SUPPLEMENT: TELEVISION; For cable channels, it’s all about distribution

If a cable TV subscriber turns on the Weather Channel in Birmingham and gets information on local conditions, that demonstrates one of the strengths of the medium. If a subscriber to a TeleWest franchise finds the channel unavailable, however, even though a Bell Cable Media customer can get it, that is one of cable’s weaknesses.

If a cable TV subscriber turns on the Weather Channel in Birmingham and

gets information on local conditions, that demonstrates one of the

strengths of the medium. If a subscriber to a TeleWest franchise finds

the channel unavailable, however, even though a Bell Cable Media

customer can get it, that is one of cable’s weaknesses.



This autumn has seen a major shake-up in the structure of channels being

offered by cable operators. The packages being offered to subscribers

are being reorganised, with some existing channels being bumped off air.

In their place, an unprecedented wave of new channels is fighting for

distribution. By one estimate, 24 new stations are seeking carriage

before the end of this year.



According to Benjamin Bull, director of programming at Videotron: ‘It is

a really interesting time. Over the last year, the market has changed

completely. In the past, there was a shortage of quality channels. The

choice we have now outstrips our ability to carry them. The carriage

market is demand-led now and the price of channels is coming down

significantly. The terms on which they are prepared to supply are

changing. That is very good for consumers.’



This is a diplomatic response to current events. Scratch the surface and

a slightly harsher reality appears beneath the gloss. Any viewers of a

TeleWest cable franchise expecting to see the seven new Granada Sky

Broadcasting (GSB) channels appear on their screens on the morning of 1

October, for example, had to wait until the evening.



The time difference was short but symbolic. ‘Our research on GSB showed

a strong demand, but viewers wouldn’t pay more than their existing

subscription. We launched it but did not increase our prices,’ Ashley

Faull, director of programming at TeleWest, says. The company is

absorbing the price difference by accepting a reduced margin, but the

cable operator is not a charity.



A widely held view among cable franchises is that some channels are

simply asking for too much money. The only way to force the hand of the

major players may be to withhold giving them carriage. Michelle Tennens

is at the sharp end of the business as residential marketing supervisor

for Cambridge Cable. She says that ‘at present, the prices some channels

are asking are insane’.



She notes: ‘It is a difficult balance keeping prices low and offering

new channels. GSB, Sky and Warner all want to go into the basic package,

not into premium. The problem is, they want a high price without us

being able to justify that to the customer. We charge pounds 13 for 40

channels already. If we took all of the new ones, we would have to put

that up by at least pounds 1, if not more. That is a big price jump for

what are currently unproven channels.’



Much of the finger-pointing over price is directed towards Sky. As the

early provider of bulk of cable’s core programming, it has long-term

deals in place which give it pride of place in basic packages. This is

the coveted slot for most channels, since price elasticity is extremely

low, with few subscribers willing to pay for premium options. An average

cable operator will probably only achieve take-up of add-on channels

among 15 per cent of its subscribers.



Jerry Glover, managing director, commercial, Granada Sky Broadcasting,

agrees that ‘usually, older channels are more expensive than new ones’.

But he does not see any problems arising from GSB’s eight-month sales

association with Sky, which has resulted in its channels being picked up

by all but two franchises. ‘We are very pleased with the amount of

distribution we have been able to generate at a difficult time. This is

a transitional period - everybody wants to go in a different direction

and there is no consensus about how far and where to go. It is hard to

structure a deal when the world is changing so much,’ he says. For many

operators, there has been little option but to bite the bullet and take

the new, high-profile launches. At the same time, many have dropped

channels they have long-term contracts to distribute. The equation they

are recognising is that it makes more economic sense to add on a channel

which will increase subscription revenues. To make room, they have to

stop transmitting others, even if they still have to pay the programme

suppliers.



Glover is certainly convinced that this is why GSB has rapidly gained a

high level of carriage. ‘We have been able to get so many people to sign

us up because there are not many basic channels that can drive

subscribers. Most of the time, they drive retention, not acquisition. We

set out our case as appealing to loyal terrestrial viewers who are

sitting on the fence. We have seen that in week one with people who had

cable or satellite, but who didn’t watch much before,’ he says.



The positive spin being put on these negotiations is that it represents

a new customer focus by the cable companies. Faull notes that Telewest

is researching its North-west franchise to find out what customers do

and do not want. Several channels have already been earmarked for the

chop, with two minority choices, including Black Entertainment TV,

already off air.



Channel providers can expect to be assessed far more by criteria derived

from local considerations. Although most of the major channels align

with their BARB ratings, some scored especially highly, such as

Discovery, while ‘some did come off less well than we expected,’ Faull

says. Prices, both those paid by subscribers and those paid to channels,

will eventually have to fall into line with the market.



For the moment, many channels are still trying to hide in the basic

package structure, claiming they add colour to the ‘bookshop of the air’

which viewers seek on cable. ‘If you ask the channels, they would say

there is a parallel with specialist magazines, but that is only true if

they are a la carte at pounds 2 or pounds 3 per month. If they are part

of the basic package it is different,’ Faull says.



This is not to suggest that cable operators have completely come to

terms with their own weaknesses. The presence of French, German and

Spanish channels within many basic packages suggests those long-term

agreements are getting in the way of more market-focused decisions.

Certainly Cathal O’Doherty, director of marketing at Tara Television,

believes that ‘a lot of companies are hidebound by corporate

relationships which their decisions are based on - they are informed by

strategic alliances rather than a professional approach to growing the

cable market’.



He points out that Tara’s scheduling is in line with that of GSB or UK

Gold. It draws on the pounds 115 million-worth of programmes which the

Irish public service broadcaster, RTE, airs over two channels and

condenses it into one 12-hour station. ‘RTE already competes against the

BBC, ITV and Channel 4 in its home market and takes the lion’s share of

viewing, so I think the proposition is very strong,’ he says.



But if the station’s Irish origin is taken into account, it suggests a

massive ‘bird-in-the-hand’ core audience which might be drawn to cable

to see Tara. ‘By one estimate, there are six million people of Irish

descent in the UK, which makes them the biggest single ethnic minority

in Europe,’ O’Doherty says. Yet even in franchises with the highest

penetration of Irish people, Tara is finding it hard to achieve

distribution. He notes that: ‘We are asking a very low price, in the

region of half what others are asking for general entertainment

programming. Margin compression is an issue, but I detect that it is not

the problem. Capacity is.’



The Weather Channel is another station which is finding it hard to get

distribution. Bell Cable Media and Videotron have signed up, but

negotiations with the top three franchises are still on-going. ‘It is

difficult when talking to UK programme directors and cable operators

because they have never seen this before. It is not a tired old video

with a new title slapped on. We have invested pounds 2.5 million in

Birmingham, we have 18 meteorologists on staff - it is a real live

channel,’ Tim Halfhead, director of marketing and sales, says.



He points out that in countries which already carry the Weather Channel,

its level of use is high: ‘In the US, or on our Meteo service in France,

we have 40 to 50 per cent reach, but low share. On average, viewers use

the service 2.5 times per day, so we are getting 20 to 25 minutes

viewing - that would bring tears to the eyes of CNN or NBC

Superchannel.’



But the same problem arises which is affecting all of the new channels.

Halfhead insists: ‘We are a basic service.’ But most of the new

arrivals, from religion to computers, are trying to make the same claim.

For some operators, it is all becoming too much. ‘We have not taken

narrowcast channels,’ says Bull. ‘They seem to be a good programme idea,

but not strong enough for a whole channel. The market is not big enough

to support them.’



He adds: ‘You have to identify what the market is. For example, a

channel for expatriates - how many are there, are they willing to pay

for the service and how much? The cable operator won’t pay to deliver

the service. We already carry the best channels. The issue at the moment

is looking at tightly defined channels - can they be cost-effectively

delivered given our capacity and financial resources? We stopped our

channel of classified ads when Sky 2 launched - it was the only channel

capacity available. A number of others have been earmarked to be dropped

in the future.’



Niche channels may be able to exploit a feature of cable franchisees’

licences in order to gain carriage, however. The Independant Television

Commission requires them to carry local programming and has accepted

that the Weather Channel’s local forecasting can be counted towards

this. But even here, negotiations are strained. Cable operators want two

minutes per hour ‘ad avails’ for local drop-ins, but channels generally

only offer one - except at a price.



With only 1.7 million households taking cable, franchises do not yet

hold the whip hand. As they restructure their packages to increase that

penetration, however, their power will increase. And then under-

performing or over-costly channels will not be able to hide.



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