MSOs: Playing hard to get

If Larry King yaks on andon about Robert Blake or Crossfire's political banter gets maddening, most CNN viewers can flip to sidekick Headline News, the just-the-facts version of CNN. But not on New York's Long Island. Even with 82.6 million subs nationwide, Headline News is still hunting for analog carriage on Long Island, where nearly 500,000 Cablevision subscribers don't get the channel.

That's odd. Virtually every cable system in the country carries both CNN and Headline News; after all, CNN charges just pennies for the extra 24-hour news net. That gap costs the network an estimated $500,000 per year in potential license fees and ad revenue, but Headline has been gone since 1988, when Cablevision launched its own 24-hour news net, News 12 Long Island.

In fact, no cable channel can boast 100% penetration, although some come closer than others. For example, at last count, there were 89 million cable and DBS homes, according to Nielsen Media Research, and TBS Superstation numbers 87.5 million of them.

Huge profits hide in those distribution holes, and filling them requires almost zero in additional costs for the shunned networks. Uplinking E! to another 10.8 million subscribers or filling in USA Network's 2.8 million subscriber deficit wouldn't require another penny spent on programming.

"Subscriber by subscriber, it's pure dollars and cents from advertising and affiliate fees," said Comedy Central Executive Vice President of Affiliate Sales Brad Samuels.

Industry executives consider a network with more than 70 million subscribers mature and well-distributed. Nielsen counts 57 networks reaching more than 20 million homes. In that group, 34 are piped into more than 70 million homes. "Maximum distribution means maximum ad-revenue prospects on Madison Avenue," said Discovery Networks Senior Vice President of National Sales Lori McFarling. "You won't find a programmer who'd say, we hit 50 million and we're OK."

Explained Steve Grubbs, CEO of ad-buying firm PHD North America, "If they've reached 80 million, they've passed the critical mass."

With the top eight MSOs controlling 80% of the market, carriage deals with the major operators drive the bulk of distribution. But capturing the last 20% is an arduous process.

A handful of networks are waiting for basic-cable slots in a major DMA. Court TV still needs basic carriage on Comcast's Nashville system. Fox News Channel and MSNBC aren't offered on Cablevision's Bronx and Brooklyn, N.Y., systems because of limited channel capacity.

AT&T Broadband, notoriously the slowest major system to rebuild, causes the most headaches for programmers. When AT&T completes its rebuild in San Francisco, delayed because of the city's topography, ESPN2, HGTV and Court TV will pick up nearly 200,000 subs; until then, too bad.

In Boston, Comedy Central is about to grab 500,000 new AT&T Broadband subs, thanks to a rebuild. And in Chicago, FX is trying to wrap up 150,000 AT&T homes.

Some industry executives say AT&T Broadband's pending merger with Comcast Corp. could slow the rebuild process as Comcast determines whether to sell off some clusters. And just signing up a corporate-level deal doesn't guarantee access to every home: The large MSOs typically leave it to regional and local system execs to determine the channel lineup.

"At the corporate level, it's all about dollars," said Court TV Executive Vice President of Affiliate Relations Bob Rose. "At the local level, they really want to see what you have."

Likewise, a DBS carriage deal doesn't beam a network into every home. DirecTV boasts 10.5 million subscribers, and EchoStar Communications' DISH Network has 6.8 million. But a network often winds up on a tier that might be taken by only a few million of the service's customers.

The bulk of distribution holes, network executives say, exist on small and medium-size MSOs, with fewer than 250,000 customers. Every straggler counts. Network bosses say they're always stumping for carriage, peppering operators with phone calls, e-mails and marketing material. In-person meetings are hard to come by.

And when there's a growing network in the family, pushing a new service often becomes the priority. HGTV and Food share a sales force with startups Fine Living and DIY. Discovery Networks peddles seven diginets and four analog services.

Trade shows, like this week's NCTA show in New Orleans, give programmers an opportunity for face time with small operators. Even if a carriage deal is unlikely to be signed on the floor of the Morial Convention Center, "it's an excellent place to get things started," said Mark Niblick, president of Midcontinent Cable, with 205,000 subs the No. 20 MSO. Programmers try to attend as many regional and state cable shows as possible.

FX tries another grassroots tactic. During a recent NASCAR race on Fox, a toll-free call-in number (1-800-FX-FX-FX1) flashed across the screen. (Fox and FX share part of the NASCAR TV deal.) The announcer urged NASCAR fans who don't get FX to call for information on how to petition their cable operator. So far this year, FX has logged more than 15,000 calls. The network started using the number to drive distribution in 1997, when it counted just 30 million subs.

Small systems say they want to offer FX and other nets, but it's just not possible. "We hear, 'We'd love to have you, but we don't have the space,'" said John Baird, senior vice president of affiliate sales and marketing for Food Network and HGTV. But many mom-and-pop systems are slowly rebuilding to gain the capacity to carry everything, or they're taking their time, possibly, waiting to be gobbled up by a larger MSO.

Competition for any one analog spot is fierce. Major players are competing against one another and against upstart services like National Geographic.

"When you have one or two spots available, you take a hard look at the economics," said Peter Smith, senior vice president of programming for Missouri-based Millennium Cable. "One just adds costs; the other adds cash flow."

A younger service may pay a few dollars per subscriber to launch and waive license fees for several years. Older networks, on the other hand, hesitate to offer a discounted deal. "You don't pump up the incentives at the end. You let the network drive itself," said Andy Heller, president of domestic distribution for Turner Broadcasting System.

There's also the risk, affiliate-sales executives say, that a cut-rate deal could haunt them later if a smaller system is acquired by another MSO.

The National Cable Television Cooperative plays a leading role in bridging programmers and small operators. The NCTC represents 12 million subscribers, from tiny 500-sub systems to its largest member, Adelphia, with 5.8 million customers. The co-op offers volume discounts and administrative services in an effort to lower operators' programming costs. Members pony up $1.50 per sub to join but have the choice of taking co-op deals or negotiating their own. The only major nets the NCTC currently does not offer are Lifetime, USA, TNN: The National Network and the Food Network.

In rural areas, where churn is high and many customers defect to DBS, some systems use digital satellite technology to deliver an expanded channel lineup. Services like WSNet and HITS Quick Takes deploy basic and digital cable channels to digital receivers via satellite.Digital solutions, however, will help distribute only some channels. Discovery Networks offers Discovery Channel, Animal Planet, TLC and the Travel Channel as analog services exclusively. If digital carriage were an option, smaller operators say, TLC and Animal Planet would be immediate additions.

When space is limited, an analog-only channel often won't make the cut. "We have some folks that request TV Land, but I won't put it on analog," said Bob Ormberg, head of programming for GCI, a 132,000-subscriber system in Alaska. "Now my first question: 'Is it available on analog and digital, and what's the cost?'" TV Land is not offered on digital. Some networks that will settle for digital levy a surcharge.

Customer demand may be the most powerful driver. Many operators say Food Network is their most requested channel. and Food is the fastest-growing cable net, adding 15.7 million new subs in the past year.

The American public's increased appetite for news is helping cable news networks. In the last year, Fox News Channel, now in 79 million homes, added 14 million subs, and MSNBC, with 75.5 million homes, added 10 million. CNN is already piped into 86.2 million homes, the fourth-best reach in the industry.

Meanwhile, millions of despondent cable subscribers crave their missing favorites.

In Dublin, Ohio, Lawrence Chen, a software developer and science-fiction buff, recently swapped his Time Warner Cable service for Adelphia when he moved across town. The switch cost him his beloved Sci Fi channel, not offered on Adelphia's Dublin system, which does carry middlings like Great American Country and the Golf Channel.

Chen is feeling a little desperate. "I was wondering the other day if I got a ReplayTV unit, could I get Sci Fi channel shows via somebody else's ReplayTV box?" DirecTV isn't an option either: His new apartment doesn't have a southern exposure.