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Emerging Cable Nets: Smaller Nets Face Hurdles

Apr 3, 2006  •  Post A Comment

Earlier this year, NBC Universal pulled struggling digital network Trio off the air and converted it into a broadband channel at TrioTV.com. That move came shortly after the network’s largest distributor, DirecTV, yanked Trio from its lineup, sending the arts network tumbling to a distribution level below 10 million homes.

Then in February, gay-and-lesbian-themed cable channel Q Television Network ran headfirst into financial challenges, shuttering its studios for a little more than a week and letting go about 50 percent of its staff before coming back with regular programming. The network also overhauled its management team.

While Q’s new president, Carol Hinnant, emphasized that Q is very much soldiering on, the struggles of Q and Trio are emblematic of the challenges faced by emerging networks in today’s economic and technological landscape.

Available bandwidth is anemic on cable systems. Most cable operators have charged their technical operations staffs with devising solutions to free up bandwidth. Every megahertz counts, especially when cablers need that bandwidth not just for linear networks but also for advanced services such as video-on-demand, high-definition TV and interactive applications, as well as telephony. So most operators have put the word out that they prefer VOD networks because they have room for them.

At the same time, 68 percent of Internet users now connect via broadband. Because of that robust broadband penetration, small-time producers as well as big networks have turned to broadband for new channel launches. Scripps Networks is in the process of rolling out several broadband channels, while Lifetime, Comedy Central, MTV and other networks have introduced broadband video sites. Because there are now so many distribution vehicles, such as VOD, broadband, mobile phones and iTunes, launching a new linear network is at best a long shot.

“New linear channel launches are dead, gone, with ultra-few exceptions,” said Tom Grams, managing director of TVGrams Consulting in Sausalito, Calif. “In fact, over the next few years we will likely see networks downgrading to broadband-or outright closure of unprofitable, unpromising linear channels.”

Still, new networks continue to crop up. But those that survive, such as gay-themed network here!, are likely to be those that hang their hat on a multiplatform approach, allowing operators and consumers to choose when and how to watch the programming.

The break-even number for penetration of a digital network has always been about 30 million homes or more, said Bruce Leichtman, principal with Leichtman Research Group. But some new networks today are angling to get by on less, and if they are efficiently run they may indeed be able to. They can turn to heavily branded or sponsored content, single-camera or dual-camera shows and studio-based talking heads, Mr. Grams said.

But the challenge in this bandwidth-squeezed world is formidable. Independent networks are attacked on all sides, from having to go it alone for distribution to the specter of a la carte legislation, he said.

“You will see more well-known brands getting into VOD because it makes more sense to go nonlinear and broadband,” he said. “It’s very easy to make the leap into broadband video.”

Here!, which launched in 2002, has reached 50 million homes passed. The network got there by offering a smorgasbord of distribution opportunities to operators, including VOD, subscription VOD, pay-per-view and linear. Most of the homes passed are on-demand, but some markets carry the channel on a linear basis, including Atlantic Broadband in South Miami Beach and Buckeye Cable in Toledo, Ohio, said Paul Colichman, here! founder and CEO.

This flexible business model works well economically and technologically for operators in today’s climate, he said. In addition, here! has inked deals with Movielink, Akimbo and Google Video. “It is our job to make our content available to everyone in every way possible. It’s all about access to the gay and lesbian community,” Mr. Colichman said.

The network will not release numbers, but Mr. Colichman said this approach appears to be working financially.

Jewish-themed programmer Shalom TV retooled its business plan, which was to launch as a linear network, and instead converted to an SVOD package with about 50 hours per month of content offered for a subscription price of about $6.95 per month.

“While Shalom TV was conceived as a linear service, terrestrial operators in the most heavily Jewish metros in America were much more willing to roll out a VOD product. For us, the numbers worked, though there remains continued interest in exploring a linear service for news and interactive programming,” said Shalom TV CEO Rabbi Mark Golub.

Q still believes in a linear model. The network lost about 500,000 homes during its struggles, but has gained some distribution through a recent launch on Verizon’s FiOS TV service and is now in front of more than 3 million homes through deals with Time Warner, Cox, RCN and others, Ms. Hinnant said.

“The challenge in terms of distribution has been that we serve a very niche audience,” she said. “Cable and satellite operators are looking at new businesses, whether it be voice over the Internet or high-speed, and we have the old business model.”

Of Q’s struggles, she said, “We ramped up our staff too fast and we weren’t able to sustain that, so that had some major impact.

“This is an opportunity to focus on the content and the variety of that content and [deliver] what we say we are going to deliver to the gay community.”