Cable World: 5 Steps to Independent Success

It's not an accident that indie nets Hallmark, GSN, Oxygen and Court TV are thriving even as space on cable systems has gotten tighter.

By John P. Ourand

When Time Warner takes total control of Court TV--as it's widely expected to do next year--cable's shrinking ranks of independent programmers will lose yet another member. Time Warner's buyout, coupled with Crown Media's mid-August decision to find a buyer for its Hallmark Channel, will insure that the decade- long trend of big media companies getting bigger and independent programmers becoming scarcer will continue.

Big cable operators and smaller ones, large media companies and small programmers--they all believe independent programmers have to cash out eventually. Even independent programmers hold that view--when it comes to other programmers, of course. They all stress that they've found the recipe for success at their own company.

At least four independent networks can legitimately make that claim, having emerged as success stories over the past several years. Hallmark Channel, GSN, Oxygen and even the soon-to-be-acquired Court TV have made great strides in their expanded basic distribution.

How have they done it?

* Deep-pocketed corporate parents. Hallmark has Crown; Court TV's are Liberty and Time Warner; Liberty and Sony are GSN's parents; and Oxygen is supported by Time Warner, Oprah and Vulcan Ventures, among others.

* A sellable programming concept.

* Relatively affordable license fees. These range from the mid-teens to the low 20s.

* And an early-to-market approach. These four got into the game before bandwidth became so scarce. In fact, Crown Media/Hallmark Channels EVP/COO Paul FitzPatrick says he wonders if Hallmark would find similar success if it were to launch today. "There are so many candidates for bandwidth," he says. "We were able to be in the right place at the right time. Sometimes it's better to be lucky than smart."

The networks also share strategies that smaller players could use as a model to grow distribution. Here are five components that could help indies survive in a difficult climate.

1. Don't be scared of launch support.

To get carriage, each of these channels used launch support, in which networks pay MSOs to launch their service. In 2002, for example, Hallmark agreed to pay DirecTV a one-time, upfront launch support payment of $500,000 (see Feb. 18, 2002, issue of CW). Asked to explain how GSN was able to grow its distribution, network president Rich Cronin says "launch support...We were very aggressive. We had to be." Similarly, Court TV chairman/CEO Henry Schleiff says launch support fees were critical to his network's growth. Once Court TV grew to a certain size, it stopped using launch support. "It was like Hamburger Helper," he says. "We were able to wean ourselves away from it once we got to about the 60 million subscriber mark."

FitzPatrick blames the FCC for the emphasis on launch support. He says the commission's going-forward rules of the mid-1990s is the main culprit. The rules allowed cable operators to launch a specific number of channels that could be placed on an unregulated tier. That led to a crush of new channels, combined with retransmission consent, which tied up capacity. Channels that offered the biggest payments were the ones able to secure carriage. "The entire industry was faced with the new notion of paying for the ability to secure carriage," he says. "We weren't any different than anyone else."

2. Launch another service.

Independent programmers may not have the resources to launch a suite of channels, but the most successful ones have been able to launch advanced services that complement the initial channel.

GSN is creating interactive applications that allow viewers to play along with older game shows. It also creates local interactive advertising opportunities for cable systems. "You can watch the same game show many different times now," Cronin says.

GSN also has set up casino tournaments and licensing and merchandising deals that help cable operators increase revenue. "We're not just a cable TV network for games," Cronin says. "We're developing other revenue streams. We're trying to own a category: games on TV."

In addition to Hallmark Channel, Hallmark has the small Hallmark Movie Channel, which it launched as a digital or tiered service. The move makes sense: Hallmark already owns a library of branded movies that can't fit on its main channel. Hallmark also makes films from its movie channel available for MSOs' free-on-demand platforms, FitzPatrick says. "It makes for a logical brand extension of what Hallmark is and our core attributes," FitzPatrick says. "Do we need to do it to survive? No. Should we do it because there's a need? You got it."

Another successful independent, Landmark-owned The Weather Channel, has launched local weather diginet WeatherScan and Intellistar-enabled weather tracking to the head-end, while Oxygen is pursuing video on demand in a big way.

"It's always easier if you have the benefit of being in a family of networks," Schleiff says. "Size is helpful."

3. Have a strong brand.

It's obvious, but independent programmers consistently point to the importance of their brands. In fact, Hallmark, GSN and Court TV give most of the credit for their success to their brands.

Hallmark's popular Hallmark Hall of Fame franchise, which doesn't even run on the network, has helped Hallmark Channel break into the top 10 in ratings. The first point FitzPatrick makes when negotiating with cable operators is that consumers know and trust the Hallmark brand through the Hall of Fame and greeting cards. "Ten to 15 years ago, few people were running around talking about brands," he says. "But they sure as heck are talking about brands today...We want to come in and be able to bring that Hallmark legacy of making movies for the channel and make movies that are unique to the channel."

Hallmark takes pains to point out that its programming is family friendly, which helps cable in the public policy arena. "We bring operators a refreshing product at a reasonable cost that's not attached to retrans or sports rights," says Janice Arouh, SVP, network distribution and service, for Crown Media/Hallmark Channels.

To underscore the importance of brands, Court TV rebranded its prime-time block using the tag line "Seriously Entertaining." While Schleiff believes size can contribute to the success of independent programmers, in this case his network's relative smallness enabled it to quickly roll out a brand relaunch. "It didn't have to be watered down by the corporate experience," he says.

4. Work closely with cable operators on marketing and public affairs initiatives.

When talking about these independent programmers, Buford Media's Ben Hooks mimics many cable operators when he says: "Guess what? We don't have any trouble with them."

There's a reason for that. By all accounts, independent programmers work closer with cable systems than their bigger cousins.

"Independents have to work a lot harder," FitzPatrick says. "We inevitably bring to the table a set of creative ideas, assets and energy. I'm not saying it doesn't exist anywhere else. But it is unique. And it makes for a better overall industry."

Cronin agrees. "It's not easy. We have to work five times as hard as bigger nets. We have to prove our value seven days a week."

Hallmark makes its 4,200 Hallmark Gold Crown stores available to MSO marketers. This is especially handy around the holidays, when the stores are busiest. This past Mother's Day, for example, an in-store Hallmark promotion co- branded with its affiliates offered digital upgrades, plus discounts on cable modems, DVRs and VoIP.

"We've got assets that we bring to the table that no one else has," FitzPatrick says. "That allows us to be able to compete in a world where at first blush people say it's impossible for independents to come in and survive, much less sustain, and be around for long periods of time."

GSN and Court TV have reputations for delivering some of the best affiliate promotions in the business. Cronin highlights his net's Get Schooled Tour, in which viewers in 11 markets competed in word games for $25,000 in school tuition. GSN made video of the contests available for local systems' VOD platforms.

Schleiff was bullish on a recent promotion for Court TV's Psychic Detectives, in which 100 "psychics" performed readings in New York City. (Actually, they were grad school students, Schleiff says.) "We can figure out ways to promote ourselves that are cost-effective," he says. "This is show business. You can't lose sight of that."

5. Get someone with industry expertise to run your company.

Take a look at the people heading the most successful independent networks: They've been around. Hallmark's FitzPatrick is a 27-year cable vet. "People return your phone calls and your e-mails, and they speak to you and speak to you nicely," FitzPatrick says.

Cronin's logged more than 20 years in the business. "It opens doors for you," he says. "The trust level is what's important."

Similarly, Schleiff started in cable programming in 1981, when he worked for HBO Enterprises. And Oxygen's Gerry Laybourne started at Nickelodeon in 1980. As Laybourne told CableWORLD earlier this year: "I am a cable person."