Leo tiers into cable

MGM casts wide net for minipay partners

NEW YORK — MGM says it will create three or four 24-hour minipay cable networks featuring movies drawn from the studio’s library of 4,100 theatrical titles. The studio hopes to get the nets up and running by the fourth quarter of this year.

Jules Haimovitz, president of MGM Networks, says he’s talking with a number of potential partners about distributing and marketing the new movie networks, mentioning specifically John Malone’s Starz/Encore Media Group, Chuck Dolan’s Rainbow Programming and Viacom’s Showtime Networks.

But if MGM can’t strike a deal with any of these interested parties, Haimovitz says he’ll sign contracts directly with cable operators and satellite players to carry the studio’s minipay networks. He cited talks MGM has already begun with AT&T, the second biggest cable operator in the U.S.; DirecTV, the largest DBS (direct-broadcast-satellite) distributor; and Paul Allen’s Charter Communications, the fourth-largest cable operator.

In this scenario, AT&T and Charter would use the MGM movie networks as one of the lures to induce their subscribers to get high-tech digital boxes installed on their set tops at a cost of about $3 a month.

Haimovitz says the most likely design for a cable system’s scheduling of the MGM networks would be as part of a digital tier of movie channels (the Sundance Channel, Turner Classic Movies and FXM: Movies From Fox could be three other networks on the tier) that would cost the subscriber an extra monthly fee. A suggested retail price of $2 a month for all three MGM networks would be satisfactory to Haimovitz, he says, with the cable system and MGM each pocketing $1.

Ad free

That number averages out to roughly 33¢ a channel, which is about the going rate for minipay networks like the Sundance Channel. That’s a steep price for Sundance, but the network has convinced operators that it’s necessary, since Sundance is ad-free.

The MGM movie networks will not accept advertising either, which means Haimovitz won’t have to bust his hump getting the channels into 30 million homes — the minimum needed to get the ad community interested in buying 30-second spots.

Sources say Haimovitz is revealing his cable blueprint at least in part to assuage the nervousness of MGM investors, who have pushed the studio to get busy with a practical strategy to harvest revenues from its massive movie library.

Some investors will be disappointed MGM is not trying to get one or more movie networks launched in analog, which would make them available to all of a cable system’s subscriber base. By contrast, a digital business plan means that the networks will be lucky if, over the next few years, they reach even three million or four million cable and satellite homes.

Hard bargain

But analog space is mostly off limits on cable these days, with cable ops agreeing to add a new channel to analog — considered beachfront property on cable systems — only if:

  1. The new network pays out a hefty one-time launch budget that can run to tens of millions of dollars for just one large MSO (multi-system cable operator).

  2. Operators get free carriage for as many as five years before they start ponying up license-fee payments.

  3. The new network hands over an equity stake in the channel in exchange for carriage on at least 80% of the operator’s cable systems.

MGM is constricted somewhat in its negotiations with cable operators by a deal it signed with Turner Broadcasting on Sept. 14, 1999, that will funnel 800 United Artists theatricals to the studio starting in eight months, with 200 of them for exclusive use and the other 600 in shared windows between MGM and Turner.

One of the clauses in the Turner deal mandates that MGM must be the majority owner of any new network, which means MGM can’t sell the UA titles to a network that competes with Turner (or even to a pay TV channel or a broadcast TV network).

But Haimovitz is convinced he can make a good business out of minipay cable networks because “MGM is a brand name that’s instantly recognizable to the public. I think people will be interested to see what kind of movies turn up on networks that stamp themselves with the MGM label.”

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