[Often a baffling area in terms of international sales, digital television is nonetheless slowly creeping up on traditional delivery systems. In time for MIP-TV, RealScreen lays out the digital domain in two weighty territories. ED KIRCHDOERFFER spells out digital in the U.S., and ANDY FRY decodes the U.K.]
12:00 a.m. flashes on the display of thousands of VCRs across America as consumers sit, confused by how to set the clock.
If these viewers thought their entertainment options were already bewildering, they ain’t seen nothing yet. Viewers may soon find themselves sifting among a variety of delivery formats including analog cable, digital cable, wireless cable, direct broadcast satellite, telecom, broadband and Internet, offered by a constantly evolving group of companies and conglomerates which are merging, converging and partnering in new formations.
While some people may not want to be awakened until it’s all over, the changes should be good news when the dust finally settles. Meanwhile, the clock keeps flashing 12:00 a.m.
To paint this picture in dramatic brushstrokes, one could say that we are at the dawn of the digital revolution. It would be nice to know where this revolution is leading, but technology is changing so rapidly – and the parallel explosion of the Internet is an element which was never factored in before – that even the savviest analysts and programmers are scrambling to keep pace. All anyone can figure out is that the way people use tv a few years from now will be vastly different from how people have watched television since the start of the cable era.
With so many changes in the works, consumers may seek safe choices and familiarity. Of all of the delivery systems, digital cable comes closest to mirroring what customers know best, and it’s in the digital universe where the foundation is being laid for the next wave of cable television services.
Today, the digital cable environment looks a lot like the landscape where analog cable was standing 20 years ago – poised to expand as channel capacity becomes available. The difference being that, 20 years ago, new and emerging cable services in the u.s. had only the three national broadcast networks with which to contend. Today, new digital services must compete in a market that has already been sliced into dozens of pieces – 174 broadcast services by the end of 1998, to be precise, according to the National Cable Television Association.
The arrival of digital compression has created the capability to someday live up to the much-lauded 500 channel universe. But, with so many programming options, will broadcasting entities be able to capture the critical mass of viewers to sustain the cost of creating new, original shows? How will cable services stand out from each other amongst a sea of choices, especially if acquisition is the key to cost-effectiveness and they’re all buying from the same sources?
THE PLAYING FIELD
Over two-thirds (67 million+) of all U.S. television households subscribe to basic cable services, according to Nielsen Media Research. Of that amount, only an estimated 1.4 million homes currently subscribe to a cable digital service, with projections of 4.7 million by the end of 1999 and 38.6 million by 2006, according to U.S. media consultancy Paul Kagan Associates. American digital cable was first deployed in earnest in 1997 by Washington, D.C./Baltimore-based TCI, the first MSO (Multi-service operator) to be up-and-running with digital technology. In order to offer digital cable, cable systems have to go through expensive and extensive upgrades. Philadelphia-based Comcast has invested over US$1.2 billion over the last three years for its upgrading, with an additional $550 million set aside for 1999, according to Joe Waz, Comcast’s vice president of external affairs. Cox Cable, headquartered in Atlanta, has spent over $4 billion upgrading analog, digital and high-speed data capability over the last four years, according to a company spokesperson.
Consumers need a special digital converter box to receive the digital signal and channel platforms. Several first generation boxes are in use, but the industry is moving toward an ‘OpenCable’ system in which set-top navigational devices, workable for all systems, will be available at retail. The cable industry expects them to be ready by mid-2000.
American digital cable is offered as an add-on service, with an average monthly cost hovering around ten dollars. For that ten dollars, customers receive upwards of 80-100 channels which include, depending on the system, multiple pay-per-view options, which close in on the promise of video-on-demand; extended premium service options (like multiplexed hbo and Showtime services); and a tier of special interest channels which are a mixture of analog and digital networks, and audio digital music services. The key consumer selling points of digital are choice (of services), convenience (you don’t need to buy equipment) and control (an easy-to-navigate remote control with which you can order movies and block out programs).
TCI has made digital cable available in 97% of the U.S. homes in its domain, and went over the one million subscriber mark (out of a total 12 million cable subscribers) for digital customers in late 1998. Comcast has rolled out digital in seven markets, reporting that it had about 70,000 digital subs at the end of 1998, with about 5,000 new subscribers signing on each week. The digital option is available in about a third of its 4.5 million homes, and it expects to have it available in three million homes by the end of 1999. Cox has launched digital in seven of its 18 markets, with about 75,000 digital customers at the end of 1998. Time Warner is still conducting tests of its digital boxes and hopes to begin a rollout during 1999, with the goal of having digital available in all of its systems by the end of 2000.
The cable networks which stand to benefit the most from initial rollouts are the pay-per-view and premium services. Although special interest basic channels are available on TCI’s HITS package (the most prominent package of special interest digital services) and on Cox, MSOs like Comcast and MediaOne are not offering basic services in their initial digital rollouts. ‘We’re treating this as a first-step product for a lot of reasons,’ Comcast’s Waz says. ‘At the moment, the products that are most attractive to the heavy [digital] viewer are movies and sports.’
Gary Arlen, president of Arlen Communications, a research company specializing in interactive and digital media, agrees that cable systems will likely use the extra channel capacity for pay-per-view services rather than special interest channels. ‘They know what the revenue model for pay-per-view is,’ he says. ‘The danger for everyone putting too many channels on is that there’s no economic model to support so many services.’
IT’S THE DISTRIBUTION, STUPID
No matter if the channel is from Discovery or a newcomer to the market, new services can only grow as fast as the rate at which digital becomes available to, and is accepted by, the public.
If the key to good real estate is location, then the key for cable services is distribution. Even after most systems have upgraded their analog capacity, available shelf space continues to shrink in proportion to the number of programming services trying to get on. Networks are turning to digital to either supplement analog distribution, or to establish a beachhead in the digital universe to ensure increased distribution as it becomes mainstream.
Establishing a beachhead is very important for younger services trying to make a name for themselves. Outdoor Life Network and Speedvision, available in 20 million analog homes, view digital as a critical source of new growth. ‘We felt the need to establish a presence or we would be preempted by the usual suspects,’ says Roger Werner, ceo of oln and Speedvision, both based in Stamford, Conneticut.
The ‘usual suspects’ he refers to are the better-known branded basic cable networks which have already staked claims in digital. Discovery Digital Networks, a package of six special interest networks, builds on specific Discovery programming strands: Wings (aviation); Science; Civilization; Home and Leisure; Kids; and Español. The Biography Channel is a spin-off of a&e’s popular stripped series. History Channel International takes a more global view of history than The History Channel. Three MTV, three VH1 and four BET (Black Entertainment Television) channels cater to specific music tastes. Other brand-heavy basic services with digital plans include Nickelodeon (three channels), Fox Family (two kids channels), HGTV (with a service called Do-It-Yourself), Lifetime (with a service called Lifetime Movie Network), amc (with a service called American Pop!) and Bravo (with a service called World Cinema).
Digital distribution is different from analog, according the Bill Goodwyn, senior vice president, affiliate sales and marketing, Discovery Networks, because not only do channels have to sell cable systems on their services, but they have to help cable systems sell consumers on paying the extra money to upgrade to the digital tier.
‘You have to throw out the old dynamics,’ he says.’In the analog world, you focus on your channel. In the digital world, it’s not about ratings, but about penetration in a particular market and how you get customers to buy the digital experience. It’s much more marketing by relationship and working with who you would consider your competitors to help drive penetration.’
IS ANYBODY WATCHING?
Whether or not digital cable services become effective advertising venues remains questionable in light of the degree of penetration they achieve. A&E has no plans to sell advertising on either Biography or HCI in the short term. Discovery only began running ads on April 1 of this year. Stacking another 100 channels on top of 70 pre-existing analog channels blows open the choices viewers have but, in the process, waters down the pool of available viewers turning to any one channel.
The growth of specialty basic cable channels over the last 20 years has taught advertisers that tv spots can still be viable when there’s a smaller audience. In a perfect world, narrowcasting delivers a target demographic, just like special interest magazines. Whether this pans out in reality is another question.
‘Idealistically, channels won’t need as big an audience to hit a demographic,’ says Helen Tocheff, senior VP of national broadcasting for Zenithmedia, the buying arm for advertising agency Saatchi & Saatchi. ‘But when you get too small, it becomes too inefficient [for an advertiser] to reach the viewer. You don’t really want to go out there just to reach a million people; you want to reach more than that.’ Tocheff says companies like Zenithmedia usually don’t start looking for advertising opportunities until a network reaches the 10-15 million subscriber mark.
Charles Humbard, Discovery Networks’ vice president and general manager for digital networks and advanced television, believes the advertising community shouldn’t force digital into the old model. ‘As we’ve sold programs in the past to Madison Avenue, we can now sell channels much the same way,’ he says. ‘What we have is a psychographic sell. None of the digital networks are going to have what Nielsen accepts as a viewer base for ad sales for years.’ Humbard believes that special interest channels are like a digital magazine rack, and for the first time in television a channel can deliver a targeted ‘psychographic’ 24 hours a day versus merely during a specific program.
Discovery’s Goodwyn believes networks will come up with new ways to get advertisers excited about channels which may only have a few million subs in their infancy. For example, culling all digital subscribers together and selling an 8 p.m. roadblock buy (spot airs at the same time on all channels) for all analog and digital channels for a given network.
Gary Arlen isn’t as enthusiastic about the advertising possibilities as the Discovery execs. ‘Discovery may want to sell to niche audiences, but advertisers may not necessarily want to buy that small an audience.’
Lack of advertising and a small pot for license fees are disadvantages for newer digital networks, which must invest more in acquisitions and original production than established networks which can rely on library product. ‘As a small channel that isn’t part of a larger network group, we have to spend more cash,’ Roger Werner says. ‘We don’t have the mothership network to give us free promotion for a spinoff network. We have a more difficult challenge because our services are designed as original programming services and are not privy to a large volume of library product.’
Digital has the potential to devolve into a Darwinian slugfest for survival. ‘There’ll be a shakeout,’ Zenithmedia’s Tocheff says. ‘No one is going to be able to find many of these channels… and at some point some will either go by the wayside, or retrench and find a partner who’s got a cohesive mass to make them bigger and better and smarter.’
It’s likely that the brand leaders in analog have an advantage over newcomers because viewers have a sense of expectation from a Nickelodeon or Discovery or hbo over an unknown quantity. ‘The brand leaders that are not just channels but have a much broader reach with their brand into retail, on-line, and interactive will be the survivors,’ Humbard says. ‘They’ll be able to provide clarity through the clutter.’
THREATS FROM THE OUTSIDE
Unlike the birth of analog cable, digital cable does not have the field all to itself. Digital faces a more immediate threat in direct broadcast satellite (DBS), where some digital services have been up and running since before digital cable began its rollout. ‘Digital cable started too late and they are now in a heated battle with DBS,’ says Jimmy Schaeffler, dbs analyst for The Carmel Group in Carmel, California. ‘It took too many years for cable to `get it’ and they’ve lost tremendous momentum.’
The other gorilla on the horizon that could, and most likely will, redefine everything is the Internet. Most every digital cable service offers a companion website that further extends the tv experience, whether it’s a web simulcast (as Discovery Science plans for its series, Science Live) or synchronized websites like History Channel International. HCI programs guide viewers to the website as shows air to give them more information about the subject matter. The development of cable modems able to deliver high-speed web access and digital boxes with Internet applications, including E-commerce, will be forceful drivers of consumers to upgrade to digital, especially those without computers.
THE DIGITAL DIFFERENCE
A look at how some non-fiction/documentary cable channels are approaching digital services, and the prospects for outside producers
A&E TELEVISION NETWORKS: The Biography Channel and History Channel International
A&E has taken one of cable’s strongest primetime strip series, Biography, and what has been rated one of the top five quality brands (The History Channel), and extended them into new services on the digital tier.
Biography Channel and History Channel International launched in November 1998 on the TCI hits service and combined are currently seen in 500,000 U.S. homes.
Although both are progenies of ad-supported basic cable services, neither is slated for advertising under the current business plan for several years, according to Dan Davids, executive vice president and general manager of The History Channel.
HCI focuses on global history, told from new international viewpoints via primetime programming strands such as World Conflict, History Traveler and Almanac, the channel’s signature series, a nightly collection of documentaries and interstitial programming devoted to a single topic.
Biography offers a variety of ways to learn about some of the world’s most interesting people, including thematic weeknight programming (Great Women, Great Entertainers, Wealth & Power, etc.), original short programming and new interstitial features.
Davids projects that 20% of the product for the digital services will be new and original programming; 35-40% will be programming exclusive to the channels and the rest will come from a combination of sources. hci will be looking to History Channel partners around the world as a source of programming, although Davids wouldn’t name any partners or programming suppliers, citing competitive reasons.
Having worked through the launch of The History Channel in 1995 and seen it grow from under a million subs to over 53 million today, Davids is realistic in thinking that Biography and hci won’t follow the same trajectory. ‘Market conditions continue to change and you have to adapt to those conditions,’ Davids says. ‘The marketplace is more fragmented than it was four years ago, and it’s a more difficult challenge to market a service in this environment.’
Producer Prospects: Decent. Both a&e and thc commission programming from a variety of producers. There’s no reason to suspect they won’t continue to draw from new resources, especially for international programming, to fill up doc-heavy lineups, especially when distribution gets cranking.
DISCOVERY DIGITAL NETWORKS:
Discovery Science, Discovery Civilization, Discovery Home & Leisure, Discovery Wings, Discovery Kids, Discovery en Español and Discovery Health.
Discovery was the first non-fiction channel to embrace digital cable services. Home & Leisure, Science, Civilization, and Kids launched in October 1996; Wings and Health in July 1998; Discovery en Español in August 1998. Discovery Health will be rolled over into an analog service in 1999. The networks are seen in about 1.5 million homes and become ad supported this month.
The goal of Discovery Digital Networks is to give viewers better access to the best of the Discovery analog networks, to create extended and in-depth coverage of specials and events that air on the analog services, and to create original programs giving viewers access to subjects that take them beyond the ‘must-appeal barriers of standard television,’ says Charles Humbard.
Humbard expects about 150 hours of new programming to air on the networks, made up of a combination of original programs and acquisitions. These new hours will air primarily on the Science and Wings channels. For example, Aviation Week, a half-hour magazine series produced in conjunction with Aviation Week & Space Technology magazine, debuts on Wings in the third quarter of ’99. No prodco has been assigned to the project as yet. Wings and Science will cover all nasa launches, with programming about the missions – more technical and ‘wow’ oriented on Wings, more about the mission itself on Science.
‘The beauty of the digital networks is that it allows you to take that big genre and cut it up into special interests,’ Bill Goodwyn says. ‘You deliver on a promise that anytime you turn on one of those digital channels, it will deliver a high quality program to satisfy your interest in that niche.’
Each network has a dedicated website and the channel programmers are working with the website division to develop programming ideas designed to work on both mediums. The Science website will be a full broadband website from its launch and will simulcast some programs, such as Science Live. ‘We’re taking advantage of the emerging technologies to enhance the viewing experience,’ Humbard says.
Producer Prospects: Better than average. Humbard says there will be many new production opportunities, especially for the Wings (aviation) channel. He advises that even though programming is designed for specific niches, it must also be engaging enough to interest the curious viewer.
‘The nice thing for us is that we’re not coming out of the block with people asking, `So tell us what this channel is again?” says BBC America’s GM, Paul Lee.
Launched last March, BBC America is straddling analog and digital region by region to find distribution however it can. The ad-supported service, distributed by Discovery Networks, is currently available in over five million homes.
BBC America is unique because not only is it a foreign brand establishing a presence in the U.S. tv market, but, unlike other new cable channels, it comes with a well-known brand reputation, something which has become necessary to stand out as the digital platform becomes crowded. Being backed by one of the largest media companies in the world doesn’t hurt either.
‘Unlike any other emerging startup network in America, we can rely on some of the activities and approaches to digital and interactive developed in London, and bring them to this market at the same level as a major broadcaster in the U.S., which I hope will allow us to enjoy some of the opportunities of digital quicker than some of our competitors,’ Lee says.
In the U.K., the BBC offers a digital public service channel, BBC Choice, and will soon be offering several other channels as well. (For more on BBC’s digital activity, see the U.K. section of this report.)
About 40% of BBC America’s programming is categorized as factual programming, consisting of news, docu-soaps (non-traditional documentaries about real people, like Driving School), and traditional documentaries. Because it can cherry-pick from current and classic offerings on BBC1 and BBC2, BBC America isn’t in the business of producing new programming for exclusive air on its channel, but doesn’t rule that out in the future.
Producer Prospects: Bleak. BBC America can choose from a wealth of new and library bbc programming, funded by huge amounts of production dollars, originally created for its parent company.
HBO: HBO Signature
HBO Signature is one of eight digital multiplex services offered by HBO, which include three other HBO services and four Cinemax services. Signature (formerly HBO3) is geared toward more discriminating tv viewers who enjoy sophisticated and thought-provoking programming. About 60% of HBO homes have access to HBO Signature.
Other hbo digital services include HBO Plus (formerly HBO2) and HBO Family. Two additional services, HBO Comedy and HBO Zone, debut later this year.
HBO Signature has a dedicated monthly independent documentary showcase called Double Take. The showcase is similar to the Cinemax documentary series, Reel Life, except that the films chosen to air on Double Take are tailored toward the typical Signature viewer.
HBO acquires completed films and also gives completion funding to films which have reached rough-cut stage. Acquisition fees range from $50,000-$75,000.
Among films that have aired or are slated to air are Waco: The Rules of Engagement (Dan Gifford and Amy Sommer-Gifford), The Death Train (Tom Roberts) and The Personals (Keiko Idi), Oscar winner in the short doc category this year. Signature also runs other documentaries that have previously aired on HBO and Cinemax.
‘The channel was conceived as a way to appeal to a specific segment of the hbo audience and we felt that documentaries would be something that appealed to that audience,’ says Nancy Abraham, VP, documentaries, HBO. ‘It’s also a great additional outlet for us to work with a larger number of filmmakers and include a broader breadth of subject matter.’
Producer Prospects: If only HBO showed more. HBO has shown a consistent desire to showcase independent documentaries and discover new filmmakers. Right now, only 12 documentaries a year will be shown on Signature, but those are 12 films that probably wouldn’t have aired elsewhere on U.S. tv.