While most broadcast giants are scrambling to diversify and
expand even deeper into cable, CBS Corp.'s long-term strategy is to cut its losses
and hold steady: Hence, its joint-venture deal last week with Discovery Communications
Inc. for CBS Eye on People.
CBS and DCI have signed a letter of intent in which DCI
will get a 50 percent stake in Eye on People and take over management of the stalled
network, which launched in March 1997. DCI's mandate is to jump-start distribution
for the network, which will be renamed Eye on People.
CBS also confirmed last week that it is looking for a
similar partner for its Spanish-language network, CBS TeleNoticias.
CBS officials insisted that the Eye on People deal and the
same plan for TeleNoticias doesn't mean that their company is retreating from the
cable business.
CBS still has a substantial cable portfolio: The Nashville
Network and Country Music Television, purchased for $1.5 billion; Wisconsin Sports
Service; Midwest Sports Channel; and 70 percent of Home Team Sports.
"As a group, we do well over half a billion dollars in
sales," CBS Cable president Don Mitzner said. "We are committed to grow and to
put resources in TNN and CMT ... We're not liquidating here: We're just
reorganizing."
Yet once again, CBS has faltered in trying to launch a
cable network from scratch.
"They have a lack of desire to develop a cable
core," one top cable executive said, adding that CBS' "bad strategy on
cable" was perfectly illustrated in late 1993, when the "Tiffany Network"
tried to hold out for cash for retransmission consent from TV stations.
In contrast, other broadcasters successfully used
retransmission consent as a bargaining chip to launch new cable networks; ABC Inc.'s
ESPN2, NBC's America's Talking (now MSNBC) and Fox's FX.
From the get-go, top CBS corporate officials sent out an
ambivalent message about their commitment to Eye on People by publicly expressing concern
about the start-up's red ink and its lagging distribution, which is now at 11 million
homes.
CBS president Mel Karmazin's rise to top management
and his emphasis on increasing cash flow don't bode well for any future aggressive
moves into cable. Some feel that Karmazin might be preparing the company, or the CBS
network, for sale.
In contrast, more than ever, broadcasters from NBC to The
Walt Disney Co. and News Corp. -- the parents of ABC and Fox, respectively -- have been
boldly moving to secure additional cable shelf space and cable alliances, looking for ways
to hedge their bets as the broadcast-network business nose-dives.
Even programmer DCI -- which is part-owned by
Tele-Communications Inc.'s Liberty Media Group unit -- is in a superheated expansion
mode: DCI launched Discovery Wings and Discovery Health last week; The Travel Channel came
into its stable last year; it is managing BBC America; and it made a run at Courtroom
Television Network.
"Cable is not CBS' first priority," said Tom
Wolzien, an analyst at Sanford C. Bernstein & Co. "They have a lot of other
things that they have to fix first. They're trying to clean their balance
sheet."
Added analyst Niraj Gupta of Schroder & Co., "Mel
Karmazin's focus is on having the best radio, TV-station and outdoor-advertising
broadcast company."
In fact, Wall Street, which believed that CBS was ready to
pull the plug on Eye on People, put its imprimatur on the DCI deal, happy that CBS is
taking a cash-flow drain off its books. CBS has suffered "significant" losses on
Eye on People, Mitzner said, reportedly pouring between $50 million and $70 million into
it to date -- a figure that DCI has pledged to match.
"[CBS'] strategy is to cut their losses, and
they're building an asset," said Jessica Reif Cohen, an analyst with Merrill
Lynch & Co.
Jedd Palmer, MediaOne's senior vice president of
programming, also welcomed the deal.
"It's a great move by both companies that will
result in a better channel," he said. "Discovery has got just a dynamite sales
force."
DCI's ties to Liberty should help to boost the
network's distribution on TCI systems. But some operators have expressed concern
about whether network affiliate-sales teams are being stretched too thin as programmers
launch more and more networks.
DCI has already started to address that issue. Bill
Goodwyn, senior vice president of affiliate sales and marketing for Discovery Networks
U.S., has created a dedicated sales group for DCI's six "Showcase
Networks," or digital networks.
The other DCI networks -- including core analog services
Discovery Channel, The Learning Channel, Animal Planet and Travel -- are handled by the
rest of the affiliate-sales team.
"One rep doesn't have the mental capacity to
remember the programming styles of 10 channels," Goodwyn said. "And digital
networks involve a different kind of sell. Digital promotion is so different [than that
for an analog network]."
CBS approached DCI about Eye on People three weeks ago.
Ironically, a decade ago, DCI chairman John Hendricks discussed creating a network focused
on people and personalities with CBS, according to Discovery Networks U.S. president
Johnathan Rodgers -- himself a 20-year CBS veteran.
Rodgers said DCI doesn't plan to change Eye on
People's format, which he called a perfect fit for DCI's stable of nonfiction
networks.
Geoffrey Darby will remain president of Eye on People.
Rodgers' goal is for the network to reach breakeven in
three to five years.
Said Mitzner, "Anywhere north of 30 million
[subscribers] would be a roaring success."
CBS won't launch another analog service, and Mitzner
said it has looked at digital.
"There are few things on the drawing board," he
said, "but economically, it's a losing proposition [to launch a digital network]
to just put a placeholder on. We're not in that game right now."
CBS would consider investing in cable networks that are
making money or close to making money, but none is for sale, Mitzner added.
Instead, CBS is pumping up its investment in original
programming for CMT, Mitzner noted, trying to differentiate itself as more than a
music-video service as it faces competition from Jones International Inc.'s Great
American Country. Among that CMT original programming is a two-hour special on Shania
Twain, a live concert series and a new series called CMT Hit Trip.
