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 -
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
And all of this is just at the holding company level. The resulting
changes in ownership within the operating companies have been even more
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
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
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
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.