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.
