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Jul 23, 2001  •  Post A Comment

Disney buys Fox Family Channel

It’s all in the family for Disney/ABC.

The Walt Disney Co. and its ABC network called a hastily assembled news conference Monday to confirm, as reported in the July 23 issue of Electronic Media, that it has acquired Fox Family Channel’s domestic and international cable networks — to be re-branded ABC Family.

The deal with Fox Family co-owners News Corp. and Saban Entertainment calls for Disney to shell out $3 billion in cash and assume $2.3 billion in debt. It is expected to close in three or four months. When that happens, the channel — which is available in approximately 81 million homes in the U.S. and to an estimated 600 million viewers worldwide — and the House of Mouse will become home to the “Mighty Morphin Power Rangers” and “Digimon” cartoons.

Under the terms of the deal, Disney also acquires the International Fox Kids Channel and Saban Entertainment library.

Walt Disney Co. Chairman Michael Eisner said the acquisition of Fox Family hits the “sweet spot” for a media conglomerate focused on the content and creation of programming. Mr. Eisner suggested Disney has been wrongfully criticized for focusing on content historically and not enough on keeping up consolidation of multiple-media platforms gobbled up by the likes of AOL Time Warner, Fox’s News Corp. and Viacom.

“Although there’s a lot of pressure on the Disney Co. to be one of the so-called pipe owners, our view has been that the better way for us to go again was with content, and therefore this [is where the] deal has evolved,” Mr. Eisner told TV critics and business reporters at the news conference, held Monday morning during the Television Critics Association press tour in Pasadena, Calif. ABC is at TCA to present its 2001-02 season network programming.

“That is not to say pipe owners aren’t as important,” he continued. “There was always a time that owning content was of the essence. So, although our strategy has some similarities [with that of] some of our competitors, we are [still] content-obsessive.”For News Corp., garnering about $1.5 billion in cash from the deal, will get much-needed additional funding to mount its current negotiations to buy out General Motors’ Hughes Corp. and its U.S. satellite subscriber service, DirecTV. As for Mr. Saban’s company, it essentially appears to have cashed out of the kids business in turning over its program library to Disney in the deal.

One of key provisions of the deal requires Disney’s new ABC Family channel to carry the Rev. Pat Robertson’s “700 Club” religious program in daytime. In 1997, News Corp. and Saban originally acquired International Family Entertainment and its Family Channel from Mr. Robertson with the stipulation of continuing to provide a pulpit for “700 Club,” which Robert Iger, president and COO of The Walt Disney Co., confirmed is grandfathered into the new deal as well.

Mr. Iger also confirmed that ABC Family will have an “obligation” to continue carrying Fox Family’s ongoing slate of Major League Baseball telecasts, but it will be re-branded as Fox Family ESPN. The telecasts will be produced by ESPN, he said, with advertising sales and marketing handled by the recently formed ESPN/ABC Sports venture.

However, Mr. Iger may have raised some questions about how long the baseball joint venture will remain in place.

“Baseball airing on the Family Channel is fine, but it’s essentially the only sports that’s on Family Channel, and the sports viewer doesn’t have much of a chance of figuring out where it is or what it is,” Mr. Iger said. “Obviously, the substantial marketing clout that ESPN provides will give us an opportunity to point viewers in the sports direction on a channel that is not known as a sports channel.”

Seen as of central importance to the deal is Disney’s intention to repurpose programming from ABC’s prime time and daytime kids lineups and possibly other children’s/family fare from the Disney Channel and Toon Disney basic cable networks.

“This will give us the opportunity to take the best of our new programs, air them first on ABC and give them a second airing within a fairly brief period of time on what we’re calling ABC Family,” Mr. Iger said. “It obviously will give us the ability from a sales standpoint to offer our advertisers more than they would get if they were to buy just the one program run on ABC.”

Mr. Iger also hinted that the repurposing of ABC network programming could extend beyond entertainment series and into news programming.

“We know of the ‘Law & Order: SVU’ NBC/USA cable relationship, and we obviously are aware of the relationship between NBC and MSNBC and CNBC, and Fox Network and Fox Sports, but in many cases these are either one-offs in terms of one-program arrangements, or they are very genre-specific arrangements,” he said. “In this case, ABC Family will be thoroughly compatible with the ABC Television Network, and we will not be limited to just one type of program genre or one program. We have huge flexibility basically across the ABC program schedule, including things like ABC News programs.”

Under an amendment added to the network-affiliates contract in 1999, ABC can repurpose as much as 25 percent of prime-time entertainment programming (or 5.5 hours of its 22-hour-per-week schedule) without restriction. Beyond 25 percent, the network set a variety of exclusivity windows (ranging from 48 hours for awards shows and certain topical specials to 60 days for other specials and made-for-TV movies and 180 days for prime-time entertainment series).

Some stations sources feel that the Disney purchase of Fox Family Channel and its plans for repurposing come at a perfect time to give the Network Affiliated Stations Alliance additional points to argue on behalf of its request for the Federal Communications Commission to investigate a number of network practices, including limits on affiliates’ pre-emptions of network programming.

Andy Fisher, president of Cox Broadcasting, believes the network has an obligation to negotiate with its affiliates board over the scope of repurposing, but he said, “If ABC intends to do substantial repurposing … it could represent an opportunity to build the next generation of positive, mutually beneficial relationships.” In other words, if the affiliates could share in the ad revenues from the off-network repeat, for example, they might even feel it benefited them to promote the off-network airdate.

“We would all do better if ventures that were related were constructed with affiliates having an upside potential,” said Mr. Fisher.

However, “Until we are more aware of what their plan is, it’s hard to know how we can work with them,” Mr. Fisher said.

The transaction does not include the Fox Kids programming block, which airs on the Fox network. Fox Kids is expected to continue under a joint News Corp.-Saban management structure.

ABC has scheduled a meeting Wednesday with affiliates to discuss aspects of the Fox Family deal as well as potential new business models for possibly sharing in repurposing revenue. Mr. Iger makes it no secret that ABC, like the other media-consolidated broadcast networks, needs to find ways to bring in additional repurposing revenue to make up for declining ratings amid a greater fractionalization of the TV universe.

“Clearly, we realize in this day and age, given the huge competition that media networks all face — due mostly to proliferation of new program services — the need to better amortize program costs across multiple channels as well as the need to aggregate viewers or eyeballs is extreme,” Mr. Iger said. “Again, the acquisition of an $80-plus million service domestically gives us the ability to do that.”

The loss of Fox Family Channel as a second platform on which Fox Kids programming costs can be amortized raises the question of how much longer Fox Broadcasting affiliates might be stuck with children’s programming, which they have long argued is no longer a viable business for over-the-air stations to be in on weekdays.

“From an affiliate point of view, we want out of the kids business Monday through Friday,” said Cullie Tarleton, c
hairman of the Fox affiliates and vice president of television and cable for Bahakel Communications. “We’ve been very vocal about that while at the same time acknowledging we have a contract with the network.”

Both Mr. Tarleton and a spokesman for the Fox network said that it will be status quo for Fox Kids for the next year and that what happens to the kids programming on weekdays and Saturdays will be evaluated after that.

In addition to the domestic cable channel and an approximately 6,500-episode library, the assets being acquired by Disney include a 76 percent ownership interest in Fox Kids Europe, which reaches more than 24 million subscribers, and Fox Kids channels in Latin America, which reach approximately 10 million subscribers. The remaining 24 percent interest in Fox Kids Europe is publicly traded on the Amsterdam Bourse.

The European and Latin American basic-cable channels, available in some 74 countries overall, will be rebranded under the Disney name. Disney already operates 14 international premium-cable Disney Channels. With the deal, Disney acquires “one of the few fully distributed stand-alone channels,” Mr. Eisner said.

On the ad-sales front, ABC Family will be folded into ABC Unlimited, which sells ABC, ESPN, SoapNet and Toon Disney, as well as Internet and publishing availabilities. On the management front, ABC Family will be managed collaboratively by both the ABC Television Network and the ABC Cable Networks Group, with the international channels reporting into to the Cable Networks Group.

Standard & Poor’s revised its outlook on Walt Disney Co. to negative from stable in the wake of its announcement of the deal.

The ratings agency cited the fact that the channel has “underperformed, a situation Disney hopes to rectify by rebranding it as the ABC Family channel and reprogramming it with ABC and Disney shows, original programming, and Disney library programs.”

Thomas Stagg, chief financial officer for The Walt Disney Co., said the Fox Family holdings generated $150 million in operating cash flow last year, with its domestic operations accounting for about three-quarters of that figure. By consolidating ad sales and other back office operations, Mr. Stagg estimates that Disney could realize $50 million in savings.

Furthermore, by exploiting the Saban library through Disney’s existing home video operations and other international territorial sales, Mr. Stagg boldly predicted that cash flow could “quickly double” to $300 million in a few years. On that forward-looking basis, Mr. Stagg estimated that Disney’s acquisition of Fox Family comes in at a multiple of “slightly less” than 18 times cash flow, although some media analysts would argue that they see the transaction currently being in the richer 20-times multiple area.

The acquisition hikes Disney’s gross debt to earnings before interest, taxes, depreciation and amortization to 2.9 times before operating synergies from a current 1.9 times for trailing 12 month returns, “exceeding the 2 times leverage target S&P has set for Disney at a single A rating,” S&P said.

Networks rebuff NASA petition: The Big 4 broadcast networks repudiated the claims made last winter when the Network Affiliated Stations Alliance petitioned the Federal Communications Commission to investigate a litany of network practices governed by federal rules the networks described as outmoded and unnecessary.

NBC described the NASA petition as “an overblown, overreaching attack” and said NASA’s later refinements of the complaint “reflect the vacuity of its claims and reveal the true motivation behind its attack on the networks: to persuade the Commission to dictate contract terms that uniformly favor the affiliates in order to shield them from the economic realities of the highly competitive video programming distribution marketplace.”

The petition is “an attempt to convince the Commission to interpret fundamentally outdated rules and policies in a manner that will benefit affiliates’ private business interests,” said Fox Broadcasting, whose affiliates are not represented by NASA but whose practices were also cited by NASA. “How can the Commission consider charged that its rules have been violated without first resolving the fundamental question of whether those rules continue to have any public policy basis?”

Among the affiliates’ core complaints is that the networks try to limit pre-emptions for locally inserted programs.

“In other words,” CBS said, “NASA contends that CBS violates the Commission’s rules by insisting that its affiliation agreements impose enforceable duties on both parties to the contract, rather than conferring only rights without obligations on its affiliates.”

ABC compiled data that showed numerous stations had pre-empted such network children’s favorites as “Doug” or “Winnie the Pooh” in order to air infomercials, or delayed “Nightline” in order to run syndicated sitcoms, or pre-empted Sunday “World News Tonight” in order to run “Hollywood Squares” or paid programming.

“There is no imaginable reason why disputes of this kind should be removed from the free operation of the marketplace,” said ABC parent Walt Disney Company in its filing.

NBC argued that it “encourages its affiliates — both those owned by the network and those independently owned — to develop a strong local presence through their programming and community service endeavors.”

“The Commission should not fall into this trap,” said NBC of the NASA request that the commission investigate, but not penalize the networks.

‘Dr. Phil’ gets CBS station clearances: The CBS O&Os may not have been able to land “Oprah,” but now they’ve got “Dr Phil,” featuring frequent “Oprah” guest Dr. Phil McGraw. The 2002 talk show has been cleared in a number of CBS-owned stations, including the country’s top market, New York, as well as Dallas and Minneapolis. The King World Productions series joins other 2002 strips, including Buena Vista Television’s “Who Wants to Be a Millionaire,” NBC Enterprises’ “The Weakest Link,” and Columbia TriStar Television Distribution’s “$100,000 Pyramid,” as series making early clearances for the 2002-03 season.

Jackson takes CEO post at USA Entertainment: Barry Diller’s USA Networks has snared one of the United Kingdom’s veteran TV executives, Michael Jackson, who quit his CEO post at Channel 4 to become president and CEO of USA Entertainment. In his new position, Mr. Jackson, 42, will oversee all the divisions of USA’s entertainment group, including the USA cable networks, the Studios USA network TV production and syndication divisions and USA Films. Mr. Jackson, who will have offices in New York and Los Angeles, will report to Mr. Diller, chairman and CEO of USA Networks.

“For some time now, I’ve tried to induce Michael Jackson to join USA … finally — and at a definitive juncture in the life of our entertainment assets — this remarkable executive has agreed to lead our entertainment businesses,” Mr. Diller said in a prepared statement. “He has had great success in building up Channel Four into a major force in Britain.”

At Channel 4 since 1997, Mr. Jackson was credited with spearheading the launch of new pay TV channels — Film Four and E4 — as digital platforms that have maintained 10 percent subscriber growth in Britain’s currently sluggish terrestrial market. He is also cited for programming such internationally recognizable series formats a “Big Brother,” “Queer as Folk,” “Longitude,” “1900 House” and “Smack the Pony.”

Mr. Jackson first cast his career reputation as an independent producer (such as doing “The Media Show” for Channel 4) and later rising through the ranks of British Broadcasting Corp. to become chief controller of BBC2 in 1993.

ABC unveils programming strategy: Repeating its mantra that ABC, like any other network, is “one big hit away from being No. 1” in the adults 18 to 49 and household ratings races, ABC Television Entertainment Co-Chairmen Lloyd Braun and Stu Bloomberg announced a slew of key programming moves, including miniseries maven Stephen King producing his first regular TV series, “The Kingdom.” Additionally, Peter Tol
an is set to produce his satire on the network TV business, “The Web”; and Matt Damon and Ben Affleck’s “The Runner” reality series is on track for a January 2002 launch.

Speaking Sunday at the Television Critics Association press tour in Pasadena, Calif., Mr. Bloomberg said Mr. King, whose horror miniseries (“The Stand,” “The Tommyknockers” and a retelling of “The Shining”) have been ABC fixtures for years, is committed to write the first two hours of “The Kingdom.” He also said that later Mr. King may write the “whole season” of what is an initial 13-episode order of the midseason series, set to be co-produced by Columbia TriStar Television and ABC/Disney’s Touchstone Television. Based on a Danish miniseries created by Lars von Trier (“Dancer in the Dark,” “Breaking the Waves”), “The Kingdom” is about a haunted hospital built over an ancient graveyard.

“Stephen has been after this for years,” Mr. Bloomberg said. “[Mr.] von Trier took it [first] to Sony [parent of Columbia TriStar Television] as a feature, and then when they heard that Stephen was interested they decided to give it to him. The haunted aspect of it and the battle between the scientific mind and the spiritual world — it is fantastic, and it’s such a rich area for Stephen to play in.”

On top of ABC’s previously announced fall 2001 scheduling plans to premiere three dramas and two comedies, Mr. Bloomberg and Mr. Braun confirmed they have chalked in the midseason comedy, “The Web,” from Mr. Tolan and Lauren Corrao — both are executive producers of ABC’s critically well-received cop comedy, “The Job.”

Mr. Bloomberg jokingly promised that “The Web,” starring Ivan Sergei (formerly of The WB’s “Jack & Jill”), is “going to be a very gentle, even-handed look” at a fictional television network, “because that is what we made Peter [Tolan] do. And if you know Peter, you know it’s a lie. It is really searing and funny.”

Some critics raised repeated questions on the producer and talent changes in ABC’s upcoming Jason Alexander-led “Bob Patterson” sitcom. On the recent exit of Tim Doyle as one of the executive producers (along with Peter Tilden and Ira Behr), Mr. Braun claimed his leaving had nothing to do with “internal problems” but that he was not a right “fit” for the show. In front of the camera, though, Mr. Bloomberg said Jennifer Aspen (formerly of Fox’s “freakylinks” and “Party of Five”) has joined the cast as Bob Patterson’s ex-wife, while Phil Buckman (“City of Angels,” “Zoe, Duncan, Jack & Jane”) moves in as an “office guy” on the show.

Mr. Braun acknowledged that “Bob Patterson” could be the network’s riskiest bet for next fall, going up at 9 p.m. (ET) Tuesdays against NBC’s “Frasier” and three promising new dramas (Fox’s “24,” WB’s “Smallville” and CBS’s “The Guardian”).

“As strong as ‘Frasier’ is, our hope is that there’s some vulnerability there now, that people are going to sample ‘Bob Patterson,’ and if they like it and they think it’s funny, they’re going to be back,” Mr. Braun said.

Mr. Braun said the network’s second riskiest programming move will be 9 p.m. to 10 p.m. Sundays, where the initially well-received freshman drama “Alias” will square off against Fox’s “The X-Files” and NBC’s new “Law & Order: Criminal Intent.” With Fox set to air the Major League Baseball playoffs and World Series next October and holding “The X-Files” back for a Nov. 4 season opener, Mr. Braun hinted that the “five-week” advanced start of “Alias” could give it chance to build some early sampling.

However, Mr. Braun later said he would not announce “Alias” nor the rest of the network’s prime series start dates for another few weeks. “I don’t want to give our competitive hand,” he said. “We’re going to keep a surprise.”

It seemed less of surprise that cellular phone manufacturer Nokia was announced as sole sponsor for the commercial-free premiere of “Alias.” In the pilot, a Nokia phone got choice product placement in the hands of series star Jennifer Garner. However, Mr. Braun said the product placement and sponsorship deal with Nokia came after the pilot was made for the show. “It was really a totally organic outgrowth from the show,” he said.

Amazon facing tough times despite AOL Time Warner deal: AOL Time Warner has made a $100 million equity investment in Amazon hinged to a cross-marketing deal, expanding an existing pact formed in 1997. Amazon will help enhance the shopping experience for AOL subscribers, and AOL will be the exclusive Internet service provider promoted by Amazon. Still, Amazon shares fell 96 cents per share, or 5.5 percent, to close at $16 a share Monday after the online retail giant told analysts on a second quarter conference call that it is using cash faster than it can replenish it.

Amazon cut its third-quarter and second-half revenue estimates to 10 percent to 20 percent lower than a year ago. Third-quarter revenue will come in between $625 million and $675 million, falling far short of Wall Street forecasts of $732 million. But the company maintains it will break even on a limited basis for the first time by the fourth quarter of 2001.

WINfirst announces Intertainer deal: WINfirst, a broadband network planning to launch service in Sacramento, San Diego, Austin, Dallas, Houston, San Antonio and Seattle, announced that it has selected Intertainer as its video-on-demand service provider. Winfirst’s release to the public-at-large comes a week after the deal was first reported by Electronic Media (“WINfirst signs VOD deal with Intertainer,” July 16).

CTAM kicks off summit with board member’s election: The annual CTAM Summit is under way in San Francisco, beginning its four-day run with the election of new board members; a display of new technology, including Internet-enabled cable phone service and the latest hardware and software for video on demand; and several afternoon-long Master Courses on subjects ranging from multicultural marketing to rebranding a network.

Elected to two-year terms were John Dyer, senior vice president, operations, Cox Communications; Pam Halling, senior vice president, marketing and programming, Insight Communications; and John Pascarelli, senior vice president, marketing and consumer services, Mediacom Communications.

The CTAM members were informed that 2000 ended for the organization with $1.8 million in net assets on hand and 5,556 members, up 5 percent from the previous year. As of the beginning of this July, midway through the current lean year, CTAM’s national membership stood at 5,649, slightly below the target goal of 5,721 members.

This year’s 25th anniversary CTAM Summit has drawn 2,240 preregistered attendees, according to Seth Morrison, senior vice president, CTAM. Approximately 27 percent of those attendees are cable operators, 40 percent represent the cable networks and the remainder are “other vendors,” according to Mr. Morrison. Specifically they are representatives of agencies, consultants and hardware and software manufacturers. Of the “other” vendors, some 10 percent are in the interactive, broadband and dot-com categories.

“We’re on the cusp of making it happen,” Mr. Morrisoon said of cable’s continuing digital conversion. “We’re moving from early adopters [of digital cable] to mass markets.”

How smoothly and quickly those mass markets materialize is cable’s No. 1 challenge. The industry’s big issues, certain to be addressed at this CTAM, include everything from the technology itself, which still needs to be “tweaked” in many areas, to copyright protection for reluctant content rights’ holders, particularly the big Hollywood studios, who are jealously guarding their video-streaming and other future-technology options — in sum, all the technological and contractual issues that the cable industry has yet to completely master.

San Francisco’s fabled Golden Gate and its grand vistas, almost always framed by fog, are fitting metaphors for the cable industry itself at this CTAM in mid-2001, which is on the cusp between a golden technological promise and the hazy near future in which there are no guarantees.

Cox won’t comment on AT&T Broadband plans: Cox Communications officials tol
d investors and analysts Monday that they are reviewing “the potential changing industry landscape,” but declined comment on Cox’s own interest on bidding against Comcast Corp. for AT&T Broadband.Cox reduced its full-year new-customer growth estimates by about 1/2 percent to 1 percent for 2001. But Cox reaffirmed its earlier 2001 guidance for 14 percent to 16 percent growth in new service revenues and in overall company revenues; 12 percent to 13 percent growth in third-quarter operating cash flow; and 12 percent to 13 percent growth in full-year operating cash flow, even with $2 billion in capital expenditures.

BSkyB faces anti-competition concerns: There could be a potential new wrinkle in News Corp.’s long-suffering bid to acquire Hughes Electronics and its DirecTV to form a Sky Global satellite operation. European Union regulators are examining whether Rupert Murdoch’s British Sky Broadcasting’s exclusive contracts for the Disney, Discovery and other cable channels are anti-competitive because the agreements keep the channels off ITV Digital, a land-based digital TV service that competes with BSkyB in Britain. News Corp. calls the complaint from ITV “groundless.”

AOL Music reveals new initiatives: AOL Music unveiled several new online music initiatives Monday as a new Jupiter Media Metrix report forecasted U.S. consumer online music spending will grow from about $1 billion this year to $6.2 billion in 2006. Jupiter estimates 30 percent of online music sales eventually will be generated by digital downloads and music subscriptions, with the remaining coming from traditional Web-ordered products. AOL’s new offerings, which include an Internet radio service called Radio@AOL are precursors to the fall launch of MusicNet, a joint subscription service developed by AOL Time Warner’s Warner Music, EMI Group Plc., RealNetworks and Bertelsmann AG.

WMAQ-TV partners with Daily Herald: NBC-owned WMAQ-TV, Chicago, and the Daily Herald, the third-largest newspaper in Illinois, will begin a partnership on July 30. The newspaper’s next-day headlines will be on the WMAQ 10 p.m. newscast. Each day an e-poll will be conducted on both the station and newspaper’s Web sites, the WMAQ weather team will lend its expertise to the newspaper’s weather page, and WMAQ’s sports team will appear in the paper.

Staab named GM at WTVD-TV: Valari Staab, general manager at ABC-owned KFSN-TV, Fresno, Calif., has been named general manager at sister station WTVD-TV, Raleigh-Durham, N.C., effective immediately. She replaces Bruce Gordon, who resigned.

“Valari’s wide-ranging experience in local television management and operations at ABC stations makes her the ideal choice for the top post at WTVD-TV,” said Walter Liss, president of the ABC-owned television stations.

Schiller becomes news director at KYW-TV: Susan Schiller, a producer for the “CBS Evening News With Dan Rather,” becomes news director at CBS-owned KYW-TV, Philadelphia. She already knows the Philadelphia market because from 1987 to 1990 she was assistant news director at NBC-owned WCAU-TV.

Crier to anchor ABC News radio series: ABC News Radio has named Court TV anchor Catherine Crier, who used to be an ABC News correspondent, the anchor of “Court TV League Minute,” a daily series about real people’s dealings with the American justice system. The series will debut Monday, July 30.

Rock and Roll Hall of Fame names official radio network: United Stations Radio Networks has become the official radio network for the Rock and Roll Hall of Fame Museum under a deal that also calls for the creation of nationally distributed radio programs starting this year.#

(c) Copyright 2001 by Crain Communications