Start-Ups Struggle to Find Carriage, But VoD is a Start

The blitz of services being offered by U.S. cable operators, combined with expanding digital tiers, is causing a bandwidth real estate shortage that is threatening new cable channels’ ability to ever get on the air. As a result, many cable MSOs are pushing to have new channels offered only as VoD services.

According to Kagan World Media, a California-based entertainment and communication research firm, just eight new U.S. cable networks debuted in 2002, the most recent year for which figures are available. Because bandwidth is being eaten up by telephony, digital music, PPV, digital tiers of premium channels and, especially, HD, cable operators have become increasingly possessive of the remaining space they have. Matt Bond, executive vice president of programming for Comcast, called it “our most precious resource. We get several dozen pitches every year for new networks,” but few get approved.

In addition, the ever-escalating cable rates have caused a roadblock. Rich Hanley, director of graduate programs for Quinnipiac University’s School of Communications in Hamden, Connecticut, observed, “Customers are at the limit of what they can spend for cable services. The consumer cannot continually absorb increases for marginal programming, microprogramming or nanoprogramming.” An additional obstacle for start-ups is that new channels would be added to the digital cable tier, which currently has a national reach of only about 30 percent of cable subscribers.

With Financial stakes so high and space so limited, Comcast, the largest U.S. cable MSO, has come up with a new business model for start-ups in which new channels will first be available as a VoD service, in order to access their viability.

Both the Anime Network and Atom Television debuted via VoD in 2003. According to Scott Tenney, Comcast’s vp of national marketing, if enough viewers demand Anime and Atom Television, then the networks may get their own channel, 24-hours-a-day and seven-days-a-week. Tenney added that Comcast is “leaning in the direction” of using a VoD test launch for every new network. But what’s good for the cable MSO goose, isn’t necessarily good news for the programming gander. Executives from emerging networks complain that being sequestered on VoD makes it harder to generate a regular audience which in turn makes it more difficult to get advertiser support.

But it seems as Comcast goes, so goes the industry. Following suit is Cablevision, which also launched the Anime Channel and Atom Television as VoD properties. Lynne Elander, vp of video product development at Cox Communications, said her company is also considering using VoD as a launch vehicle. “It’s a real interesting approach to think about incubating new program content on your on-demand platform.”

Start-ups that target underserved audiences stand the best chance of receiving a digital channel of their own instead of being debuted as a VoD service. Networks for Hispanic and African-American audiences are in particularly high demand. TV One CEO Johnathan Rodgers noted, “The cable operator truly understands that the African-American is an important segment of their audience and that segment is truly underserved.” But it should be noted tat Comcast owns a portion of TV One. For the true independent, VoD may be their only entrèe in the years to come.

A potentially bigger problem for emerging networks is the threat of à la carte pricing, which would let cable customers pay for channels that they choose from themselves, rather than bundles of channels chosen by their cable companies. Consumer advocates said bundling unfairly forces cable viewers to pay for channels they never watch, and some lawmakers in this election year have begun discussing legislation to encourage à la carte pricing.

But Geraldine Laybourne, co-founder of the Oxygen cable channel, called à la carte pricing “one of the worst ideas I have ever heard” because it “would lead to more consolidation and fewer voices.” Debra Kodish, who is trying to launch the Destiny Channel for young intellectuals, added, “We probably wouldn’t survive if there was an à la carte subscription model.”

Minority groups in particular have been vocal in their opposition, claiming à la carte regime could be the end of niche programming because advertising would evaporate as channels that were removed from tiers lost viewers.

Addressing the FCC, the New York City Council’s Black, Hispanic and Asian Caucus said, “Leveraging the success of larger, more established networks allows cable operators to ensure that stations with smaller audiences get heard. An à la carte price model, in contrast, is a tyranny of the majority.”

The National Black Chamber of Commerce added, “The à la carte proposal seem concerned only with pricing and not with the diversity that has flourished on cable and satellite networks. Diverse programming benefits the target populations, but also gives all subscribers the opportunity to learn about and enjoy other cultures and communities.

The issue has become a hot topic in Washington, as well. Rep. Bobby Rush (D-Ill.) said, “On the issue of diversity, I am deeply concerned that an à la carte scheme would have the unintended consequence of hurting minority and niche programming,” while Rep. Albert Winn (D-Md.) noted, “We could see the unanticipated consequence of higher rates rather than lower rates.”

Others said à la carte might have upsides for everyone, including start-ups. Bennett Hooks, CEO of Buford Media Group said small rural cable systems would be willing to test à la carte if Congress would prohibit programmers from forcing cable MSOs to accept bundling, which in turn would open more space for new niche channels. “Let’s give it a try,” Hooks said. “Tying and bundling is killing this whole system. It’s putting everything out of balance.“