ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Thursday, January 2, 1997 TAG: 9701020007
SECTION: EXTRA PAGE: 3 EDITION: METRO
SOURCE: AARON BARNHART THE NEW YORK TIMES
Welcome to cable television's parallel universe, where dozens of networks are on the air, producing thousands of hours of original programming for American audiences, yet the vast majority of cable viewers cannot tune them in.
Able to penetrate only a handful of the country's more than 11,000 cable systems, these networks - many of them devoted to niches like jazz music, independent films, ecology, gay and lesbian life styles, and Afro-Caribbean culture - languish in almost total obscurity.
Take the Independent Film Channel, a unit of Cablevision Systems. It was started in 1994 but is still available in only three million homes. BET on Jazz, a unit of Black Entertainment Television Holdings Inc. that was started in January, has yet to reach one million homes in coverage. Even Bravo, the widely acclaimed film and arts network also owned by Cablevision Systems, reaches only 22 million homes, less than one-third the coverage of Turner Broadcasting's Cable News Network, which like Bravo has been on the air since 1980.
These networks have fallen victim to a Darwinian process that favors proven, broad-concept approaches to cable programming over niche concepts, as evidenced by the arrival of CNN look-alikes - including three networks devoted solely to sports news - in the last year. The winnowing is likely to become more ruthless as a result of recent actions by the cable's dominant force, Tele-Communications Inc., which is seeking to stem operating losses and stave off the threat of direct-satellite and wireless competitors.
Since 1988, most of the growth in cable has occurred among basic cable networks, which charge licensing fees to the system operators based on the number of subscribers in each system. While revenues for premium and pay channels are up only slightly since 1988, those for basic cable have more than doubled, to $16 billion last year, nearly three-quarters of it from licensing fees.
During the 1980s, many of these networks took on cable system operators as equity partners. This gave the networks much-needed cash during their start-up years, when they expected to reap little in licensing fees. At the same time, operators took what Marc Riely, the president of Media Group Research, described as a ``Noah's Ark approach,'' building small stables of dependable program offerings for their customers. Nearly all of the largest networks, which reach 95 percent or more of the homes with cable television, were started during this period.
Since 1985, the number of cable networks has tripled. But the total number of available channels on cable systems has not grown anywhere near that pace, because of technological limitations, as well as government regulations. Currently, cable operators are required to set aside as much as one-third of their available channels for retransmitting local broadcast stations, for ``leased access'' channels that can be rented out to home-shopping or other services, and in many cities for municipal and public access programs.
Among basic cable networks that has heightened the competition for precious channel space, as could be seen last month when it was learned that Tele-Communications, having just announced a $132 million quarterly operating loss, had struck deals to begin carrying four other networks in many of its 14 million cable households.
They are Animal Planet and the Learning Channel, both networks of Discovery Communications Inc.; Home & Garden TV, owned by E.W. Scripps & Co., and Turner Broadcasting's Cartoon Network. Turner is now owned by Time Warner. In exchange, the four networks reportedly agreed to make one-time payments of $5 to $8 per subscriber and to charge no licensing fees for up to three years.
Other networks including Comedy Central, E! and the superstations WGN and WWOR were dropped without notification, and cable industry analysts say the fees undoubtedly played a part in Tele-Communications' decision. So did the fact that Tele-Communications has equity interest in three of the four big winners, and in none of the networks that were big losers.
Then last week Time Warner Cable, the nation's second largest operator, announced it would be selling its 58 percent interest in the E! network and was hoping to generate $500 million from the sale. Industry analysts predict that similar cash-raising efforts will follow as both companies attempt to upgrade their systems to compete more effectively with satellite dishes and, in the future, digital broadcast television.
If so, the upper hand in placing channels will shift even more emphatically in the favor of deep-pocketed media companies like the News Corp., whose chairman, Rupert Murdoch, has been conducting a high-profile fight with Time Warner to have his Fox News Channel carried on Time Warner Cable systems in New York City and other markets. But when Murdoch is not using a stick, he is dangling a carrot, reportedly offering up to $11 per subscriber to systems that would carry the Fox News Channel.
``If you don't have the equity interest of a larger operator, or you aren't backed by a media company like Disney or Time Warner, you'll have a really tough time getting launched,'' Riely said. ``It's always been difficult'' for independent and niche concept networks to establish a foothold.
For example, Animal Planet leaped from zero to 10 million households overnight, at a reported cost of $50 million in upfront payments to Tele-Communications. That amount, by contrast, exceeds the entire operating budget for the first three years of Ovation TV, a fine arts network whose investors include The New York Times Co.
But the companies backing these niche-concept networks argue that cable needs to find a competitive advantage over broadcast and satellite rivals, and that more off-the-beaten-path networks are part of the solution. Robert L. Johnson, chief executive of BET, noted that more than 30 percent of homes do not receive any subscription services, and said that operators like Tele-Communications should be directing ``coherent marketing strategies'' at getting these holdouts to subscribe.
``There are people who would love to have a jazz offering on cable,'' Johnson said.
For Harold E. Morse, the president of Ovation, the question will increasingly become one of value. ``Prices are going to go up for all these products, and if I'm going to have to pay more, I'm going to want to see better programming,'' he said. Like Johnson, Morse said he expected his service to be sold mainly to upgraded, digitally delivered systems, like the one that Tele-Communications is testing in Hartford, Conn.
Yet offering even hundreds of new channels will not guarantee niche-concept networks a space, said John Higgins, editor of the industry journal Multichannel News. ``The scarcity may disappear, but control won't.
``You've still got to get past John Malone to get on,'' he said, referring to Tele-Communications' powerful chief executive.
By all accounts, the well-financed networks will be there with still more spinoffs that make up for in equity what they may lack in originality. Earlier this year, MTV Networks introduced M2, which like its sister channels MTV and VH1 is a 24-hour music video channel. M2 has yet to find a single cable system to carry it, and the MTV Network is believed to be preparing it for future use. Higgins compared the strategy to brand proliferation by soft drink companies: ``You keep Pepsi off the shelves, but you also keep out all the little brands.''
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