March/April 2014
Volume 34 No. 3

April 2014
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Challenges and Rewards With the International TV Channels Business

A frank talk with A+E Networks’ Sean Cohan

By Dom Serafini

VideoAge estimates that outside the U.S., 10 American companies own and/or manage over 1,000 international TV channels, generating — between sub fees, VoD share when applicable and advertising proceeds — annual revenues in the order of $10 billion. This excludes the American Forces Network, religious networks such as EWTN and TBN and TV shopping channels such as QVC and HSN.

It’s important to note that those 1,000 channels represent no more than 50 brands and that they don’t include “feeds,” but only distinct channels.

Nonetheless, it’s clearly a profitable business and a growing one, and even though it presents great challenges, the rewards are equally great. In some instances, like in the case of Brazil’s Rede Globo, the international channel business overshadows content licensing to third parties.
To better understand the nitty-gritty of the U.S. international channel business and the challenges it presents, VideoAge spoke at length with Sean Cohan, executive vice president of the New York City-based A+E Networks, which has seven brands spread among 62 distinct channels in over 160 countries. The U.S. is excluded from those figures, as are the “feeds,” of which, in the case of Latin America, there are 15.

In terms of ownership, 16 percent — or 10 channels — are fully owned and operated by A+E: five in Southeast Asia, two in Italy, and one each in South Korea, Russia and Canada. Of the remaining channels, 40 are 50-50 joint ventures and the remaining 12 are license partnerships.
Looking at the international channel business panorama out there, four hurdles come to mind: How crowded the field is; how costly it has become to enter; how competitive it is and how unclear the digital future is.

It is indeed a “very crowded landscape,” concurred A+E Networks’ Sean Cohan, “both in terms of viewer and platform attention.” He also sees greater “saturation and fragmentation,” as additional challenges. According to Cohan, in the future the sector will see “fewer, bigger and better,” international TV channels and the industry’s trend is to “shed channels.” Another trend, previously reported by VideoAge, is for some major U.S. companies to group their channel operations in a few countries (e.g., Italy, Spain and France) under one central office.

But apparently these trends do not worry A+E, which in 2013 launched nine new channels: two each in the U.K., France and Southeast Asia, and one each in Italy, Russia and Latin America. “It was a very good year,” commented Cohan, adding that A+E’s strategy is to be “more local, but take advantage of central efficiency.”

And it is a very expensive proposition; a business that requires deep pockets since, in the words of the A+E exec, “the payoff ranges from immediate to five years. It’s a multi-year payback investment.”

It is a business that requires “long-term orientation, strategic prioritizing and staggered investments,” he said. To this, add the fact that, nowadays, increasing competition from big players renders the process more arduous, compared to the recent past, when A+E was able to launch 35 channels in the span of five years.

Preparing to launch a channel is a time-consuming proposition. For example, “Before launching in Italy,” said Cohan, “we were in talks with the Italian platform for four years.” In addition to “having our own people on the ground we have to ascertain if the platform has an appetite for the channel.” Other considerations are: “making sure that each channel is different, evaluating local rules and regulations, making sure the market can support the new channel, and whether it makes economic sense to go solo.” Regarding the last issue, Cohan said that, at A+E the trend is going solo, in the sense of launching owned and operated channels, however, “there are still places where joint ventures make sense.” Nevertheless, he explained “focusing on long term, we want to create a path to ownership in the future.”

As for the markets’ needs, Cohan stated, “most markets can support and have demand for a couple of our channels [and] if you put quality product out there, there is sill room to serve viewers on the platforms.”

Negotiating with the platforms entails several issues, but apparently no longer includes pressure from them to co-own new channels. More importantly, today’s issues have to do with the channel’s position on the Electronic Program Guide (EPG), and its per sub fee. Cohan did not want to expand on the latter issue, except to say that “it has to be greater than zero.”
In last April’s Issue, VideoAge reported that the digital online live steaming alternative has offered channels that are able to deliver quality programs greater negotiating power, especially those for which subscribers will actually complain if providers don’t carry them.

For the EPG’s channel position, the ideal is to be close to the top channels and close to page one. The factors that determine the EPG position are the channel genre (since it is desirable to be grouped together), local regulations, fee considerations and exclusivity, considering that generally, international channel operators like to be platform agnostic. However, those are elements that concern reserved negotiations and which Cohan couldn’t address publicly.

For an explanation, VideoAge called upon Jacques de Suze, a Washington, D.C.-based TV consultant who has been involved in the launch of many international TV channels: “A good EPG spot is of great value, and thus there are a lot of negotiations. One can read about the fight between Comcast and the Tennis Channel over their EPG placement. If all the general interest are in the 200-300 channel range, then that’s where a new entertainment channel wants to be. If the new channel gets sent to the 800-900 channel range, it’s not good. Then there is the U.K. situation, where the channel pays Sky and other distributors (cable) for carriage, which includes the EPG fee and a possible sub fee. If the channel is valuable, then the carrier pays the channel a sub fee, but the channel number is not necessarily linked to the EPG fee. In my experience, for a local U.K. channel we launched years ago, we paid more than £300,000 [U.S.$500,000] a year for satellite carriage and £75,000 [U.S.$125,000] annually for the EPG listing. We got no sub fee from cable or satellite companies.”

But Cohan did touch on the subject of local hurdles in the form of a country’s rules and regulations for content requirements, protection of indigenous channels, ownership limitations and other obligations. Typical examples could be provided by Canada’s regulatory agency, the CRTC, and various Chinese authorities.

Once the channel is in place, the operator has to deal with local production and promotion, and advertising revenues. A+E’s channels, like the History Channel and Crime & Investigation (or CI), require local content in order to be attractive to a local audience and, according to Cohan, “the older the channel is, the more local production is done.” That’s production that the company almost always fully owns, and can represent anything from one percent to 50 percent of the channel’s schedule.

Promotion is achieved through several means — on air, by cross-promoting with other channels, and off-air by using social media and local traditional media, including TV guides, subscribers’ guides and by leveraging promotional tours of the channels’ talent, and press tours that often get front cover coverage.

For example, last month History Japan brought a group of journalists from Japan to Los Angeles for a press event supporting the series Storage Wars. A+E Networks organizes these events throughout the year and, at times, they bring talent to other countries. Last summer, A+E brought Rick and Cory Harrison from the series Pawn Stars to Japan, the Philippines, Singapore, Malaysia and India, where they did publicity, consumer events, ad sales events and distribution events. They have also brought talent from several series to an advertising Upfront event in Mexico for their Latin American joint venture (where they have A&E, History and Bio channels). This is in addition to organizing a press tour in Las Vegas last year to support three of their series that are shot there: Pawn Stars, Counting Cars and American Restoration.

Advertising revenues — one of the two-tier system under which the channels’ business model operates (the other is sub fees) — are produced by five main methods: sponsorship, spots, global brand, regional brand and direct response. Other revenue streams include home video, EST, merchandising and events. For advertising, networks are sold individually or packaged in bundles with pricing often based on GRPs or spot rates. Channels like A+E can offer specific demographics (e.g., 60 percent of CI’s audience is female and 60-70 percent of History Channel’s is male).

Revenues are shared among channels by pre-arranged formulas and when spots are sold as stand-alone, channels like A+E can offer specific demographics (e.g., 60 percent of CI’s audience is female and 60-70 percent of History Channel’s is male) or an across-the-board demo by combining the ad inventory.

A+E Networks would not release advertising figures or their percentage versus sub fees, possibly because they tend to vary according to the countries’ economic climates. Last April VideoAge reported that, in some regions, like Latin America, advertising is not as important as it used to be; therefore, content providers and platforms are focusing more on piracy and, in particular, under-reported subs. When the advertising market was robust, these unreported extra eyeballs improved spot sales, but with a weak ad environment, per sub income becomes more valuable.