SUPPLEMENT: EUROPEAN MEDIA; The Americanisation of Europe

US media giants are carving up the European cable television market through a diverse series of launches and mergers. Richard Cook reports

US media giants are carving up the European cable television market

through a diverse series of launches and mergers. Richard Cook reports



There are, as more than one wag has observed, two ways of looking at the

world: the American way and the wrong way.



Take Independence Day - the highest grossing film in the US and Europe

this year. It depicts the world’s successful resistance to a sinister

alien invasion. Well, for the entire world read the entire US. The rest

of the world’s efforts when faced with the threat of global annihilation

are restricted to fewer than five minutes of screen time, and that

merely to concur with the Americans about the brilliant plan that the

latter have concocted.



It’s this kind of attitude - self-confident or jingoistic, depending on

your point of view - that has doubtless helped propel Americans and

American companies into positions of pre-eminence in so many fields of

endeavour. But, conversely, it is an attitude that has helped to delay

the impact of US media companies in key European markets.



Take, for example, cable programming. The UK became one of the first

countries in the world to deregulate its communications sectors by

introducing cable competition in 1982. US companies were understandably

keen to invest in the UK, and outfits such as Bell, Time Warner and

Tele-Communications Incorporated International rushed into the market.

After all, cable penetration in the US had more than doubled in the

previous decade from 30 to 60 per cent and hopes of a similar take-up in

the UK - which had only recently added a fourth terrestrial channel -

were high.



It didn’t work out like that. The cable operators soon found that there

was a world of difference between the US and UK markets. Although

Hollywood movies such as Independence Day perform well around the world

and a lot of US programming is distributed in foreign markets, a good

locally made programme is usually more popular. In the US, with its 60

million cable subscribers, it makes economic sense to create programmes

specifically for that market. But in the UK, where there are little more

than one million subscribers (although this is growing fast), this is

clearly not the case.



Add to that the surprising success of BSkyB’s satellite services and US

companies faced a classic conundrum: to expand the cable audience, more

programming was needed while, at the same time, a large audience was

required to defray the cost of producing such programming. The result

was that cable penetration did not increase at anything like the rates

that were forecast.



‘One of the things we have learned from our operations in the UK is that

not everything that works in the US will work in other countries - even

those with a common language,’ Fred Vierra, the chief executive of TCI

International, says. ‘Through our experience, we’ve come to understand

that it is vitally important to adapt our approach to local needs.’



It is this growing understanding of the requirements of individual

European markets that has helped provide the impetus for a second - and

more successful - wave of US media investment in Europe in the 90s.

Although cable television in the UK has not yet lived up to

expectations, the removal of a ban on cable companies offering telephone

services in 1989 and the decision of BSkyB to make its programme

packages available to the cable networks has revitalised the industry.



The two largest UK cable operations, TeleWest and Nynex, both of which

are US-owned, were successfully floated on the London stock market in

1994. Together they have served as a catalyst for their parents to

become involved in programme making. Admittedly, both are still

recording operating losses - TeleWest lost pounds 117 million in the

first six months of this year and Nynex pounds 49 million - but they

have reported cable penetration figures of more than 20 per cent. Last

month, the two companies entered talks aimed at forcing through a merger

that could help them to become profitable.



The jewel in their crown is not simply vastly improved programming but

the opportunity to provide faster Internet access to cable subscribers.

At present, with the fastest domestic modem it takes consumers around 45

seconds to download a colour picture from a Website. If you try to

download anything more complicated, such as audio and video material, a

great deal of patience is required - several hours worth, in fact. The

most efficient cable systems offer the prospect of speeding the whole

process up by as much as 350 to 1,000 times. Pictures could be

downloaded instantly, music and video in seconds.



Until this is possible and US media giants start to see a return on

their huge investment in the UK cable market, they can at least take

satisfaction in the fact that they now have a much more diverse

investment policy that spans programme making, terrestrial television

and magazine and newspaper ownership across the Continent. Even if the

nature of that investment is far from straightforward.



‘It is very difficult to keep a grip on how far US companies’ arms

actually stretch as far as Europe is concerned,’ one City analyst

explains, ‘because the nature of that investment has been in a

labyrinthine collection of joint ventures, hiving investment off the

balance-sheet into associate companies, and informal alliances designed

to get around complex media-ownership regulations across Europe and

reduce tax liabilities.’



That situation has, if anything, become even more complicated over the

last year as consolidations, mergers and takeovers have equipped US

media companies with more than enough clout to impose their visions on

the European marketplace.



In an unprecedented 12-month spending spree, Walt Disney forked out

dollars 19 billion on Capital Cities/ABC, News Corporation linked up

with the telecommunications group, MCI, Westinghouse acquired CBS, and

the drinks giant, Seagram, staked its claim for a place at the media

companies’ high table by picking up the entertainment group, MCA. In

addition, Microsoft formed a developmental alliance with the US’s

largest domestic network, NBC, and the once-moribund Time Warner is

paying dollars 8.5 billion for Turner Broadcasting Systems - a deal that

is still undergoing regulatory checks and one that will make the cable

giant, TCI, the largest single shareholder in a vastly enlarged Time

Warner/Turner group.



And all of this is just at the holding company level. The resulting

changes in ownership within the operating companies have been even more

complicated.



The prizes on offer, not least in Europe, are considerable. The UK is

the world’s fourth largest TV advertising market and Germany the fastest

growing mature market, while global forecasters predict a huge growth in

advertising. Zenith Media, for example, is looking for a global market

worth pounds 44 billion by the end of the decade.



‘One obvious result of all the consolidation of media ownership in the

US is that companies now feel able not only to offer programme libraries

for sale in other markets such as Europe but actually to set up their

own themed channels, both to showcase their programmes and as profit

centres in their own right,’ one London-based analyst says.



The latest example of this trend is Warner Brothers’ plan to launch its

first entertainment channel in Europe in November. To be called WBTV -

the Warner Channel, and to initially run for 14 hours a day, it will be

fully owned and operated by Warner but delivered as part of BSkyB’s

package of satellite programming. Although the channel will start

initially in the UK, the plan is for it to serve as the launch-pad for a

host of Warner channels across the Continent as digital broadcasting

takes off in the next 18 months.



The service will offer Warner cartoons for children in the morning and

some of Warner’s more successful US network shows during the day.

Programmes such as Murphy Brown and the Vietnam-based melodrama, China

Beach, will target women in dayparts.



Analysts believe that in the UK alone the service could be worth up to

dollars 30 million a year in additional revenue, and much more in Europe

as a whole, which doesn’t have the same cut-throat competition in the

children’s marketplace.



The opportunity for sales synergies with the existing Time Warner/TBS

owned TNT are clear, although no structure has yet been finalised. TBS

has already made huge strides through exploiting the resources of its

parent company.



For example, for Valentine’s Day, Turner assembled a short film

featuring movie kisses from its vast programme library, branded it with

Diet Coke and ran it at cinemas across the US.



Coca-Cola also bought spots across the Turner TV station to support the

sort of deal which will become increasingly commonplace.



TBS has put one man, the former Young and Rubicam Advertising Worldwide

president, Steve Heyer, in charge of both worldwide sales and all of its

operations in Europe. ‘I’m the chief exploiter of TBS,’ Heyer admitted

when he was appointed to his post last month. The company intends to

exploit its diverse network of interests. Even before the Time Warner

deal goes through, TBS already encompasses the TV channels, CNN, Turner

Network Television, the Cartoon Network, Turner Classic Movies, film

production companies such as Castle Rock and New Line, Hanna-Barbera

Productions and Turner Publishing.



Europe’s subscription satellite and cable channels also offer the

opportunity for film companies to compensate for the fact that revenue

growth in their core business - making films - is no longer keeping up

with costs. In April this year, Viacom - the Paramount Pictures and MTV

parent company - sold a ten-year package of feature films to the German

broadcaster, KirchGroup. In addition to the estimated dollars 1.8

billion cost of the films, KirchGroup agreed to carry Viacom’s MTV

Europe and VH-1 networks, Nickelodeon and four future Viacom channels as

part of its satellite TV service.



Viacom’s chairman and chief operating officer, Sumner Redstone, made no

bones about the idea behind the deal: ‘Our goal is to give Viacom a

stronger presence in Europe and these transactions clearly illustrate

that.’



In fact, Viacom was one of the few US giants to avoid getting its

fingers burnt by investing in Europe in the 80s. The launch of MTV

Europe in 1987 to more than two million households was a major success.

The channel is now received by more than 51 million households.



Diversification continues to be the key to US involvement in Europe.

TCI, for example, has bolstered its cable operations, such as TeleWest,

by starting up the network programme operator, Flextech, which runs

services from UK Gold to the Playboy Channel and has recently completed

a deal to launch digital channels with the BBC. Through Flextech, TCI is

also taking stakes in terrestrial stations such as Scottish Television.



Like Rupert Murdoch, the TCI chief executive, John Malone, has admitted

he doesn’t know whether, in the long run, it will be better for media

companies to own programmes, the means by which they are delivered or to

be involved in non-broadcast media. So TCI has invested in all of them.

And that is where the process of consolidation has really helped equip

US companies to compete in the global marketplace. They are now big

enough not to have to throw all their eggs into one basket and are

content to work with local partners. The result is that, once again,

rather like in the movies, the rest of the media world is looking to the

US for a lead.



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