FCC Chairman Julius Genachowski calls on cable industry to increase broadband penetration

Federal Communications Commission Chairman Julius Genachowski gently prodded telecommunications companies to build out their broadband networks to dramatically increase the number of homes that have access to high-speed Internet.

The effort is vital to the nation's economic health, Genachowski told several hundred people attending the National Cable & Telecommunications Assn. annual convention in Chicago on Wednesday. About 67% of the country's homes now have high-speed or broadband Internet, the chairman said.

"Broadband access is absolutely key in helping us recover from the terrible economic situation of the last few years -- and making sure we have sustainable growth," said Genachowski, who heads the agency that serves as watchdog of the public airwaves. Genachowski was interviewed at the convention by NCTA President and former FCC Chairman Michael Powell.

Genachowski announced that he would form a task force of government and industry executives to figure out ways to blanket the country with high-speed Internet lines. Without access to the Internet, Genachowski stressed, many people are hobbled in their efforts to find meaningful employment. Four-fifths of Fortune 500 companies use the Internet to advertise openings and recruit employees, Genachowski said.

The cable industry is a captive audience because, for many cable companies, high-speed Internet service has become a faster-growing, and higher-margin, area of their businesses than the traditional packages of cable television channels. Still, extending cable lines into rural areas is a costly proposition for the companies.

Genachowski singled out Cox Communications and Comcast Corp. for being leaders in rolling out broadband. Earlier this year, Comcast committed to making broadband Internet more widely available, and more affordable, as part of its agreement with the FCC to win approval of its takeover of media giant NBCUniversal.

"Broadband is what powers the American dream," Genachowski said. "I don't think we can be satisfied with this pace of adoption. It's just not good enough."

-- Meg James

Photo: NCTA President and former FCC Chairman Michael Powell (L) chats with current FCC Chairman Julius Genachowski. Credit: John Gress/Reuters.

 

Media chiefs confront challenges facing cable TV industry

A sense of urgency surrounds the annual National Cable & Telecommunications Assn. convention in Chicago this week as big media firms grapple with a host of business challenges that threaten their livelihood.

An onslaught of new technologies, devices and digital-content-delivering platforms and the nation's  growing wealth divide are challenging the cable television industry to no longer take for granted customers who shell out $70 to $100 a month for service.

Young consumers, in particular, do not seem to share their parents' affinity for their pricey cable and satellite TV packages, and are increasingly drawn to the Internet and to services including Netflix and Hulu for entertainment.

The health of the cable industry is crucial to the rest of the entertainment pipeline because it is cable and satellite operators who underwrite the high cost of television programming.

While industry leaders tried to put on a brave face, not everyone was buying it. Typically, question-and-answer sessions at industry conventions turn into fan-fests with softball questions, but Tuesday's opening panel, moderated by Fox Business News anchor Liz Claman, had a sharper tone. 

Claman suggested that cable leaders who said they weren't seeing evidence of cord-cutting -- or people who cancel their cable subscriptions in favor of lower-cost Internet options -- sounded a little too much like Wall Street bankers who, in early 2007, didn't believe the failure of a few subprime mortgages would be much of a problem. 

Viacom Chief Executive Philippe Dauman sought to downplay the threat. He said the cable industry not only survived but thrived during the recessions.  Millions of people didn't cancel their cable subscriptions despite stretched incomes, he said, because they regard their pay TV subscriptions as a good value.

"That's the story here," Dauman said.

But Time Warner Cable CEO Glenn Britt was more cautious. 

"There clearly is a growing underclass of people who can't afford the services they want.  It would behoove all of us to work together to meet the needs of that population," Britt said. "Most of the people want everything but not everyone can afford it. The economics of all of us [programmers and operators] make that difficult, and it would serve us well to worry about that group of people."

The audience broke into applause.

Patrick Esser, president of Cox Communications, said an increasing segment -- estimated at 40% of the U.S. population -- no longer have enough extra money, after the cost of food and housing, to continue to pay their rising TV bills.

"We have to be very sensitive that we serve customers," Esser said.  "They either have disposable income or they don't. I worry more about that than cord-cutting -- making sure we have the products and services, and their affordability."

The panel, which also included News Corp. Chief Operating Officer Chase Carey and Time Warner CEO Jeffrey Bewkes, stressed that the industry must figure out ways to support the cost of making entertainment and delivering it to consumers.

"Don't be afraid of your children," Bewkes said. "Put the TV on the Internet devices, and don't change the business model and don't charge people extra. Make it easy for them to use it."

This spring, Time Warner rolled out its HBO Go option for subscribers to watch HBO programming on their iPads and other mobile devices.  Bewkes said such user-friendly experiences were key.

And the cable industry, which also sells broadband Internet service packages, must improve data transfer speeds to deliver high-quality video.

"We really all have to remember this: It is this infrastructure, this industry, that allows for quality audio and visual display of material," Bewkes said. "We ought to keep rolling this out as quickly as we can so the consumers get a seamless adoption of better technological quality and access to what they want, when they want it. It's all in this room."

-- Meg James

Photo: The cable industry invades Chicago: Credit: NCTA.

 

Scripps makes its travel plans, and they're not cheap

Scripps Networks Interactive has bought a majority stake in the Travel Channel in a deal that values the cable network at $975 million.

That price tag is sure to raise eyebrows in the industry. When Travel Channel parent Cox Communications first put the network on the  market, most analysts and industry experts thought it would fetch a price tag in the $600-million range. Though the channel has been growing in ratings in recent years and is in more than 90 million homes, it does not have any shows that regularly draw over 1 million viewers and is hardly a cash cow.

But you know what happened next. Rupert Murdoch's News Corp. jumped in and started kicking the tires and drove the price up. Then when it got too high for even them (which is a pretty good sign that something's out of whack here), they bailed. Under the terms of the deal, Scripps will have a 65% stake in the network. Cox will get $878 million in a cash payout and keep 35% of the network.

For Scripps, the channel makes sense because it already owns Home & Garden TV and a big chunk of the Food Network as well as other lifestyle channels. It will likely cut and merge a lot of the operations at Travel Channel to save on costs. Also, Scripps will probably be able to leverage its current channels to boost what cable and satellite operators pay to carry the Travel Channel.

-- Joe Flint

Previous Posts:

News Corp. cuts travel budget

News Corp. in lead for Travel Channel but it could be expensive bid

Cox's Travel Channel on road and searching for a buyer

News Corp. cuts travel budget

After jumping in the race to land the Travel Channel and no doubt driving up the price, News Corp. is now pulling out, people close to the situation say.

To be sure, the bidding for Travel Channel has gotten out of hand. When Cox Communications said it was putting the cable network on the block, most analysts and industry observers thought, at most, it would fetch between $600 million and $700 million. Now it is about $1 billion. That's just crazy for a network that doesn't have any shows that regularly average more than 1 million viewers.

With News Corp. backing off, Scripps Network, which owns Home & Garden Network and a big chunk of Food Network and Fine Living, is now in the driver's seat. Obviously Travel Channel is a good fit for them but with News Corp. out of the picture are they now going to go back to Cox to try to lower the price? Other bidders include a private equity consortium led by Providence Equity Partners.

While there is lots of room for growth at Travel, both in terms of ratings and the bottom line (its subscriber fees are a lowly 6 cents per-month, per-subscriber, and it has a net operating revenue of only $186 million, according to SNL Kagan) at that price it is a pretty risky bet. Sure, whoever buys it will immediately lay off half the staff, but the new owner will also have to pump in a lot of money to beef up the programming.

If Rupert Murdoch and News Corp., which isn't shy about spending money on risky gambles (MySpace, Wall Street Journal, etc.) says $1 billion for the Travel Channel is too much then it is too much.

Of course, don't be surprised if this is all a smoke screen and Murdoch jumps back in. Nothing like fear of not getting something to lead to an irrational decision.

-- Joe Flint

Previous posts:

News Corp. in lead for Travel Channel but it could be expensive bid

Cox's Travel Channel on road and searching for a buyer

Photo: News Corp. Chairman Rupert Murdoch and wife Wendi at Sun Valley mogul gathering. Credit: Douglas C. Pizac / Associated Press

News Corp. closing in on Travel Channel, but it may be an expensive trip

Apparently the cost of travel really is on the rise.

News Corp. has emerged as the leading contender to buy the Travel Channel, the cable network that Cox Communications put on the block, according to a report in today's Financial Times. That News Corp. is interested in the Travel Channel isn't surprising, but the price tag being tossed around for the network may raise some eyebrows.

Originally, when the channel went on the block, industry scuttlebutt was that it might fetch north of $600 million. Now the speculation is that it will top $800 million and could even reach $900 million. Other bidders for the network include Scripps Network and a private equity consortium led by Providence Equity Partners. Time Warner's Turner Broadcasting has glanced at the channel but is not actively looking, and NBC Universal was interested but perhaps has bigger things on its plate these days between trying to do a deal with Comcast Corp. and figure out what Vivendi is going to do with its 20% stake in the company.

Does $800 million sound a little steep for the Travel Channel? Well, yes. But Rupert Murdoch's News Corp. certainly doesn't mind overpaying for assets ($5 billion for the Wall Street Journal, $580 million for MySpace). In this case, the scenario being discussed would have News Corp. acquire the channel through its partnership with National Geographic, according to the FT report. The two co-own the National Geographic Channel and a soon-to-be-launched spinoff channel.

News Corp. is probably betting that it can cut costs from the channel and boost what cable and satellite operators pay for it. Right now, according to Kagan Media, Travel Channel charges about 6 cents per subscriber. To give you an example of how out of whack that is, Kagan says Fox Business, which won't disclose its ratings because, well, you figure it out, gets 11 cents per subscriber and the little-watched Fox Movie Channel gets 16 cents per subscriber. See what having a big corporate parent can get you? The more networks one owns, the better negotiating position one has with distributors.

The Travel Channel has done a decent job of improving its ratings over the last few years. Its audience is small but on the rise. Its biggest show is Anthony Bourdain's "No Reservations," which has nearly a million viewers.

The logic behind News Corp.'s desire for the Travel Channel is similar to what is motivating Comcast's move to take control of NBC Universal. Cable networks are cash cows and, because they get subscriber fees and advertising revenue, are better positioned to weather economic uncertainty.

That said, one day distributors may actually find a way to start tying the fees they pay to carry channels  to ratings performance, and then it'll be a whole new ball game.

-- Joe Flint

Previous posts: Cox's Travel Channel on road and searching for a buyer

Photo: Rupert Murdoch. Credit: Jemal Countess/Getty Images

Cox's Travel Channel is on the road and in search of a buyer

Will rock and roll chef Anthony Bourdain come work in the commissary as part of a deal?

That might be what some of the major media conglomerates kicking the tires of Cox Communications Inc.'s Travel Channel are wondering. The auction for the channel, whose biggest show is Bourdain's "No Reservations," is underway and the usual suspects are taking a look. Among those interested in the network are NBC Universal, Scripps Network and even News Corp., according to Bloomberg. The price being bandied about is in the neighborhood of $700 million.

That may seem low compared with recent cable network deals such as the $3.5 billion that NBC and private equity firms Bain Capital and Blackstone Group shelled out for the Weather Channel last year and the $925 million that NBC paid for Oxygen two years ago.

Of course, the economy was in better shape then and both those networks are more well-known than the Travel Channel. Also, the Weather Channel has a strong Internet presence and NBC desperately wanted to combine the network with its own digital weather channel. Oxygen was also a good fit with NBC's Bravo. NBC probably sees the Travel Channel as a good compliment to the Weather Channel and even MSNBC.

Scripps is interested in the Travel Channel because it would dovetail with its other lifestyle networks including The Food Network (which Los Angeles Times parent Tribune Co. also has a stake in), Home & Garden and Fine Living.

The Travel Channel has done a nice job of boosting its ratings over the last few years. Its audience is still small, but it's growing. In prime time, the network this year has averaged 485,000 viewers, a 25% gain from 2004. In demographics, it has risen 35% among adults ages 25 to 54 in the last year and its median age is 45, a drop of four years from 2008. Bourdain's show draws close to 900,000 viewers per episode. Its other popular shows include "Man v. Food" and "Bizarre Foods with Andrew Zimmern." For a channel about travel, it sure has a lot of shows about food.

From a business standpoint, there's room for growth. Media consulting firm SNL Kagan said the fees that the Travel Channel charges cable and satellite operators amount to only 6 cents per subscriber per month. For 2009, it is projected to have net operating revenue of $185.8 million, advertising revenue of $128.2 million and cash flow of $69.1 million, according to SNL Kagan. Cox,which doesn't own any other national cable networks, ended up with Travel Channel two years ago as part of its deal to sell its stake in Discovery Communications. 

When a channel goes on the market, everyone takes a look, so don't read too much into Rupert Murdoch's News Corp. also expressing interest. What's notable is that Time Warner Inc.'s Turner Broadcasting, which went after the Weather Channel big time, has decided to pass.

But there's still plenty of time for Turner to try to make a reservation with Bourdain.

-- Joe Flint

Photos: Travel Channel's Anthony Bourdain, pictured at top, and Andrew Zimmern. Credit: Travel Channel