s multiplatform offering beyond video. None of this comes cheap. The independents we spoke with declined comment on their finances or deal terms. Still, it’s safe to say this new breed doesn’t require the $100 million needed to program and market a linear network. A `TIRED’ MODEL Although Comcast has been the industry’s loudest voice when it comes to making independents rethink their value proposition, smaller operators such as Cox have been espousing this philosophy. The new breed of programmers lacks "any preconceived notions of what the economic model ought to be," says Cox programming SVP Bob Wilson. "Traditional networks are going to have the traditional view, which is `pay us more money and then just pass it through to your customers,’" he adds. "That’s just not a model we want…it’s gotten very tired and is not providing us with incremental value. So we find new players who may be a little more flexible." As an example, Wilson points to CNET TV, a new VOD channel Cox is launching this month. The channel’s short-form programming helps consumers make informed decisions about technology. Its programs communicate the benefits of HDTV, voice over IP, high-speed modems and video on demand—all products that Cox can sell to those consumers. CNET’s video segments are original, un-repurposed content tailored to VOD, but usable on broadband. CNET is also free to Cox and underwritten by advertisers such as Best Buy. This is an economic necessity in a mature cable industry, where the last thing an operator wants is "another 10 cent or 20 cent license-fee linear network that basically slices and dices content that we provide in the 150 channels we already offer," Wilson says. In addition, CNET’s retail partners create local marketing opportunities through which Cox can sell products and services. Operators’ needs vary from market to market. A particular system may have a range of goals that independent programmers can answer. Take Comcast Atlanta, which recently launched two independents: The Africa Channel, which is bringing never-before-seen programming from Africa to these shores and is launching a broadband channel with original music and travel features to enhance its linear network. Gospel Music Channel, an Atlanta-based service that is launching seven VOD channels (Hometown Gospel, Fresh, gRock, gPop, gSoul, gCountry, gEspanol) this year targeting specific audiences (Hispanics, youths, country music fans) within its cable affiliates’ communities. David Williams, VP of marketing for Comcast Atlanta, says Africa and Gospel have gone above and beyond (at no small cost to both programmers, which declined to specify their launch marketing costs) to appeal to Atlantans. "We’re all about providing any kind of content that ties in locally to the community," Williams says of their efforts. It’s Hard Out There for a Shrimp In the time since CableWorld‘s June 21, 2004, cover story about the difficulties of getting linear carriage, times have become even tougher for linears without major backers. In the last six months alone, Turner Broadcasting consumed Court TV, while owner Crown Media shopped around The Hallmark Channel. GSN and the Outdoor Channel have been fighting getting dropped or bumped to tiers on Time Warner Cable systems. While established independents have had a bumpy ride, it’s been even tougher for smaller indies to get traction as linear cable networks, with the exception of Hispanic and Asian nets that are grouped on ethnic tiers. "You can count on one hand the number of [linear] independents that operators like Comcast, DirecTV, Dish and Time Warner have launched over the last few years," Kagan Research senior analyst Derek Baine says. Last month that desperate environment sparked one start-up indie, The America Channel, to sue Time Warner Cable and Comcast over their planned acquisition of Adelphia. The suit claims the deal violates federal antitrust laws and that both companies are colluding to bar independent programmers from getting carriage—a claim both companies deny and intend to fight vigorously. Another sign of the times: The America Channel belongs to the Association of Independent Programming Networks. The new coalition’s goal? To squeeze onto linear cable. It’s not easy, as shown by fellow AIPN member WealthTV. Following an early commitment from Charter Communications, it has found more success with non-cable distributors. The high-definition programmer, which turned 2 on June 1, concluded one of the first deals with Verizon’s FiOS service and just launched on Cavalier Telephone & TV and Qwest. A major hurdle for linear independents is that until the cable industry goes all-digital (at least two years away, in Comcast’s case), operators’ contractual agreements and bandwidth hogging services such as HD channels have limited their capacity to add linear networks. Indies with 24/7 programming ambitions can’t afford to wait that long, which is why Shalom TV, for example, retooled its business plan and opted for a VOD-first launch strategy. "It costs more than $100 million, on average, to launch a cable network," Baine says. Only media conglomerates like News Corp. are in a position to amortize those costs, he adds. An example is the year-old Fox Reality Channel. Via its parental muscle of hot networks (Fox News Channel, FX) and retransmission consent for Fox, Reality is one of only six networks to surpass 20 million homes in its first year. The others are FX, Fox News, National Geographic Channel, Animal Planet and NFL Network. SB A Mini-Upfront for Ad-Supported On-Demand Programmers In keeping with the new economic model that is helping video brands make deals with operators, the programmers below all launched on cable as VOD-exclusive services. As free on-demand channels they rely on advertising for revenue, and their content can play across broadband and mobile platforms. On June 1 these programmers got the opportunity to put their business plans to the test and pitch their channels directly to media buyers at Carat Digital’s VOD upfront. Five of the programmers at the meeting are independents: Anime Network, Concert, Expo TV, Havoc TV and Hollywood.com TV. Two of them have MSO backers: the Cablevision-created Mag Rack and Sportskool services, and Music Choice, whose owners include Comcast, Cox, Adelphia and Time Warner Cable. Below are snapshots of each programmers’ pitch as presented at the Carat event. SB Note: Figures represent the most recent month for which each programmer has received data from Rentrak or its MSO affiliates. Unique monthly views = the number of individual set-tops accessing the content. Gross monthly views = total views across each programmer’s footprint. Sources: Company reports presented at Carat Digital Interactive Television Exchange on June 1, 2006.