NEW YORK — John Malone’s Discovery Health Channel has wrapped up clearance deals with five of the biggest cable operators in the U.S. and the largest satellite distributor, DirecTV, ensuring that the network will muscle its way into 40 million homes by 2004.
The announcement of the deals with the cablers — Time Warner Cable, AT&T, Cox Communications, Adelphia and the National Cable TV Cooperative — propels DHC into aggressive competition with Rupert Murdoch’s Health Network. That web has secured coverage on AT&T, DirecTV, Chuck Dolan’s Cablevision Systems and Paul Allen’s Charter Communications over the last few months.
Bill Goodwyn, exec VP of affiliate sales and marketing for the Discovery Networks, said he’s offering DHC to cable operators under one of three options:
- DHC will pay about $5 a subscriber as a launch budget. DHC also gives the cable operator free carriage for up to two years.
In exchange, the operator promises to roll out DHC to 80% of its cable systems’ subscribers within four years. By year two, the cable operator will begin paying DHC a monthly license fee of 7¢-10¢ per subscriber. Under these long-term contracts (which could run for as many as 10 years), there will be annual license-fee increases of about a penny a month per subscriber.
- For a cable operator that is not as interested in an immediate cash windfall, DHC pays only a minimal launch budget of about $1 a subscriber. But instead of getting only one or two years of free carriage, the operator harvests a freebie of five to seven years. After the long free ride, the license fee kicks in, obliging the operator to start paying monthly fees for up to 10 years, including the built-in yearly increases.
- Discovery will award equity stakes in DHC to operators who forgo launch-budget payments from the network, skip the years of freebies and instead start ponying up monthly license fees of 14¢-20¢ a subscriber from day one.
For cable operators choosing the third option, DHC promises to earmark all of the revenues from the operator partners into original programming. The strategy behind that promise is that the more fresh programming on the schedule, the better the chance at ramping up viewer tune-in. More viewers means bigger advertising revenues, which will help DHC turn a profit sooner than the usual five years of red ink that an expensive startup network must anticipate.
Network sources said the National Cable TV Cooperative has agreed to the first option, AT&T has signed up for option No. 2 and Cox’s embrace of the third option is a no-brainer: Cox already owns 24% of Discovery Communications. The other owners of Discovery Communications are John Malone’s Liberty Media (a 48% stake) and Newhouse Communications (24%), with the final 4% split among individuals like Discovery founder, chairman and CEO John Hendricks.
One insider said DHC, which started as a 24-hour service in July 1998, has lined up other, undisclosed profit participants — meaning that Discovery Communications will spin out DHC as a separate entity.
John Ford, prexy of Discovery Health Media, said DHC has made a commitment to spend $350 million to launch the network, pledging that by the end of 2000 at least 60% of the DHC programming schedule will consist of firstrun shows.
As an added incentive for cable operators to buy DHC and roll it out to 80% of their subs by 2004, the network is offering three minutes an hour for sale to local advertisers instead of the usual two minutes, Goodwyn said.
Ford explained that DHC will be different from other Discovery Networks like the Learning Channel, Animal Planet and Travel Channel because it will not be able to draw as easily on the huge library of nonfiction programming at Discovery’s disposal.
“The shelf life of a medical TV show is maybe a year and a half,” Ford said. “There are so many breakthroughs in areas like molecular biology, genetic engineering and wonder drugs that a lot of our programming becomes dated pretty fast.”