The movement of telephone companies into television content distribution is giving start-up networks fresh hope for carriage and veteran programmers a profitable opportunity to cash in on their existing programming.
At the National Cable & Telecommunications Association National Show in San Francisco last week, networks on the exhibit floor included the usual mix of hopefuls clamoring for attention and confident behemoths taking nonstop meetings. But the increasing presence of telco companies that are poised to enter about 20 percent of the video market in the next couple of years was keenly felt on both ends of the network spectrum.
“Telcos have created the third window of opportunity to break into cable,” said William Lee, CEO of the start-up network Soundtrack Channel, which recently signed a deal with Verizon. “First there was analog cable, then digital and now the telcos. Clearly the telcos are not just looking for content, but different content.”
During the next few years telcos are expected to start delivering video content directly to viewers’ TVs as seamlessly as cable and satellite providers. SBC and Verizon are leading the charge, with Verizon saying it will debut as early as this fall. In recent years start-ups have faced an increasingly hostile distribution marketplace, with most cable operators refusing to consider new channels from independent companies or demanding ownership in exchange for distribution. But Mr. Lee and others said they have found the threatening presence of telcos has helped loosen the market. “The larger MSOs, who weren’t interested in acquiring new channels, now they’re talking to us,” Mr. Lee said.
Another start-up venture, Wealth TV, is similarly banking on the influence of telcos. Though the network’s president, Charles Herring, has little experience in television-none, in fact-he has sought meetings with Verizon, SBC, Qwest and BellSouth and claims one as-yet-unannounced telco deal.
“The more sources of distribution you can get, combined with proving yourselves by having a signal up for a long period of time, the better off you are when you walk into the next meeting,” Mr. Herring said.
Terry Denson, VP, programming and marketing for Verizon’s video efforts, said his company is seeking “a more diverse lineup” than standard cable operators. “That’s where several emerging niche-based networks can come into play,” said Mr. Denson, formerly VP of programming for cable operator Insight Communications.
Chasing telco deals, however, is tempered by the reality of current telco infrastructures-few can yet provide any real viewers. One cable insider said growing networks are merely “looking to telcos as survival tools until they get picked up by the MSOs.”
And not all newbie network executives were even interested in pursuing telcos or up-to-date on the companies’ plans.
Despite Casino and Gaming Television’s enormous Vegas-themed booth complete with showgirls and gambling tables, President and CEO Nick Rhodes seemed unexcited by the prospect of telcos, though he did admit he is interested in meeting with them.
Over at the here! Network, President Paul Colichman said he thought Verizon wanted to merely put television networks on cellphones. When he heard Verizon planned to provide network distribution, he said here! would be interested “when the telcos prove themselves.”
“We’re technological agnostics, but right now it’s all about cable and satellite providers,” he said.
According to the multiple system operators, a start-up being signed by a telco doesn’t give the network any unique leverage. “Because of DirecTV and EchoStar, we have operated in a competitive environment for years,” a Time Warner spokesperson said. “So our dealings with programmers have been shaped by a competitive environment.”
Sanford Bernstein & Co. senior cable analyst Craig Moffett agreed. “At the end of the day, a company like Comcast will add channels to a lineup only if they add a material benefit,” he said. “It remains to be seen whether a dozen or so diginets will make a difference.”
As always, for established networks the view was much more sunny.
Few telco distribution deals have been announced, but insiders said virtually every network is engaged in serious discussions. The best part for programmers is that they have all the leverage. The biggest telcos-SBC and Verizon-are spending billions to prepare their infrastructures for video delivery. To be competitive, popular channels are considered must-haves. One published estimate said telcos will pay 11 percent to 55 percent more for content than large MSOs will.
“[Programmers] certainly have the advantage,” Mr. Moffett said. “The telcos have little or no negotiating leverage.”
The downside, Mr. Moffett noted, was telco-versus-cable competition likely amounted to a “zero-sum game” in terms of gaining viewership. “Unlike satellite, that promised distribution to a market that couldn’t be reached by cable, any subscriber gained by SBC is likely one lost from Comcast or DirecTV,” he noted.
Lindsay Gardner, Fox Cable Networks senior VP of affiliate sales and marketing, did his morning workout last Tuesday at the National Show with an SBC executive. Though Fox has yet to sign a significant deal with a telco, he said, “We’re in the middle of serious discussions; paperwork is going back and forth.”
“Our mission is to get our 24 channels into as many homes as we can,” he said.
Mr. Gardner’s reference to 24 channels is no accident. Programmers are using their leverage to make all-inclusive deals. Last December Verizon made a deal to acquire all of Discovery’s 14 analog and digital channels.
Gaining specific details directly from telcos about their plans, however, can be difficult. Dan York, SBC’s programming executive and former HBO executive, refused to confirm whether his company is seeking to acquire unique start-up channels, to comment on the importance of having basic cable staples or to say how SBC’s grouping of networks would compare with the tiered system consumers are accustomed to.
Verizon’s Mr. Denson acknowledged that he wants to create a content platform that gives consumers every network they want, but said Verizon is fully willing to move forward without key networks.
“It starts with a simple proposition: Are you going to be with us, against us, or sit on the sidelines?” he said. “For those people who think we can be successful, it’s counterproductive for them to drive license fees as high as they can.”