Slicing Up the Revenue Pie

Traditionally, international TV channels have relied primarily on two sources of revenue: subscriptions and advertising. All other forms of income, like merchandising; sales of programs, branded programming blocks or formats; licensing; interactivity (e.g. 900-toll-numbers); Video-on-Demand (VOD) and Web sites still represent a small percentage of total revenues.

John Helmrich of International Broadcast Communications, explained that start-ups are generally seeing their revenues break down into 80 percent carriage fees and 20 percent ad sales. However, the "goal for a healthy network is a 50/50 split between carriage and ads."

For Maria D. Komodikis, senior vice president of A&E's international division, the split between advertising and subscription depends heavily on the individual market and its level of maturity. In any case, said Komodikis, "the dual revenue stream is still the prevailing business model" and, despite all the new technological possibilities, increasing the viewing audience to generate higher advertising revenue is the main goal. (A&E, for example, cannot take advantage of potential classroom revenue, because, for the channel, it represents a public service, which is dispensed free of charge.)

As technologies change and economies falter, however, the question arises as to whether these two revenue streams are enough to carry a channel through, or whether new options need to be explored. This is especially true in the case of A&E, where the dubbing and relanguaging of localized programming - in the form of "interstrigials" (local content between programs) - makes costs levitate.

According to David Hulbert, president of London-based Walt Disney International TV, "there's been a bit of a slowdown in the ad markets."

Helmrich also pointed out that, now, "some platforms are not offering any carriage fees. They say, 'We'll give you the space, but you make money for yourself through ads.' This [trend] underscores the importance of having ancillary revenue streams, whether that be through commercial or home-shopping elements or other types of brand extensions."

But for some operators, "ancillary" sales, like licensing, could these days represent the greatest potential revenue-maker. That's the case with 4Kids Entertainment in New York, which purchased a three-hour Saturday morning block, dubbed FoxBox, from Fox Network, in a four-year deal valued at a reported $100 million. In this case, the company will focus only on toy-driven programs that can generate money in merchandising revenue, while ad sales will either cover costs or garner small profits.

On the other hand, to Kim McKay, senior vice president of marketing at National Geographic Channels International (NGCI), program and ad sales are growing. Nevertheless, she said that "distribution of international channels remains the most important revenue source." She added, however, that NGCI "has recently launched a broad product licensing business" to help the company further develop on international fronts.

As far as new technologies are concerned, Bruce Tuchman, executive vice president of MGM Network said, "We're always looking at those things - they're very interesting possibilities, especially iTV. But in the channel business and in international markets, they don't measure up against traditional methods [of generating revenue] yet."

Kevin Byles, vice president of Canada's Chum Television International, seemed, in contrast, excited about the promise inherent in new technologies: "There's a lot of interest in VOD [in the international market]. We want to see how it establishes itself and its window [of opportunity] versus things like video. There's also a lot of interest, in Europe and the U.K., in niche digital channels, which is perfect for a company like us."

Byles also suggested that broadband applications are already having an impact: "In China, the government controls all public TV, yet it just put out a broadband opportunity to the private sector. We now have a deal with RTV China that involves an interactive component, and there are millions of homes wired to this possibility. It will open up whole new markets."

Helmrich also noted that with "DTT [digital terrestrial TV] platforms, advertising could become a higher percentage of total revenue. But we'll have to wait and see." On the other hand, as far as the Internet is concerned, "it's more promotional-minded than revenue-minded now."

Tuchman emphasized that there are still so many untapped possibilities amongst more typical revenue streams. "In many countries, the multi-channel business remains very new, with lots of room for growth. Very few countries have high penetration rates in relation to the total percentage of households."

Hulbert explained that methods like multiplexing can "intensify growth" in the pay-TV market, especially in a "competitive environment. . . . Things like iTV are about moving with the business, keeping up with what's new, but [in the current economy] it's best not to got for the big-growth initiatives. It's better just to stay solid and improve your current situation. Get your brand exposed."

Duccio Donati, vice president of international sales at E!, took a similar view. He said: "buyers come back when they see you've got more of what they like. They key is to continue putting new product out there."

Hulbert added, "Even in markets where you can't get channels going, because of structural issues or a complex distribution environment, you can still sell branded blocks. Scandinavia and Japan are good examples."