In January, the deep-pocketed Al Jazeera Media Network announced the shutdown of its United States cable news channel, Al Jazeera America (AJA). Industry pundits have found a range of reasons for the meltdown: internal disputes, discrimination, racism, bias, and even the decline of its price of oil. All of these explanations are wrong. AJA failed for one reason: It had a fatally flawed strategy. The network is textbook example of a business with an excellent product that still failed, entirely because it chose the wrong distribution channel.
When AJA launched in 2013, it was already too late to launch a new cable channel. Cable is in permanent, irreversible, secular decline. Just as launching a successful new magazine is almost impossible nowadays, so too is launching a new cable brand. Had it been distributed as an app like Netflix, it would have likely succeeded and became the first big 24-hour OTT network backed by a linear TV company. But Al Jazeera hired the wrong advisers and consultants, dinosaurs who did not see fundamental shifts.
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AJA is high-quality. It has plucked top talent from CNN, ABC, CBS, BBC, and Newsweek. Its coverage of the Middle East and Africa is the most in-depth on TV, as witnessed by its coverage of the war in Syria. It has also covered U.S. stories that are missed by competitors, such as police seizing bystanders’ cell phones when they are recording video of controversial arrests. AJA’s news product, while not for everyone, has an audience, just not on Comcast.
Cable news viewers are old. Fox News’s average viewer is 67; CNN and MSBC viewers are around 60. AJA does not appeal that generation. Its opportunity is with younger viewers, an audience far more lucrative to advertisers. While millennials and Gen Xers watch less news, those who do are far more likely to watch digital video than cable, and many are cord cutters. They have smart TVs and PlayStations through which they watch Netflix or Hulu, and many watch TV on phones. They are more open-minded and educated than their parents, with a greater worldview; more have traveled abroad, or have overseas friends on social media. While some older Americans harbor anti-Arab prejudices, the young are much less likely to. What AJA could have and should have done, is to launch a linear channel through connected TV app, leveraging its strength among younger viewers to become, effectively, the first linear TV station, viewable across the Internet instead of via the cable bundle. Instead, AJA took its strength (its appeal to younger viewers) and turned it into a disadvantage, like selling baby bottles in a retirement home.
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Launching as an over-the-top channel would have allowed AJM to build a much larger audience. AJA could have been multiplatform, steaming on the web and via an app on smartphones, tablets and smart TVs. Its video segments could have all been shared on social media, creating viral impact. Additional audience would have been generated outside the United States, and the resultant ad units could have been sold programmatically. With proper nurturing, the audience could have been in the millions, more than even Fox News gets today, but with a demographic a factor more valuable. By going to cable distribution, the network audience was catastrophically small, often averaging fewer than 40,000 viewers. To put that in perspective, there are many teenagers’ fashion and beauty blogs and YouTube channels that have larger audiences. The revenue stream from such a tiny audience is negligible.
Between purchasing Current TV for about $500 million and incurring the other costs of fighting for MVPDs to carry it, AJA used up the money that could have been spent to become the world’s leading news channel among the younger, digital savvy consumers. While the price of oil certainly has hurt the network’s Qatari owners, a significant investment in AJA already had already been made. Using cable distribution instead of digital also increased sales force costs, because unlike with an app, traditional media ad units cannot as easily be sold through programmatic, targeted networks, and thus require more salespeople. Digital commercials, which are better targeted, would also have yielded higher CPMs, and thus more money, and since they are sold as an audience buy, rather than a context buy, would have more easily overcome any anti-Arab bias that might have been encountered.
To make things even worse, to get carriage on the big cable networks, Al Jazeera actually signed restrictive covenants, precluding it not only from broadcasting directly to the smart-TVs, but also not to post most of its own video news stories on the web at all, putting it firmly out of sight of the young demo. This also crippled its ability to leverage social media and viral audience growth, and rendering it invisible to search engines. The move crushed its opportunity for cost effective consumer marketing. Even CNN regularly posts its most popular video news stories online, yet according to insiders one of the biggest cable distributors demanded that AJA refrain from posting most of its best content on the web as a condition of being carried on cable. In order to draw the measly 40,000 viewers on cable that it has been averaging (and an untargeted audience at that), AJA had to forgo an audience of millions online. These restrictive covenants ensured that AJA not only would fail, but fail completely.
This flawed distribution strategy is clearly the only reason AJA failed, not execution errors or the price of oil. AJA’s execution mistakes were growing pains. While pundits talk about internal disputes and management failures, these are distractions that miss the big picture. Yes, the management team screwed up a bunch of things, and yes the Qatari parent had much to learn about the US market, but these were growing pains, and with continued experience it would have eventually worked through them, just as American companies themselves go through similar growing pains when launching in new overseas markets.
Joe Mohen is a digital media entrepreneur, most recently serving as CEO of Nylon Media.
