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DCI Buys Some Health

Discovery Communications Inc. has quietly bought The Health Network — the principal rival of its own Discovery Health Channel — for $255 million, sources said last week.

The deal appears to set the stage for DCI to merge THN — formerly owned by News Corp.'s Fox Cable Networks Group — with its Discovery Health Channel. Such a move might resonate with operators who have questioned whether there is enough carriage space or consumer appetite for two health-themed cable channels.

Discovery Health is now in 28 million homes, and has commitments that will take it to 55 million by the end of 2004. THN is in 24.5 million households, with commitments for a total of 44 million by 2006.

According to information from sources and a securities filing by Fox Entertainment Group, Fox Cable sold THN to DCI subsidiary Discovery Health for $155 million in cash and a 10-percent interest in Discovery Health. That equity stake is worth at least $100 million, the sources said.

That makes the total price at least $255 million, or a little over $10 for each of The Health Network's 24.5 million subscribers.

By contrast, recent pricey sales of bigger networks — such as Black Entertainment Television's sale to Viacom Inc. or The Walt Disney Co.'s buyout of Fox Family Channel — have ranged from $47 (BET) to $50 (Fox Family) per subscriber. The relatively low price appears to indicate Fox's lack of interest in further developing a network that was cobbled together from two smaller networks and orphaned after a joint venture with WebMD Corp. cratered earlier this year.

Officials at Fox Cable declined to comment last Friday, and DCI officials couldn't be reached for comment.

Under terms of the deal, within a three-year framework Fox Cable can "put," or sell back, its stake in the Discovery Health unit — whose worldwide medical-related businesses include Web sites and other holdings — to DCI for $100 million or its fair-market value, whichever is greater, according to a knowledgeable source.

The THN sale was mentioned in a little-noticed clause in a May Securities and Exchange Commission filing by Fox Entertainment Group, the News Corp. unit that includes Fox Cable. But that filing did not name the buyer.

The sale closed in recent weeks, sources said. But both sides have kept quiet about it, apparently to give DCI time to talk to operators about their plans.

DCI has had some preliminary talks with a few MSOs to determine what those cable operators want to see done with THN, a source said. But as of two weeks ago, several medium-sized cable operators interviewed for a story on the subject said they hadn't heard talk about any merger.

DCI is now weighing whether it should take the obvious route and merge THN with its own health channel, or operate it as a retooled stand-alone network, which seems less likely, one source said.

DCI is no stranger to buying and replacing cable networks. It bought CBS Eye on People and Knowledge TV, then folded them, switching their subscribers over to other Discovery services, including Discovery Health Channel, Animal Planet and Travel Channel.

DCI is in the process of determining what distribution overlap exists between Discovery Health Channel and THN.

Discovery Health is carried by EchoStar Communications Corp.'s Dish Network; THN isn't. Charter Communications Inc. carries THN on analog systems with 1.5 million homes, and offers Discovery Health Channel on digital to 1.2 million households.

Were THN and Discovery Health to merge, DCI could ask operators for THN's slots on cable systems where it overlaps with Discovery Health, and use that distribution for other DCI networks, such as Travel Channel.

But one source claimed that DCI is considering options aside from a merger. For example, one of the health channels could be refocused to concentrate strictly on programming related to medical issues, while the other could be redirected to cover fitness and nutrition.

Even though the sale has closed, Fox Cable is still managing THN for an interim period.

THN'S HISTORY

Fox Cable acquired 100 percent of THN earlier this year, when its pact with WebMD Corp. unraveled.

Under their agreement, News Corp. and WebMD were partners in THN. Essentially, the understanding was that News Corp.'s Fox Cable would handle the network's distribution, while WebMD would use its medical expertise and contacts to program the service.

In fact, WebMD brought in a programming heavyweight — former ABC Television Network president Pat Fili-Krushel — as head of its consumer unit, and put THN under her wing.

Last fall, the channel was to be relaunched and renamed WebMD Television, but those plans were put on hold when parent WebMD ran into financial problems.

Then, this past January, News Corp. and WebMD parted company, and Rupert Murdoch's News assumed full ownership of THN.

But News Corp.'s programming savvy is not in the nonfiction science and health genres, and the company needs cash for its pursuit of DirecTV Inc.

THN was created back in 1999 through the merger of America's Health Network, which specialized in medical and health programming, and Fox's Fit TV, which had been founded by fitness guru Jake "Body by Jake" Steinfeld.

At one point before the AHN-Fit TV merger, A.H. Belo Corp. had a majority stake in AHN. Fit TV was originally owned by International Family Entertainment Inc., also parent to the Family Channel. Fox and News Corp. gained control of Fit TV in 1997, when they were part of a joint venture with Haim Saban that acquired both Fit TV and Family from IFE.

Mike Reynolds and Mike Farrell contributed to this story.