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Cable Operators

Cable Plays Catch-Up to Satellite’s Diverse Fare

7/21/2006 8:00 PM Eastern

When MTV: Music Television launched its MTV K network, aimed at Korean-Americans, last month, correspondent SuChin Pak greeted viewers in Korean before switching to English. Her comments indicated both pride and some surprise at how much the ethnic-programming landscape has changed.

“When I was growing up, the only Koreans I saw were extras on [the series] M*A*S*H,” said Pak. “Now we have an entire channel dedicated to us. We’ve come a long way, baby.”

While ethnic programming has come a long way in terms of variety and quantity, one thing has remained pretty much the same — satellite’s lead over cable in offering the most-diverse ethnic fare. Though bandwidth issues are a contributing factor for the big head start, there is no denying satellite’s early and continued success at identifying and selling programming to a wide range of small and not-so-small immigrant audiences.

Over the last five years, a number of major cable operators have bolstered their multicultural offerings and international marketing efforts, but they still trail behind satellite operators.

The Package Deal
Subscribers to Hispanic packages, 2005
Operator Total Subs
EchoStar 1,075,000
DirecTV 900,000
Comcast 300,000
Time Warner Cable 95,000
Cox 75,000
Source: Kagan Research

SPANISH-LANGUAGE PUSH

In the late 1990s, EchoStar Communications Corp. began a push to build and promote an attractive Spanish-language tier for Hispanic immigrants. Now, its Dish Network offers additional channels and packages in languages from Arabic to Ukrainian.

Direct-broadcast satellite enjoys some inherent technological advantages over cable in distributing ethnic programming — namely, channel capacity and a national footprint that enables the medium to easily reach very small and widely dispersed groups.

Satellite providers have also worked aggressively with local retailers to get the word out: Open a Spanish-language newspaper almost anywhere in the U.S., and you can see ads from local retailers touting EchoStar’s Dish Network and rival DBS platform DirecTV Inc.

“Dish’s ongoing relationship with local retailers has been its greatest success,” said Ariela Nerubay, vice president of marketing and sales at TuTv. “It generates word of mouth, reduces your point-of-sale costs [and] the shop owners invest in advertising.”

Nerubay also cited Dish and DirecTV’s success in putting together extensive packages of relevant and affordable programming.

The combination of a widespread retail presence plus a reasonable price creates a net effect for networks.

“It gets easier, certainly with respect to Latinos as you have a larger subscriber base,” said EchoStar senior vice president of programming Eric Sahl. “There is this sort of dual dynamic where the programmer wants to hitch to your horse. … More and more competitors are getting into the business, [but] it is hard to give [EchoStar] up if you are a programmer.”

Satellite has become the preferred option for many ethnic programmers because it combines a guaranteed nationwide audience with lower transaction costs.

LOWEST-HANGING FRUIT

For instance, Dish will carry American Desi, a network targeting South Asians, exclusively through 2007. Network CEO Vimal Verma described EchoStar as “the lowest-hanging fruit” for many ethnic broadcasters.

“My perspective, from a programmer’s point of view, is the more the merrier,” Verma said. “But convincing each and every cable system to carry us is not in their interest or mine.”

Depending on the size of a network’s target audience, convincing even a single cable system can be difficult. DirecTV estimates there are less than 100,000 Ukrainian households in the U.S., but that didn’t stop the satellite provider from offering a Ukrainian-language premium channel for $14.99 a month.

“It is a nice business for us,” said Aaron McNally, vice president of DirecTV International. “You start aggregating these niches, and it makes sense.”

And the Hispanic market is the biggest niche of all. Luis Torres-Bohl owns Atlanta-based Castalia Communications and sells a number of Latin American networks to U.S. cable and satellite operators. He is also president of the Mexicanal network, which is carried exclusively on the “DirecTV Para Todos” package.

“For now, the cable companies do not have the same number of subscribers as DirecTV,” he said. “It is a question of volume. It is only in the last two, three years that cable companies have entered the game.”

CABLE FIGHTS BACK

Cable is doing what it can to compete, primarily by beefing up its Hispanic programming and trumpeting technological benefits such as video on demand and bundled-services packages.

“Cable is doing catch-up,” said Kagan Research senior analyst Deana Meyers.

Cable systems effectively ceded Spanish-speaking customers to EchoStar for several years. But in the last five years, those numbers became too large to ignore and cable actively began to try and attract Latino subscribers by bolstering their Spanish-language program packages.

“We’ve made great strides in nailing down the appropriate programming. That was the most critical [step],” said Charter Communications Inc. vice president of programming R.B. Lerch.

In the last two to three years, cable has begun making inroads — and competitors are taking notice.

“The cable systems have been more aggressive recently,” said McNally, not only in building programming, but in trying to improve their Hispanic marketing efforts.

Bundling is one way that cable operators hope to attract subscribers. Hispanics are increasingly moving from dial-up Internet access to broadband connections. And both Cablevision Systems Corp. and Comcast Corp. offer calling plans designed specifically with Latino customers in mind, with discounted rates to such locales as Puerto Rico.

But much of the hope for luring Hispanics to cable lies in video on demand. “VOD is a great differentiator,” said John Figueroa, director of sales and multicultural marketing for Charter’s Western division.

Charter, Comcast and many other major MSOs are encouraging Hispanic networks to expand their on-demand offerings.

And many are happy to do so. TuTv is working on clearing VOD rights for more than 3,000 Mexican films, most of which are governed by multiple rights contracts.

“For us, it is very important to take advantage of all the resources at our disposal to try and help the cable systems,” said TuTv CFO Carlos Madrazo. “The cable executives always ask us, 'Can we beat Dish, given their head start?’ ”

“As soon as they get cracking and come up with a reasonably priced package, they have the same growth capacity as satellite. They have hope.”

BEYOND LATINO MARKETS

That hope is beginning to extend beyond attracting Latinos. “What’s happening now is the operators, whether cable or alternate providers, are starting to realize that other markets are equally ripe,” said Adriana Waterston vice president of marketing and business development at Horowitz Associates Inc. “People are starting to really get a sense that there is more than just Hispanic.”

Specifically, there is an increasing sense of the importance of the Asian-American audience.

One network that targets that burgeoning demographic is AZN Television. Originally the International Channel, it relaunched as AZN on May 5, 2005, because “those numbers are very lucky within Asian cultures,” said Bill Georges, senior vice president of marketing and sales at AZN Television/International Networks.

According to Georges, AZN is designed “as a one-stop shop to reach Asian Americans — not just some fraction of Asians, but a national audience.”

AZN runs English-language shows in primetime but the rest of the day it airs mostly original-language dramas and newscasts from a number of Asian countries.

International Networks, the Comcast-owned subsidiary that operates AZN, began offering a batch of Asian, European and Middle Eastern premium networks to cable systems in 1997. Subscriber numbers range from tens of thousands for the Saigon Broadcast Television Network to 15 million households for AZN.

“Those advertisers that hopped on early with the Hispanic market reaped the benefits” said Georges. “Those who get in early [into the Asian market] will get in at a much more cost-effective rate than later on.”

Getting an early foothold seems to be motivating some programmers, even if all advertisers are not yet buying. Mike Hong, president of ImaginAsian TV, estimates that less than $300 million per year in total advertising is spent to reach the Asian-American audience. That’s not a lot of money to support the several dozen Asian-language channels and at least half a dozen networks that feature English-language programming for Asian Americans raised or born in the U.S.

Three of those networks are from MTV Networks’ stable: MTV K, for Korean Americans (launched June 2006); MTV Chi, targeted to Chinese Americans (launched December 2005); and MTV Desi, aimed at Americans of South Asian descent (launched July 2005).

“Younger, more educated, more tech-savvy … a small but influential audience,” is how MTV World senior vice president and general manager Nusrat Durrani described the audience for all three MTV channels.

Added MTV president Christina Norman, “We really feel these young audiences deserve their own MTVs.”

Still, there is no advertising on any of MTV’s three Asian-aimed networks. Though Durrani and Norman said advertisers have expressed strong interest, they declined to identify any prospective clients.

One difficulty in targeting the Asian-American market is its inherent fragmentation due to sharp cultural, linguistic and regional differences.

“Young people from these communities don’t really see themselves first and foremost as Asian Americans,” Durrani said. “They see themselves either as Chinese Americans or Korean Americans.”

“You can offer a real vehicle to reach all Asian Americans,” though, contended ImaginAsian’s Hong. A model that doesn’t depend on advertising can also work, he said.

The problem, he said, is that there “isn’t enough critical mass to get Madison Avenue interested.” Hong plans to launch a subscription VOD service aimed at Korean Americans later this year.

OVERLOOKED SEGMENT

One market that both cable and satellite seem to be overlooking is African Americans. While there are more than 70 Hispanic channels, only a half-dozen specifically target African American viewers. And major cable and satellite providers offer no African-American programming packages.

That’s despite the fact that African-American customers spend more on cable than any other group, according to Horowitz Associates Inc. research.

“I have a head full of gray hair and no time to dye it,” said Samara Cummins, vice president of affiliate sales and marketing for the Black Family Channel, referring to her channel’s seven-year fight for carriage. “I thought it would be much easier.”

Added Horowitz’s Waterston: “It has been very easy to take the African-American audience for granted. Are we at risk at losing some of those customers? I think we are.”

Many African-American programmers feel that foreign-language channels have cut the line, so to speak.

“We have the feeling that we’ve been leapfrogged over by the foreign-language community,” said Cummins. “I’ve had operators say to me, 'I am working on Hispanic, come back to me in a year.’ That’s unfortunate when your best customer is skipped over.”

Thus far, the Black Family Channel is carried only on cable, not on satellite. “The satellite community has not embraced us for whatever reason. I am not sure why,” said Cummins. “Every day, I think this is the day we are going to get carriage, but then it is not.”

Another African-American-targeted startup, TV One, has benefited from its ownership: Comcast is a part owner, and DirecTV took an equity stake in the channel as part of a carriage deal.

The network, co-owned by African American-owned radio broadcaster Radio One Inc., launched in January 2004 and is now in 31 million Nielsen Media Research homes.

“This is a big underserved audience and people do lose sight of it,” said Brad Samuels, executive vice president of affiliate sales and marketing for TV One.

“Where we are now is not where we’ll end up,” said Alexis Johnson, director of programming for Verizon’s FiOS TV, which currently offers six African American-themed channels. There’s room for more ethnic programming, stressed Johnson, who added that “we want to serve our audience regardless of the numbers.”

While cable plays catch-up with satellite, both may face increased competition as telcos such as Verizon and other broadband providers beef up their multicultural offerings.

The telcos can offer “virtually limitless international programming,” noted Kagan Research senior analyst Deana Myers.

SATELLITE'S LIMITS

Meanwhile, satellite may be starting to bump up against a ceiling in terms of what it can offer. “There certainly is a ceiling,” said EchoStar’s Sahl. “We are having to make tougher and tougher choices. Your opportunity costs get higher.”

While cable and satellite executives may dismiss broadband subscriber numbers as too small to pose a competitive threat, the platform offers programmers a viable way of delivering more ethnic content.

One such programmer is Michael Feldenkrais, who heads up the immigration practice at Miami-based multinational law firm Adorno & Yoss and who was a regular guest commentator for Telemundo and later TeleFutura.

Feldenkrais plans to launch a subscription-based, Spanish-language immigration-news channel via broadband called Sueño Americano (American Dream) On Demand.

“The technology was there for me to do it on my own. I didn’t need a big player,” said Feldenkrais. “The cost of distribution is minimal and the risk is minimal.”

DirecTV’s McNally said his firm’s ethnic-programming franchise faces competitive risks everywhere. “I look at all threats. I take them all seriously,” he said. “I truly believe it pays to be paranoid.”

 

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