Stay Tuned!

In an increasingly on-demand era, how are channel brands remaining relevant? Elizabeth Guider investigates.

The channels business abroad may no longer have sizzle, but does it still have staying power? That’s what pundits and poobahs around the globe are pondering as the media landscape becomes ever more roiled—and fickle viewers demand more options at ever more competitive price points. With emerging technologies upending the status quo on a daily basis, the key players in the channel business are rushing to extend their brands via social media outreach, web add-ons, digital streaming and more.

The disruptor of the moment is OTT, as in over-the-top upstarts. And the biggest nightmare? Cord-cutting by masses of Millennials.

Lately, almost all the U.S. media conglomerates have seen their stock prices falter, their media networks take a revenue hit from streaming rivals and their in-house production units battle rising costs (especially on the drama side). A jaw-dropping $15 billion was shaved off the market cap of the Hollywood majors during the first two months of the year. It’s hardly surprising, thus, that many of these companies have renewed their focus on the potential of foreign markets.

Thirty years ago the first wave of American channels started to wash over Western Europe. To break even back then took up to ten years; a few pioneers fell by the wayside in the process. Successive waves came ashore sporadically so that now viewers from Copenhagen to Kuala Lumpur, Bologna to Buenos Aires, can access a mind-boggling array of services—movies, series, games, gabbers and assorted lifestyle, reality, documentary and kids’ offerings. Much of it is (still) American-made.

GLOBAL JIGSAW
Nowadays all the major U.S. content players as well as their key counterparts across Europe have parlayed their brands abroad and/or cobbled together localized or regionalized iterations to target specific countries or an entire continent. And the time it takes to break even on these ventures has generally shortened.

The platforms that beam these services to subscribers are naturally getting more demanding, just as big-time cable, satellite and telco operators stateside have. “They only want the series that matter,” is how Ed Carroll, the COO of AMC Networks, puts it. “Every platform is afraid of not having the good stuff.”

In fact, pay-TV channels may be in aggregate facing the same culling that in recent years revalued and rearranged the program-sales business abroad. In that latter sector, only A-list American series—NCIS, Grey’s Anatomy, The Blacklist and the like—command top dollar and top billing on foreign TV stations; B and C product often doesn’t even secure licensing deals.

Making money off of entire channels may not be a slam-dunk, either. Not only do these channels have to face popular and deeply entrenched local broadcasters, whose own programs are nothing to sneeze at, but now they are being buffeted by unfavorable currency fluctuations and technological headwinds, personified by that nettlesome newcomer Netflix.

ADDING VALUE
So, it’s fair to ask if these services—everything from localized Disney Channel feeds to Sony’s Crackle and AXN, from NBCUniversal’s Syfy, Bravo and E! to FOX’s panoply of outlets, from HBO to Viacom’s Paramount Channel, from A+E’s HISTORY and Lifetime to AMC’s eponymous offshoots, and on and on—can con­tinue to up the ante. Obviously, corporate brass would like to see ever-greater returns from foreign markets, especially since U.S. media stocks are off significantly since last summer.

“It’s gotten harder,” is how more than one executive put it when describing the creative calisthenics and marketing contortions these international channels have to go through to attract attention from viewers and advertisers. The pace of launches has slowed and the competition for eyeballs is fiercer.

In the parent companies’ latest annual reports, mentions of their international success stories (if they make any reference at all) generally consist of a generic (and hard-to-decode) statistic or two.

21st Century Fox’s international-channel business, for example, trumpeted “double-digit growth” in subscribers for the fifth consecutive year in 2015, and it now reaches 400 million households across 126 countries. STAR India also merited a particular shout-out.

Despite (or perhaps because of) stumbles on the domestic front, Viacom’s executive chairman and CEO, Philippe Dauman, recently enthusiastically promoted his com­pany’s “profitable” foreign channel biz, claiming “the fastest international growth in our history.” Some two-dozen channels took to air in 2015, of which six were in India alone.

Over at Comcast, Chairman and CEO Brian Roberts recently reported relatively healthy overall profits. Even so, the global cable unit under Bonnie Hammer is being shaken up not only to better adapt to change but, in her words, “stay one step ahead of it.”

For its part, Disney recently vaunted the stellar returns from its latest Star Wars installment, but its share price was nonetheless punished by the downdraft at ESPN.

Likewise, concerns about affiliate fees from its subscription services have weighed on Time Warner’s performance and reignited rumors about a possible takeover.

None of the major U.S. companies break out their international figures in any meaningful way, so it’s unclear precisely what contribution to the bottom lines these foreign network operations deliver. (The overhead required to launch, program and manage entire channels is substantially higher than that for direct sales of shows to local content broadcast partners abroad.) Sources familiar with the sector estimate that the revenues from foreign media networks owned by U.S. conglomerates typically account for between 15 and 20 percent of the television divisions’ overall revenues.

BY THE NUMBERS
Despite the fact that precise financial data is hard to come by and ratings numbers overseas are a fuzzy patchwork, it’s safe to say that most of these overseas operations turn a profit, especially the ones that have been on the scene for a decade or more, have honed their marketing and promotion strategy, can count on economies of scale—and boast a compelling or unmatched content proposition.

“The nature of our company, our very scale and our marketing muscle, mean that we can deliver big day-and-date event programming, almost theatrical in impact, abroad on a weekly basis,” says Sharon Tal Yguado, the executive VP of global programming at FOX International Studios. She goes on to say that her group continues to focus on “live viewing” accompanied by “the loud push,” as its worldwide hit The Walking Dead illustrated. Next up for such a wide release, as it were, is an exorcism-themed series called Outcast, also from the pen of Walking Dead creator Robert Kirkman. Ahead of its April global debut, Outcast was renewed for a second season by FOX.

“I still look to acquire or develop and produce a watercooler event, a high-impact serialized story with universal appeal,” she explains. “Some folks may want to binge on it later (which we have the digital tools to accommodate), but our platform is geared for live watching and high audience involvement.”

Over at A+E Networks, Sean Cohan, president of international and digital media, emphasizes another element crucial to channels’ ability to ride out the disruptions in the business. “We don’t think of digital as something separate from what we do linearly. For that matter, we don’t think of international as separate from domestic. They’re anachronistic distinctions.”

Evan Silverman, the senior VP of digital media at A+E Networks, adds, “A number of our digital practices are now being applied company-wide across our channels and across the U.S./foreign divide.”

Both A+E Networks executives point to ad-supported VOD apps and SVOD ad-free back-catalogue packages of Lifetime Movies and HISTORY docs, which are offered to consumers in the States and soon in select territories abroad. These direct-to-consumer initiatives are not meant to replace the more traditional methods of accessing programs; they’re for “superfans,” Cohan suggests, who wish to dig deeper.

MANAGING RIGHTS
Another key factor driving expansion abroad is companies’ ongoing efforts to negotiate and hold on to as many rights, foreign and domestic, as possible. On the non-scripted side, those strides have already paid off handsomely for A+E (think Ice Road Truckers and Pawn Stars) and are now accelerating on the scripted side. “Over the last several years we’ve dramatically increased our ownership of fiction series,” Cohan says.

Similarly, AMC Networks leadership is doubling down on efforts to hold onto rights to their commissioned series. “Our approach is to develop our own original programming and retain all rights,” Carroll explains. The company launched AMC in the U.K. on the BT platform and in Latin America on DIRECTV, among other markets, last year. Its Sundance service recently debuted on CANALSAT in France.

Having a deep library, as the Holly­wood heavyweights do, is a huge advantage. NBCUniversal, for example, has been able to launch an SVOD service dedicated solely to reality fare. Called Hayu, the service debuted in the U.K., Ireland and Australia in March.

American players are not alone in thinking content is king, and controlling it is paramount.

“One of the most challenging areas is making sure we have comprehensive rights to our shows so that all the content our viewers want is available wherever and whenever they want it,” says Simon Brown, executive director of stra­tegy, research and regulatory affairs at UKTV, a joint venture between BBC Worldwide and Scripps Networks Interactive that operates ten branded services. “This is one of the drivers of our focus on original commissioned content.”

Intriguing, too, in terms of what companies may aim for in the next few years, are A+E’s upcoming plans to acquire majority stakes in linear channels abroad in “reasonably-sized markets”—another indication that traditional platforms are hardly going out of style. Some of the same calculus that drove Viacom to snatch up Channel 5 in the U.K. and Discovery to snap up SBS’s Nordic outlets is spurring the company, Cohan explains. “There’s still a disproportionate amount of viewing and advertising on linear outlets abroad, and we think there’ll be synergistic benefits to operating hybrid free, pay and digital platforms.”

INTERNATIONAL APPEAL
Given all the activity overseas with these major players and the flattening out of revenues domestically, analysts are paying greater attention to the potential of overseas markets.

“Our view is that most of these companies spent many years investing in and tweaking their international channels, and we believe they’re now as a category making material profits,” says Philip Schuman, senior managing director at FTI Consulting. “The challenge now for most of them is whether they can continue to grow, given pay-TV saturation and the emergence of new competition.”

The European recession aside, Daniel Punt, FTI’s managing director, believes that even in highly developed territories like France, Germany and the U.K., “there’s still room for more disposable income to be spent on entertainment.” And looking further afield in, say, the quartet of BRIC countries, “a lot of people are entering the middle class. That’s typically when spending on entertainment starts to become significant.”

Robert Bakish, the president and CEO of Viacom International Media Networks, is bullish about the strides his division has made in the last three years. He points to a four-pronged approach that has worked to goose the company’s position overseas. First, Viacom secured a controlling stake in British commercial broadcaster Channel 5. Then it accelerated the production of localized content for Nick, MTV and the like, deploying a suite of branded mobile apps. Finally, it launched consumer experiences beyond media. Bakish thinks of cord-cutting and cord-shaving as indications that consumers are extending their relationships to media rather than simply abandoning more established linear outlets. “Traditional pay is alive and well and growing for us,” he says. “From 800 million unique pay-TV subscribers today, by 2020 that number goes to at least 2 billion.”

As for the drop-off in pay-TV customers in the U.S., the FTI consultants reckon that the headlines about cord-cutting causing a meltdown at MVPDs (multichannel video programming distributors) are overblown. Looking out ten years, they believe the number of U.S. pay-TV subscribers will remain stable at roughly 100 million house­holds, with growth in new households offsetting cancellations. However, some subscribers may downgrade to less expensive packages (including new “skinny bundles” from providers like Sling TV and PlayStation Vue), a trend that could put pressure on both pay-TV operators and TV channel groups.

CHASING SUBSCRIBERS
Deutsche Bank devoted a client note recently to deconstructing the mixed first-quarter results at The Walt Disney Company. “The near-term trajectory for the cable networks is probably lower than the market previously expected, given subscriber headwinds and currency pressures…. Subscriber pressure is not from cord-cutting but from multichannel packaging changes. Distributors with packaging flexibility built into their contracts have added subscribers on economy tiers and smaller bundles that exclude higher-priced networks such as ESPN and TNT.”

Not every development in the U.S. media business or shift in consumer habits is mirrored abroad. The most crucial difference between the U.S. and European pay-TV markets is that the price difference between available multi­channel subscriptions and OTT SVOD offers is just not as large in Europe as it is in the States.

“We hear a lot about cord-cutting and the U.S. experience, but I don’t believe you cut and paste this behavior,” agrees UKTV’s Brown. “First, the U.S. market is 80 percent cable, whereas the U.K. pay figure is just 50 percent. So the U.S. has 30 percent more marginal households that in the U.K. simply opt for free-to-air TV. Second, the average U.S. cable subscription is in the region of $120 a month, whereas in Britain it’s half that, at around £50 ($70). So in the U.S. a lot of lighter viewers are paying a very large monthly fee. There’s bound to be some churn in a market like that. That’s why, in the U.K., a lot of the OTT subscribers are actually taking it in addition to their Sky or Virgin subscription as a top-up. In other words, those people here who love TV want to buy the richest TV experience they can.”

And, while similarities to the U.S. experience are noticeable in Anglo-centric countries like the U.K. and Australia (or even the Netherlands), significant differences await elsewhere. Thus, as several consultants say, Netflix will likely find that making inroads in disparate cultures is just as challenging for the upstart service as it has been for the legacy players who’ve been there a while, and have amassed valuable expertise.

Still, no one denies that disruption continues to rumble stateside and is ricocheting outward. (One worrying find: in a recent Harris poll in the U.S., a whopping 79 percent of respondents said that monthly DVR/cable box rental fees are “too high.”)

“As viewing continues to move away from traditional networks toward digital alternatives, advertisers will continue changing where they allocate their expenditure to reach desired demographic segments,” concluded PwC’s recent five-year (2015–2019) media projection study.

Unmistakably, “a loud sucking sound” is coming from new over-the-top offerings, and not just from “pure” unaffiliated OTT players like Netflix and Amazon Prime but also from the TV Everywhere hybrid services of legacy players, says Blair Westlake, a former top executive at Universal and Microsoft and now principal of his own consultancy, MediaSquareup.

PERSONALIZED TV
“Consumers are getting it into their heads that they’re able to access just what they want to watch, when they want to and how they want to,” Westlake observes. “Clearly, if you’re watching Netflix, you’re not watching linear TV.” If enough consumers eventually piece together their own à la carte menus or skinny bundles from several sources for, say, $30 or $40 a month, they may very well cancel their cable, satellite or telco subscriptions for $100 or so. The effects of this shift, Westlake says, will soon be felt up and down the line, from retransmission fees to stock prices. “In short, every time there’s a new, and competent, player in any business—a restaurant, an airline—that newcomer is siphoning off money from its established competitors.”

Netflix, for example, has reported that its average subscriber watches two hours of content on the service a day. “That’s what I’d call very focused viewing,” Westlake adds, “as opposed to the five and a half hours a day Nielsen reports people watch traditional TV, during much of which the TV is on but no one is actually watching it. Assuming real TV viewing is more like three hours a day, that two hours of Netflix time is a chunk out of TV’s hide.”

Like several others, Westlake does stress that the international TV market, which is a mosaic rather than a monolith, does not precisely mimic developments in the U.S. But, the main trends stateside generally do get refracted, albeit at a different pace.

AMC’s Carroll, for example, emphasizes that “the economics from one territory to another” can differ widely and thus affect the health of one’s programming service in that venue. He notes that in Iberia AMC’s outlets had only very modest growth a couple of years ago, but now, with things improving on the ground there, advertising and ratings have picked up.

If not as dramatically as in the U.S., Netflix has, with its blitzkrieg roll-out abroad, managed to rattle both the indigenous linear players in all the key territories (who have always expected the first window on the best American-made product) and the various overseas channel offshoots of the Hollywood majors. The fact that it is earmarking between $250 million and $300 million to produce series in some of its key target markets—including a lavish period piece about the British royals called The Crown as well as other projects in Mexico, Germany and Japan—is raising eyebrows. (That overall investment overseas by Netflix is in the same ballpark as what each of the established U.S. players spend on their localized productions abroad.)

Responding to these aggressive moves from Netflix et al. as well as corporate mandates from Hollywood bosses to provide TV Everywhere to everyone, all channel chieftains worth their salt are experimenting with new ways to entice viewers, encourage them to talk up their experiences online, and convert them into loyal fans.

AMC’s Carroll, for example, points to original webisodes being shot in conjunction with its series Fear the Walking Dead. These 16 one-minute segments are, for 48 hours, exclusive to the platforms that carry AMC and then revert to the company’s own YouTube channels.

In Britain, too, major players are jumping on the digital bandwagon. “The last five years have seen an explosion in digital platforms and devices, but one thing has remained constant: the enduring appeal of professionally produced long-form programs,” UKTV’s Brown says. “Our underlying mission has not changed: we still need to provide great shows in a way that’s most convenient for our viewers. But, as well as being a channel zap away, our programs need to be a mouse click or tablet swipe away. In addition to prominent channels, we need prominent VOD services, so we’ve focused our efforts into pushing UKTV Play onto all of the key platforms.”

The challenge remains tracking all of that nonlinear engagement.

DATA MINING
The New York Times recently detailed the “blistering criticism” directed at Nielsen, the 93-year-old company that has long operated an effective monopoly over TV ratings in the U.S. Many TV and advertising executives see the company as “a relic of television’s rabbit-ears past” because of its slowness in measuring the multiple screens and devices on which consumers now watch video. The article suggested, though, that new competition—notably the recent merger of the media-measurement outfits comScore and Rentrak—is forcing Nielsen to evolve. Abroad, measurement systems are also flawed or just plain rudimentary, though the U.K and northern Europe are arguably doing a better job at monitoring digital take-up than the U.S.

For all of the transformations in technology, infrastructure and delivery, channel executives always come back to the goal of providing original content that fosters meaningful moments among viewers. Such shared, immersive experiences, on as many viable platforms as possible, are what everyone is banking on.

Pictured: Dave Gorman’s Modern Life is Goodish on UKTV’s Dave.