Cable operators complain about how USA Network has slid in the ratings and still lacks an identity — weaknesses that could make the channel vulnerable come contract-renewal time. Some industry wags think USA might even have to cut its license fee or face distribution losses.
Now, while those problems are far from over, USA can look forward to newfound leverage at the negotiating table over the next year or so, when many of its carriage deals expire.
Assuming the merger of NBC and Vivendi Universal Entertainment closes, USA and siblings Sci Fi Channel, Trio and Newsworld International stand to gain the benefits of membership in NBC Cable — an outfit that's savvy about bundling its networks, raising their license fees and expanding distribution.
USA and its sister services' new siblings include CNBC, MSNBC, Bravo and the broadcast/cable hybrid Telemundo.
"It's a great collection of assets, [with] fabulous cross-promotional and marketing opportunities, more clout when it comes to distribution and a great opportunity to build a great growing television business," Universal Television Group chairman Michael Jackson said in an interview last week.
NBC has a battery of bargaining chips to use — now or later — to shore up and grow Vivendi's cable networks. They include retransmission consent for NBC-owned TV stations; carefully packaging weaker networks with strong ones; and making hay with the Olympic Games, to which NBC holds the rights through 2012.
"USA is a product that doesn't have a really well-defined brand presence," one cable-operator programming official said. "It does do pretty good ratings. But it doesn't really have a strong channel identity. Sci Fi is a little bit of a flip. It has a better channel identity, but then it also has weaker ratings than USA."
That official predicts NBC will leverage retransmission consent and the Olympics, possibly spreading coverage to USA, for example, instead of or in addition to MSNBC and CNBC.
"I'm sure that with the consolidation, there will be more things on the table in a retrans discussion," the cable operator said. Retransmission consent is "probably helpful to the USA discussions. NBC will undoubtedly try to wrap these up into broad-based deals across all the networks."
NBC Cable president David Zaslav last week touted USA as "a great brand," No. 2 in the 18-to-49 and 25-to-54 demographics.
He praised Sci Fi as "a strong niche channel."
That love song isn't the tune MSOs are singing.
Some operators argue that USA — reportedly seeking a rate increase "several times the rate of inflation" — is already overpriced when compared with other general-entertainment networks.
"Its license fees are out of whack," one cable operator said.
USA's per-subscriber rates run from 32 cents to 42 cents, depending on the size of the operator, according to sources.
USA ratings lag
In the past few years, USA has added the hits Monk, The Dead Zone
and Peacemakers, but ratings are down from its primetime-leading status of four to five years ago. This summer, USA posted a 1.7 rating in primetime, according to an ABC Cable Networks Group analysis of Nielsen Media Research data.
Turner Network Television, No. 1 in primetime with a 2.1 this summer, has monthly license fees of 70 cents. Lifetime Television, with a 1.8 primetime rating this summer, gets license fees in the mid-teen range.
That has some cable-operator insiders suggesting USA will be forced to keep license fees flat or actually reduce them — a scenario virtually unheard of with major cable networks — in order to maintain distribution.
But that could just be wishful thinking on MSOs' part, several programming officials said.
"Realistically, it's rare for a network to go backwards," one network official said. "NBC is not going to ask for some huge increases, but NBC is not going to take cuts [on USA]. It will use its leverage to make sure that USA does not go backwards."
Speculation that USA will suffer a license-fee decrease "is just posturing on the part of cable operators, and in some cases, it's would-be buyers trying to depress the price of the asset," another programmer said.
Continued media consolidation — and NBC Cable's basically doubling in size, in terms of networks — does concern some operators.
"It makes it more difficult to negotiate contracts and license fees," said Jerry McKenna, Cable One Inc.'s vice president of strategic marketing. "The degree of leverage in a negotiation shifts more to the programmer because of the size."
Cable One's contract with USA has expired, and McKenna won't discuss his current talks with the programmer.
At the American Cable Association, a lobbying group for independent operators, president Matt Polka said that after the NBC-Vivendi deal closes, four giant programmers will control 66 cable networks.
The problem will be not just those 66 networks, "but the way they are tired and bundled together with retransmission consent," Polka said.
Some deals set
It's unclear to what extent NBC can use retransmission consent as a weapon now.
Back in 2000, Zaslav struck complex, long-term carriage deals with all the major MSOs that included Olympic coverage on cable until 2008, an Olympic surcharge, carriage extensions and rate increases for CNBC and MSNBC, and retransmission consent for NBC-owned TV stations.
In Time Warner Cable's case, retransmission-consent rights extend to the full term of that deal, until 2008. That means, at least with Time Warner, NBC could not immediately use retransmission consent as a bargaining tool to get a USA fee increase, or wider carriage for Trio.
But it's not clear if other MSOs gained retransmission rights through 2008 in their Olympic deals. Zaslav wouldn't comment.
At least one cable-network official suggested operators would have the leverage with NBC-Vivendi: They can threaten to drop networks like Bravo or Trio if they don't get concessions on channels like USA or CNBC.
Trio needs some turbo-charging, as it is now only in 19 million homes.
"We've been stymied in terms of distribution," a source close to the situation said. "NBC will be interested in growing the service rapidly. Bravo, although nobody likes to admit it, is becoming a general-entertainment channel … Trio is a true digital-flavored network. Bravo will be a fully distributed entertainment channel."
'Rich' in talent
Many loose threads remain. Former Vice President Al Gore has talked to Vivendi about acquiring NWI to create a liberal-minded outlet, sources close to the situation confirmed last week, although a Universal spokesman declined to comment. NBC couldn't be reached for comment on whether it might be interested in selling NWI.
Zaslav declined to discuss the new management structure, and some insiders say that's still up in the air. What roles will Jackson, USA president Doug Herzog and Bravo president Jeff Gaspin have after the deal closes?
NBC has "an embarrassment of riches," in terms of talented programmers, in Gaspin and Herzog, one cable-network chief said.
He suggested that NBC needs to find a way to keep Gaspin and Herzog on an equal level, without one having to report to the other, in order to keep both talents on board.
Despite NBC claims to the contrary, industry observers do expect layoffs of ad-sales and affiliate-sales staffers as a result of the consolidation.
Many expect Douglas Holloway, USA's longtime president of network distribution, will wind up leaving.
Holloway, who couldn't be reached for comment, reportedly has been talking about retiring, one source said.
The smarter way to stay on top of the multichannel video marketplace. Sign up below.