Diller Faces Struggle with Trio, NWI

Despite his rosy projections, Barry Diller will face a tough challenge trying to increase carriage for his newest acquisitions, Trio and Newsworld International (NWI), according to skeptical cable affiliate-sales executives.

"Clearly, they've got a hell of an uphill battle," one affiliate-sales official said. "Their only strong distribution is with DirecTV [Inc.]."

When USA Cable announced earlier this month that it was buying the two digital networks for $100 million, USA Networks Inc. chairman and CEO Diller said he wouldn't resort to incentives such as offering MSOs launch fees or equity in the services in order to obtain carriage deals.

Diller, saying that he will spend "hundreds of millions" of dollars to program and market the two networks, has asserted, "If we do that honest and right, distribution will follow."

But officials at potential competitors to Trio and NWI, as well as nonrival programmers, questioned what kind of leverage Diller and USA will have to drive carriage of two cable networks that not only don't have brand identities, but that have new programming strategies that will overlap with other established cable channels.

At best, unless Diller pulls a rabbit out of his hat, cable officials predicted that Trio and NWI will remain digi-nets with limited distribution due to the lack of analog space. Trio and NWI now have 6.2 million and 5.5 million subscribers, respectively.

"Obviously, many networks have shown that it's difficult to come late to market in any category," said Ed Carroll, executive vice president and general manager of Bravo, the arts channel Diller unsuccessfully tried to buy before moving on to Trio.

For one, industry observers said USA Cable doesn't appear to have retransmission consent as a bargaining chip to trade for carriage of Trio and NWI. Diller does own TV stations that serve as outlets for his Home Shopping Network, but sources speculated that those stations have opted for must-carry.

USA Cable officials couldn't be reached for comment last week. But the programming company may try to bundle Trio and NWI with USA Network and Sci Fi Channel, giving cable operators a break on license fees for those two networks in exchange for carrying the two just-acquired channels, some affiliate-sales executives predicted.

But other industry veterans said that would be a risky proposition. That's because they believe USA Network itself is in a precarious position and without rate-card leverage, since it may lose the World Wrestling Federation.

And USA Cable is taking on another distribution burden-Trio and NWI-while it is still in the midst of trying to boost carriage for Sci Fi, which isn't fully distributed. Sci Fi, which paid upfront cash launch fees, is in 62 million homes.

"Maybe the strategy is that they'll moderate their license-fee increases on USA in order to get these channels launched," one affiliate-sales chief said. "But frankly, they don't have Sci Fi in enough homes. And USA is kind of vulnerable. USA is going to lose wrestling."

Finally, cable officials said, MSOs have faced a lot of programming-price increases this year, and they will not want to spend more on two tiny networks.

"ESPN took a lot of money out of the market," one cable-network president said. "[The Walt] Disney [Co.] took a lot of money out of the market. NBC took a lot of money out of the market."

Trio and NWI have carriage mainly on DirecTV, with affiliation pacts with AT & T Broadband's Headend in the Sky, Time Warner Cable's "AthenaTV" digital platform and MediaOne Group Inc. on digital.

Diller plans to reposition Trio as a popular arts channel that will include performing arts such as dance, theater and concert performances. It currently airs acquired arts and entertainment programming from Canada, the United Kingdom and Australia.

NWI is now a 24-hour international-news channel. USA Cable plans to add more long-form programming to the mix, documentaries in particular.

"He's up against a lot of competition, even for digital space," one network affiliate-sales official said. "He's got a monumental hill to climb."

That's because cable-industry officials said MSOs already carry networks that cover the genres Trio and NWI are targeting.

For example, both cable networks Diller looked into acquiring-Bravo, part of Rainbow Programming Holdings Inc., and Ovation - The Arts Network-cover the arts. BBC America, with 12 million subscribers, also offers imported arts-oriented programming. And a host of cable networks-Discovery Channel, The Learning Channel, The History Channel, Cable News Network, MSNBC and National Geographic Television, among others-already air documentaries.

"We'll take a wait-and-see attitude [on Trio and NWI]," said Jerry McKenna, vice president of strategic marketing for Cable One Inc.

McKenna pointed out that A & E Network has moved away from "arts" and more toward "entertainment" in order to reach a broader audience. "I don't know if a network can have significant ratings based solely on the arts," he added.

Bravo has enjoyed a stronger position. It now has 44 million subscribers, and has seen substantial primetime ratings growth over the past year with movies and original programming.

"We're staying focused on what we do to dominate the category," Carroll said. "Things are such that we're on a roll. We've found the right mix of programming."

At Ovation, which has nearly 5 million subscribers, president Hal Morse said he doesn't fear a new entry in the arts category.

"As the primary outlet for all of the arts on cable today, we welcome the addition of more arts," he said. "Just as multiple sports channels allow the sports consumer to find great viewing opportunities, more arts on television will help to serve the more than 110 million American adults interested in the arts."

In terms of USA Cable's odds of success in retooling Trio and NWI, programmers pointed out that the company has yet to craft a new, more distinct programming image for USA Network.

Affiliate-sales officials also questioned whether the Trio and NWI programming changes would be out of conformance with their current affiliation contracts.