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Landgraf: 'Go Big or Go Home'

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Last week, John Landgraf, president of FX Networks,
announced an ambitious plan to create a suite of three networks and to ramp up
the production of original scripted series. He explains his strategy and his
view of the TV business-everything from the need to program more broadly,
investing heavily in program spending and allowing more program access for the
right price-to B&C business editor Jon Lafayette. An edited
transcript follows.

Does the TV business need more general entertainment

I don't necessarily think that being all things to all people is a useful proposition
in such a fragmented marketplace. We really believe in the FX brand. But we
don't think that brand is a demographic brand. It's a psychographic brand. It's
about quality, originality and boldness and risk-taking and fearlessness, if
you will. A way to get bigger is not to try to pull everybody into the same
tent, but to allow us to create three tents that are related, part of the same
brand, but we can really focus on that new young adult viewer, that
18-year-old, that 25-year-old, someone just coming into the adult market, and
ultimately provide them with something more. I'd like FX to get older. But how
can FX simultaneously get older and younger? That's part of the problem that
broadcast networks have-they have to be everything, they have to be male,
female, young, old. I don't think one channel can be all those things.

So we'll take three and cover a broader swath. So
while you're offering general entertainment, each channel is focused so viewers
can find what they're looking for?

I think the more focused the better. Brands are really valuable. They let you
find what you want. Our biggest concern was we didn't want to dilute or water
down the brand. We wanted to do that and keep the content focused. We thought
about whether we should have three different names and three different brands.
That's the standard operating procedure within the basic cable groups. We said
no, we really believe in our brand. What we want is more specific demographic
targets. You're investing a lot on programming, expensive programming involving
big-name talent. Is that a good investment? I think it's a good investment.
First of all, one digital competitor has put one show on the air, which is good
and which they say is a big hit but they released no data. So I would hardly
call that an institutionalized programming strategy yet. Obviously they say
they're going to continue to roll them out, but they still have to pay for all
of it. They have to figure out how to pay for and amortize a high volume. Let's
imagine for a second that Netflix and even other subscription video-on-demand
channels are successful and they do build up meaningful original programming
brands. I still think it's going to be better to be bigger. Ultimately, to
remain competitive in this kind of fragmented programming environment, you need
more heft, you need more marketing, you need more shows. You need more reach.
You need all the things we're trying to build because ultimately I think in any
brand segment, the strongest, most dominant brands are the ones that are best
equipped to deal with the vicissitudes of changed marketplaces. Now would you
rather be a Coke or Royal Crown? You'd rather be a dominant brand in any market
segment. And I think what News Corp. wants is they want FX to become one of biggest,
most important names in television. That's why this is a wise investment.

How much are you increasing programming spending?
A lot. I don't want to talk numbers, but a lot. One thing I'm really happy with
is, when we started to talk about another channel, the ways that channels have
traditionally been launched in basic cable is because you don't have full
distribution when you start, because you don't have an established base from an
advertising standpoint, established CPMs, established ratings, and you don't
have an established affiliate rate, what do you do? Well, you establish a new
channel on a shoestring and then try to grow the programming budget a little
bit and then you grow revenue a little bit. You grow the programming budget a
little bit more and you grow revenue a little bit more. You try to create a
virtuous cycle that over the years gets you where you want to be. I don't
really believe in that strategy anymore. It's go big or go home. And I think
what News Corp. has done is gone out and gotten us a very, very hefty
distribution platform from day one and they've let us invest very substantial
resources on every level for acquired series, movies and original series and
marketing all across the board. And obviously we could have made more money
earlier on if we had scaled back the scope of our costs. But the bottom line
is, why do people need a new channel unless it's valuable to them, or unless it
really has things on it that they want to watch? I guarantee you there's never
been an entertainment channel that's launched with anywhere near the original
programming budget, the marketing budget, the acquired programming budget that
FXX has.

This is also a bet on the current cable environment.
Does your digital strategy support your distributors?

TV Everywhere, whatever you want to call it, is simple in theory, but
really complicated technically. Do you want to provide a free
non-advertiser-supported experience for the consumer when you're asking him to
watch ads on the linear channel? How does the operator share information that
you need to do audience targeting without handing over their consumer
relationship? So there's a whole lot of things that need to be worked out
between the programmer and the multichannel video programming distributor in
order to make this possible. And I think we finally have the breakthrough
moment. I really do. We figured out how to do it, therefore, we're going to be
able to move tons more content online. So if you're a paying customer, your
authentication number, it's going to get you access to tons and tons of
content, it's going to be available wherever, whenever you want it, it's going
to be portable, it's going to move from device to device. And all of a sudden,
what the MVPDs are going to be able to do with programmers is provide an
extremely compelling non-linear experience.

As you ramp up the number of shows you're making, how
do you maintain quality control?

Part of the challenge that the broadcasters have is they have to put shows
on the air, whether the shows are good or not. I hope we can get from where we
sit today to where I want to be in two to three years. Obviously you can see
from the quality and depth of the development we have and the pilots we're
making that we have a good shot at it. We've beefed up our development
department a lot.

But if it takes longer, it takes longer. This is the not
going to be a schedule that's made up of tentpoles and hammocks. There's no
such thing as a hammock anymore. The hammock sags to the ground. If you're
lying in the hammock, your ass is touching the ground in today's programming
environment. It has to be all tentpoles. Every show has to basically make its
own gravity, pull in its own audience. So we're just going have to hump it till
we find 25 shows that good.

Were people willing to give you the digital rights you
need to make this work?
We own all our own comedies. And we've been working toward this day on
the film side for five years. And all the way back to when we did the deal for Two
and a Half Men
, we got the streaming rights. To tell the truth, we were
waiting for the technology and the business deals to catch up. I think our
distribution group just finally cracked the code.

Participant Media is letting broadband customers
subscribe to its channel. Will there be a broadband-only version of FX?
I don't think so. I don't think Participant
matters, they're not HBO and they're not going to get a lot of usage in 40
million homes. I was worried when I read [HBO CEO] Richard Plepler talk about
that because I think HBO has been really the best citizen of the ecosystem in
that they've been really staunch about not letting people who don't buy into
the MPVD system gain access to their content, whereas other companies, Disney
for example, made a deal to allow their content to flow to consumers who are
not MVPD subscribers, even though they're so dependent on them for Disney
Channel, ABC Family and ESPN. So I really respected HBO's position in that
regard. I hope they don't change their position because that's something that
has the possibility to be very corrosive to the paying ecosystem. And that
paying ecosystem is what is supporting this golden age of programming. The
ecosystem allows the golden age of programming. The greatest content creation
engine the world has ever seen is those paying customers. I understand that
people would like to pay for only the programming that they watch. But I would
like to only pay for the roads that I drive on, and yet I'm really grateful to
live in a country where there is a road anywhere in the United States I want to