Highlights from Shirley Brady’s interview with Oxygen CEO Gerry Laybourne. Brady: How would you describe where Oxygen is at age 5? Laybourne: When you look at us now against a competitive set, to already be delivering the kind of numbers that we are is pretty amazing. When we look on a daily basis we’re always jockeying for position with Bravo, and E! and VH1, networks that are going after the same age group. So knowing that there’s a void there, and that we could be something that was important to women, was definitely the right assumption. Now when I travel, and I show my business card or I see a ticket agent and they see my address at Oxygen, the public recognizes the channel. Which is great, because I want to hear from real viewers. Brady: What are the highlights of those first five years? Laybourne: We staked a lot on this, going out to raise the money, and we raised the money. A lot of assumptions we had in the beginning were right. Some of them were not right. One that wasn’t right was the Internet. The Internet was ‘if you build it they will come,’ which is not a good business plan. We weren’t alone, and we had bankers who thought that that was the best way to build value. Anyway, we abandoned that strategy quickly. But our first assumption was that there was room for a network for young women, that we could create a branded, targeted home base for young women. Brady: Now that other television networks, and certainly your distributors, are embracing a multiplatform, converged model where programming is not only linear, but in VOD and wireless and on broadband and with content for DVRs and so on, was your vision for Oxygen simply ahead of its time? Laybourne: We were so lucky to have that vision and to raise our money on that vision. Because frankly if we had come along and said, ‘we want to start a cable television network,’ anybody in their right mind would have said, ‘this is crazy. You’re in a world where everything is consolidated, and where you’re not going to get a shot at getting television distribution.’ Those questions weren’t asked because the bigger idea was [that] we were going to be about convergence. And we believed it, and I loved it. From my time at Disney, where I worked with Bran Ferren [former president of research and development for Walt Disney Imagineering] and Danny Hillis [former VP of research and development for Walt Disney Imagineering] and these other geniuses from Imagineering, I was steeped in the whole Internet. I do believe that it has changed our lives. So we were ahead of the game, sort of, but we just had to alter how we were going to get there. And if we hadn’t had that vision we never would have raised the money. And we never would now have a television network on which we could build a convergent play. Brady: Do you now plan to revisit your convergence ideas that you started with? Laybourne: Absolutely. For us, the last couple of years have been about discipline, discipline, discipline. How are we going to create our voice? How are we going to create our franchises? How are we going to lay down a stable foundation? Because every cable network is always in the quest: "What’s my next big breakout hit? What’s my Ren and Stimpy? What’s my Rugrats? What’s my Double Dare? What’s my South Park?" That’s in all of our minds. But unless you have a stable foundation, that hit goes nowhere. Yes, it’s a great thing to have. But now we’ve got our stable foundation, we still want that hit. And we’re still deploying everything towards that. But we’ve had to be very disciplined. We went from having 250 people working on the website to about 8, and that was the right thing to do at the time. Brady: Do you ever go back to that list of channel concepts that you wrote down when you were getting ready to plot your next chapter after Disney, and think about what concepts—other than Oxygen—you still might like to try? Especially with the proliferation of diginets and spin-off channels, and VOD-only channels too… Laybourne: Yes. I think the big opportunity right now is creating brands for VOD. To me, I do see digital as a world. I don’t see it as the Internet and video-on-demand, for instance, I see it all as a piece. Fortunately we’ve got quite a bit of content that we still own from when we were an Internet company that’s applicable in a video-on-demand world. For instance, with our Moms Online [portal] we did a whole series of animations that were tips for moms. So there are things that we can use and we’re looking at that. I’m also a recycler, you should know. So yes, you’re right, that’s exactly right. There will be a time and a place. And our audience, because 18 to 49s are very diverse-we’ve got new mothers, we’ve got women who are single and thrilled about it-and how do we super-serve all these different women? It’s going to be through new kinds of video-on-demand product. Brady: What did it take to get to 54 million homes today? Laybourne: First, remember that I was in two large entertainment companies with pretty good track records. I had a lot of different ideas of networks to launch, and a lot of different business plans. But it was virtually impossible after these big entertainment companies started offering launch fees [to cable and satellite operators] to do that basically would have cost $300 million just for the launch fees. So to put that on to a business plan, you couldn’t really come up with anything that had a lot of original content. You had to figure out what’s a slice of what already exists [such as] a spin-off of another network. And since launch fees have been introduced, there haven’t been a whole lot of wholly new [TV network] brands developed, and Oxygen is one of the few. What’s ironic is we went to the private equity markets to raise the money to do it. We were able to do it because we went back to one of the older models in cable, which was: let the cable operator participate in the upside of our growth. So we had very innovative structures of our deals, which helped us to get distribution. I think the fact that we were visible and that we were a minority-owned network and the cable operator felt like our proposition was, to them, [that] women are paying 55% of your bills and you’re not really focusing on them. And you’re not really focusing on marketing to them. And so we’ve done a lot of work with our cable operator partners in terms of our knowledge base of marketing to women, how can we help you? We’ve created HSI [high-speed Internet] campaigns and general consumer campaigns and events all around the idea of hey, pay a little attention to women. They do recognize women as a valuable audience. Brady: Compare your programming lineup now versus year one. Laybourne: When we launched, the vision was: how do we create a convergent network? So everything we did had a Web component, and we had-right here outside my office-we had a live show every day, with blaring bands. It was like going to work in a war zone, and I don’t know how our people got anything done here because all day long it was getting ready for a two-hour live show, and then excruciating [noise] when it was on. We produced everything that first year, we had 100% original content because we hadn’t been in the acquisition marketplace so there was nothing to buy. Brady: Nothing to buy…? Laybourne: Everything had been bought [because] we only had about a year between when we had our funding and we announced and when we went on the air. So we were going to produce everything with a Web component and a TV component. We had two live shows-Pure Oxygen and Trackers, for teens. It was a lot of lofty, big, bold crazy efforts. Part of it was, that was all we could do because we weren’t in the acquisition swim of things so there wasn’t anything to put on other than that. And there wasn’t anything [else] that had been devised as a convergent thing so we had to make it [ourselves]. Brady: What did you learn in that first year? Laybourne: Things like: if you’re in 8 million homes, which is how many we were in when we launched, it’s almost impossible to actually create any buzz about yourself. You’ve got 8 million people dispersed across the United States of America. The likelihood that you’d have two viewers that would be able to find each other was really tough. So part of the reality of how you start to get buzz was, you have to be in enough homes, you have to be in at least 30 million homes to have people listing you and to have Nielsen ratings to be a real network. So that was tough. Brady: How did your ad sales and ratings grow since then? Laybourne: We’ve doubled our advertising just about every year. Advertisers were great when we launched. We had 80 advertisers on our air in the first year, and that never happens for a new network. They really wanted us to succeed, because they knew if we had a successful network for young women, it would be really great for them. So they were very patient with us as we got our act together. And they’ve stuck with us, we’ve lost very few advertisers. We continue to grow our advertising base by double every year. We went from 8 million to 54 million homes, growing at about almost 10 million [homes] a year. And the increases in our [primetime] ratings from 2002 to 2005 are up 374%. What’s more important is that we’re in the vicinity of Bravo, E! and VH1. Right now, in the first quarter, we’re averaging a .4 primetime rating, which is really respectable. We’ve been really fortunate for a new network to have some fantastic people along the way helping us build it-Candice Bergen, Isaac Mizrahi, Carrie Fisher, Alan Cumming, Tracy Ullman-people really interested in the idea of this new, independent network. The franchises on our air today are really strong, from the repurposing deal with Ellen to Oprah, Sue Johansen and Girls Behaving Badly, which I think is the most definitional of our sense of humor. And then there are the really strong original movies that we’re doing, and the strong movie collection in our [recent] Warner Bros. deal. Brady: What are women—and your target demos—looking for on television today? Laybourne: We spend our lives listening to women. We do a phenomenal amount of research. We did at Nick, with the Yankelovich Youth Monitor, and we do it here. We do the traditional research, dial testing and focus groups on shows. I love the humor study that we did with Roper last fall, and we’ve got another we’re doing right now that we can’t talk about yet. All I can say is it’s so bold, and no woman in her right mind would go there. We expect to announce that one in April. It’s all about trying to figure out what that really sweet spot is for women. I’m always in this stew, thinking: ‘what is it? What makes these women tick?’ Because you can figure it out with kids-it’s ‘us versus them’ and ‘we’re on your side,’ and ‘it’s great to be a kid’ kind of stuff really works, and we tied it into revolutionary war stuff and it was a conglomeration of reading, psychologists and listening to kids, and then one day it clicks. To me, we’re right at that point where we have enough information. Brady: How long do you think Oxygen can last as an independent? Laybourne: We’re cash positive. And everybody assumes that I’m a creative person, and ‘creative’ is the most important thing to me. But oddly enough, when I got a chance to run Nickelodeon, the most important thing to me was about the business. Because I’d been in the kids’ business for a while, I knew that franchises came and went because of funding. I’d see great people do wonderful shows for PBS, they’d last for two seasons and the funding would dry up and they’d go away. So the first thing for me was that Nickelodeon needed to be a solid, financial proposition that could never be taken away from kids. And that’s what I feel about Oxygen. It needs to be a solid, financial proposition that could never be taken away from women. We are cash positive, but you wouldn’t call that as solid as we need to be. Any network in any of these big entertainment companies, is as strong as their financial performance. And they are protected by that financial performance. So Oxygen needs to be protected by its financial performance. Highlights from Shirley Brady’s Q&A with Oxygen president and COO, Lisa Gersh Hall Brady: Lisa, sum up where Oxygen is at as it turns 5. Hall: It’s a really thrilling point in time for us. It underlines the three most important parts of our original business plan. First: to be profitable at the end of our fourth year of being on the air—and 2004 was our first profitable year, which was very exciting, especially because we set out to make sure that the business would be there, and while the road map for getting from the beginning to where we are today certainly hasn’t been as planned, to hit the profitability point at the point in time we said we would is very exciting. The concept of having a cash-profitable business is really important to us. Secondly, the other part of our business plan which we were right about was to be in 50 million homes before 2004, and we actually crossed the 50 million mark in December of 2003. Which I always find sort of funny, because when you write a business plan when you’re starting a business, you don’t expect to be right about much. And finally, the third part of our business plan which was the business strategy we launched with, was we would launch a cable network that would be in 50 million homes by the end of 2003, profitable by the end of 2004 and to do all that with original programming. We wanted to differentiate ourselves with original programming, and we’ve done that. The premise that what you need in order to get a cable network launched and distributed is original programming, and that distributors in general want that, is very exciting. It’s an opportunity that I don’t think a lot of people have had. Certainly in the last five years we haven’t seen anything else like Oxygen. So these three areas were probably the most important part of our business plan, and probably the only three that we got right. (Laughs) But that’s OK. Brady: And you did all that as an independent. Hall: The truth is that there are enormous challenges being an independent in a consolidating media environment, but also, I don’t believe we would be where we are if it weren’t for the fact that we’re independent. And an independent that was founded by someone in the cable industry that was so respected for building brands that the cable operators were willing to make a bet that the original programming that we’d develop—because we had none before we launched—would be different enough and important enough to viewers that it was worth their investment of their very valuable beachfront real estate on expanded basic carriage. Brady: How did you manage to stick to your goal of expanded basic? Was it difficult to avoid getting digital or nothing at all? Hall: Absolutely. That was probably the most difficult part of our conversations with the distributors. What they want to know is they’re using their bandwidth in the most efficient and effective way possible. In 1999, when we launched the network, there were 15 services in over 70 million homes. Today, there are 40 services in over 70 million homes, and about 340 cable networks, all of whom would very much like that coveted space. In some systems it’s as limited as 40 networks, in most it’s more than that. And then you have all the must-carry rules that take up a great deal of space. Brady: So offering original content and a fresh concept helped secure that valuable shelf space? Hall: It gets back to the independent/non-independent idea. Not only do I think we have 54 million subs because we’re an independent, and Gerry’s reputation in the industry has been critical to our growth. I also think being independent helped us raise a lot of money. And a lot of money is really necessary if you’re going to launch with original programming, because it’s much more expensive than going the acquired route. That also allowed us to attract a caliber of management to this company, with veteran programmers like Debby Beece and veteran producers like production president Geoffrey Darby, and our CFO Dan Tice and our head of affiliate sales, Mary Murano, has over 20 years in this business. When we did a search for who we should hire for that role, Mary’s name was on everybody’s list. So a management team like that has been a big part of our success. Brady: What did cable operators react to first hearing the pitch for Oxygen? Hall: In 1999, the biggest business initiative for cable operators was digital. They all believed in 1999 that the way they were going to grow their subscriber base was by offering an expanded number of channels and that [digital] penetration would be much quicker than it’s been. That clearly didn’t turn out to be true. So when started cable operators would say to us, ‘what do you care about expanded basic carriage? Everybody’s going to take the digital tier.’ But that has not turned out to be true for most cable operators. But what has turned out to be true is that there are other services that cable operators are able to offer where there is a great focus. It varies from cable operator to cable operator. For Comcast, if you’re a cable network looking to launch today-just like they talked to Oxygen about digital-they’re going to talk to you about VOD. That’s where Comcast is going to launch you, because it’s not a big expenditure of bandwidth for them and they’re experimenting. So today for any network that’s thinking of launching, even getting to digital can be challenging. Brady: Any moments that you can now look back and laugh at, from when you were out there trying to drum up carriage for the network? Hall: Oh, there are so many in this business. You know, I came from a legal background, and as a lawyer, when you’re negotiating for a client, your job is to negotiate every point because you want to get that last nickel off the table. That’s just your job, and that’s all you do. But when you’re starting a business like that, there is a very different focus when trying to get deals done. It took me a little while to make that transition. In 1999, when we were first discussing carriage deals with first TCI [which became AT&T Broadband, now part of Comcast] and then Cox, we were negotiating and negotiating. We had gotten the TCI deal done and there were just a couple of open points on the Cox deal left to do—and they were being fabulous, they were just great supporters—and they called and I said, ‘we can do this deal if we can just do these few points.’ Because of course I had to negotiate them, that’s what I was trained to do. And of course, cable operators being cable operators, they’re the best at negotiating, and Cox said ‘OK, we hear your points, we’ll get back to you.’ And it was two days before launch and they still hadn’t gotten back to me and I really wanted to launch with the Cox systems up. And I remember walking into Gerry’s office saying, and I was ready to surrender, ‘I can’t even get Cox on the phone to tell them I surrender, I don’t even want to negotiate any more.’ (Laughs) So we learned a lot of lessons along the way. Brady: Such as? Hall: That cable operators are your partners. You don’t need to take the last nickel off the table with them, because at the end of the day, if you’re a good partner then they’ll be good partners. And they’ve been great partners to us. Highlights from Shirley Brady’s Q&A with Oxygen president of programming Debby Beece. Brady: Describe Oxygen’s programming at age 5. Beece: Oxygen is a completely unique experience in television. Our shows are unique and the channel looks and feels different from anything that’s out there. We tend to look at women differently than the industry tends to look at women, and that helps us be fresh. We have so many great women on our network—Oprah, Ellen, Roseanne, Girls Behaving Badly, and Sue Johansen—these are all women who transcend women because they are in the popular culture and are huge icons. We are so proud to be the home for all these amazing women. So these past five years have been about all of that, and then coming up with more fun ideas and more unique programs. We have a lot of fun things coming up. Brady: Such as? Beece: We love Mr. Romance, which is a silly, goofy show but so much more, and we’re having a lot of fun with the movies. We’re always trying to do things that are not the typical kind of fare. That’s what makes Oxygen the most fun place on television. It’s different and creative and we – yes – offer a fresh breath to women. Brady: What are you proud of from these first five years? Beece: Our growth has been really gratifying, and the change in perception in the consumer from ‘I can’t find you’ to seeing David Letterman mention our shows and to have him make fun of Oprah After the Show and make Sue Johansen be a regular on his show. To have gone in that sense from zero to sixty has been great. Brady: How supportive has Gerry been in your efforts since you came on board? Beece: Gerry just creates this wonderful environment where she says, ‘Debby, you just go and do what you need to do.’ I hate to sound like such a Pollyanna, but I can’t emphasize enough how being here is just a great professional experience. And a personal one, too. Brady: How has your role evolved with the channel? Beece: When I first came in here I did a lot of work on the marketing, consumer and trade side, trying to make the Oxygen name work and the channel make sense. After about nine months of that Gerry asked me to take over the programming arm, and about a year after that she asked me to also take over the marketing arm. And that’s about the time that we decided to softly reposition and relaunch the channel, so roughly two years ago this past October. That’s when we launched Girls Behaving Badly and Sue Johansen and then Roseanne came in about a year later. We launched the Oh! [branding and marketing] campaign with Madonna and then things just really took off after that. It became a much more cohesive network and things fell into place. Consumers understood the product better. They began to watch far more frequently and enjoyed what they were seeing a whole lot more. So building something from scratch and seeing it evolve has been a great, fun experience. Brady: Talk about how you sharpened the programming mix and brought in more of these signature shows that are now on your air today. Was that driven by research? Beece: Research can provide a lot of valuable information, but I also think women sometimes tell you things they want you to hear, instead of what they really feel, and it takes a very tuned ear to know if you’re getting the truth or not. I remember the first focus group I went to, I think we were in 10 million homes at that point, and the women there said, ‘oh, I love the idea of this network and all these service shows and women talking about issues, and all these documentaries and sports—oh, I love sports for women—and this is all just so great.’ But they really don’t watch any of those. I think they were just trying to make us feel good because they could tell we were so earnest and so eager to do something of value and serve women who’d been underserved. Brady: It must have been frustrating to realize that your investment in women’s sports didn’t matter to your audience. Beece: It’s really quite a tragedy that all these fantastic athletes kill themselves, they’re pure to the sport, they don’t make a penny, and they can’t get arrested on television. And yet male athletes are a goldmine on television. So we did things like that and they told us they appreciated it, but the truth was they weren’t going to watch. So the challenge became separating that out and then trying to serve women in a way that got at all those underlying empowerment issues but did not beat them over the head with earnestness. Brady: And the answer was to introduce more humor? Beece: That’s why I think Girls Behaving Badly and Sue Jo works well, because you’re dealing with shows that are about something important but at the same time you’re not lecturing viewers on how to live their lives. Brady: By not trying to be all things to all women 18 to 49, have you been able to be bolder in your programming decisions? Beece: Yes. Women’s television, or television for women or about women or by women, however you define this category, it’s a great category. It can be a big category and that can be fun, and you can uplift the category and make a big tent, and that’s our goal. Brady: Talk about the pressure to create a breakout hit now that you’ve established a number of signature shows. Beece: We like to swing for the bleachers, but we do need to be on base so to speak, and have a foundation. You can’t really have a huge hit without a place where people know where to go. You can’t expect them to find a hit if they can’t find you. You have to be firing on all cylinders and have a great foundation. And we have a really solid foundation now, really solid performers on the network, and very good household delivery and VPVH [Viewers Per Viewing Household: Nielsen’s estimated number of viewers during a particular time period] numbers, all very solid for a young network. So I want a breakout hit, we work every day to have them. I think we’ve got several in the development/pilot stages which I think are important and fun shows that I think could fill that bill. But we have to exist as a business, whether we have that or not. Many networks go for many, many years with a very solid schedule but not necessarily a buzzy schedule. Brady: Do you still feel like a scrappy startup programmer now that Oxygen’s reaching the ripe old age of 5? Beece: Oh, definitely! (chuckles) I feel like we are very scrappy. We are certainly, at some level, in the ‘doing things for the first time’ mode. We don’t feel like, ‘oh, we can crank this out, we’ve been here before, let’s just press these buttons and this thing’s going to click.’ I mean, every new campaign we do and every new show we launch, and we have several show launches coming up this year, we are completely focused on getting out there in the biggest possible way and learning from everything that we do. I don’t feel at all like we’re there, like we’ve got this down to a well-oiled machine. I feel like we are growing and working really hard and we’re a cohesive company. And throughout it all, having a lot of fun.

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