In Depth

Gay Net to Bump VH1 Spinoff

Viacom to Sacrifice Low-Profile Diginet to Gain MSO Distribution for Tough-Sell Start-Up Logo

In a highly unusual move, Viacom is sacrificing one of its digital channels to secure distribution for its planned gay-themed network, Logo.

The low-profile diginet spinoff VH1 Mega Hits will be replaced by the new network, which launches next month. The move is designed to grease the wheels with bandwidth-strapped cable operators who have otherwise resisted Viacom's efforts to expand its 13-channel digital suite, especially with a brand that's prompted fears of a conservative backlash.

Logo has distribution deals with Time Warner, RNC and Adelphia and is in final negotiations with Comcast. Sources said Cox also is in negotiations for a carriage agreement.

VH1 Mega Hits debuted in 2002 and is the most recent addition to MTV Networks' 13-channel Digital Suite package, which includes VH1 Classic, Noggin and Nicktoons.

Nicole Browning, president of MTV Networks affiliate sales and marketing, said several factors influenced the decision to rebrand an existing channel. "Part of the strategy was to be responsive to the bandwidth constraints of cable operators and part of it was we thought we had a very viable product and wanted to get it out quickly," said Ms. Browning, who noted that MTV Networks' satellite bandwidth was also crowded.

Experts said Viacom's Logo distribution plan may be the first of its kind-and likely will not be the last. When cable operators began rolling out digital set-top boxes in the 1990s, there was a demand for additional channels from proven content providers such as Discovery Networks and MTV Networks. Today operator bandwidth is much more valuable and some channels that were quickly slapped together with leftover content arguably are now worth less than the channel space they occupy.

"The Logo situation is pretty unique given that the content of VHI Mega Hits is not at all the same as Logo," said Cathy Rasenberger, a cable distribution consultant. "I think it will increasingly become the necessary route for the big programming groups to use when trying to launch new networks because of the terrible bandwidth restraints these days. Even with the leverage of Viacom, they would find it very difficult to launch Logo to a meaningful number of subscribers without offering up another channel from their digital suite."

Media analyst Larry Gerbrandt agreed. "Diginets with little or no license fees are not doing very well," he said. "If some of these aren't working, switching it out for something fresher makes a lot of sense. It shows how little capacity there is out there that they would have to look to swap real estate."

Experts liken the distribution market to a town that has been built to capacity. . Developers-in this case cable programmers-may need to turn to their least valuable properties and rebuild them from the ground up in order to grow.

"As things really get saturated, we may see more rebranding of existing channels," said Brad Adgate, senior VP and director of research for Horizon Media. "Discovery would not have taken off a channel to put on Animal Planet [in 1996]. But now, to exchange one with another, yeah, that could happen."

As part of their carriage contracts, programmers cannot radically rebrand a channel space without approval from cable operators. Some operators have been inclined to carry Logo in markets deemed most open to the network's brand of programming. Time Warner, for instance, plans at this time to carry Logo only in Manhattan. MTV Networks' Ms. Browning said Logo's carriage will expand beyond the obvious markets, though she declined to name any such areas that will carry the channel.

Viacom's offer to switch out VH1 Mega Hits makes Logo more attractive to reluctant operators, while demonstrating the company's commitment to making Logo a major destination, sources said. But one senior programming cable operator executive described the swap as a mixed bag.

"By doing this, they're basically saying `We sold you a digital suite of networks, but this one isn't any good,"' he said. "On the other hand, they have a better story to tell with Logo than with the VH1 thing. And unlike most of their suite, this sounds like this is something they're going to put some money into."

Logo is one of three gay-themed networks currently vying for distribution, along with Regent Entertainment's here! TV and the independently owned Q Television.

Q is on the air in Boston, Seattle, New York and San Francisco, all through RCN. Here! TV has deals with several cable operators, including Comcast, but strictly as an on-demand service.

From the time Logo was announced in May of 2004, the network was considered a carriage front-runner due to Viacom's enormous leverage with cable operators, the ability to sacrifice an existing channel to make room for Logo being a perfect example.

Wayne Friedman contributed to this report.