Cable channel has banner year in ratings

General Electric racked up $169 billion in sales last year, so why is it gaga these days over a division that’s barely a footnote on its year-end balance sheet?

For one, that footnote, the USA Network, is coming off another banner year in the Nielsen ratings, where its average primetime audience of 2.7 million viewers makes it the highest-rated ad-supported cable network for the second year in a row.

But what really causes GE’s eyes to pop is the estimated profit USA chalked up in 2007: a cool $600 million. How big is that? About six times as big as the $100 million USA’s high-visibility older brother, broadcaster NBC, managed to scrape together in 2007.

“USA’s profits are outlandish, considering that the network was kind of tattered and sluggish when NBC bought Universal” in 2003, says Hal Vogel, the veteran showbiz analyst and head of Vogel Capital Management. (At the time, Universal was the parent company of USA.)

Vogel heralds these profits as “the coming of age” of cable networks like USA, whose dual revenue streams (advertising and cable/satellite license fees) are finally paying off, big time. (The only major revenue source for a broadcast network like NBC is advertising.)

USA’s bountiful ratings — courtesy of original and off-network series, a high-rated weekly wrestling series and a strong slate of feature films — translate not only into fatter media buys from advertisers but also to pumped-up dollars from cable operators and satellite distributors when their contracts come up for renewal.

Bonnie Hammer, president of USA and its Sci Fi Channel sibling, declined to discuss negotiations with cable ops. But Lindsay Gardner, director of global-media development for Media Tech Capital Partners and former head of cable/satellite negotiations for the Fox cable networks, says USA has built up the kind of authority that will give it an edge for what he calls “the staredown moment.”

That moment comes at renewal time, when USA’s parent NBC U tells powerhouse distributors such as Comcast, DirecTV or Time Warner that the network richly deserves a steep hike in license fees. The two sides then grapple with each other like wrestlers on USA’s hit Monday night series “WWE Raw.”

Pinned to the mat, NBC U may have to sweeten the deal by adding more USA shows in a free-on-demand window. Or even by modifying the price of one or two other networks in the NBC U portfolio (Sci Fi Channel, Bravo, MSNBC, CNBC and Sleuth, among others).

These days, NBC is sucking up to its strong sibling. USA has agreed to let NBC schedule reruns of three of its firstrun scripted series — “Law & Order: Criminal Intent,” “Monk” and “Psych” — on NBC’s primetime schedule within the next three months.

The ongoing writers strike accelerated the cross-pollination of the three series. But Hammer says she and the co-chairmen of NBC Entertainment/Universal Media Studios, Ben Silverman and Marc Graboff, engaged in a number of discussions about the strategy well before anybody was talking about a strike.

“One of Jeff Zucker’s major goals is to drive synergy between NBC U’s brother and sister networks,” Hammer says.

USA is also about to relinquish “Nashville Star,” the weekly hourlong country music talent search, to NBC after five seasons because, she says, “the show doesn’t quite fit USA’s brand. We’d rather invest those production dollars in scripted series.”

Brand is an important noun in Hammer’s lexicon. In the summer of 2005, USA engineered an eight-figure marketing campaign centered on the phrase “Characters Welcome,” using it to “embrace everything we do,” Hammer says, from “an obsessive-compulsive detective like ‘Monk’ to a real-life action hero of the WWE.”

The blueprint is working, says Laura Caraccioli-Davis, executive VP and director of media buyer Starcom Entertainment. “USA has clearly identified what the network stands for,” she says. It’s even using the campaign to promote an acquired show, “NCIS,” in a much different light than the way CBS markets the original primetime episodes.

What Caraccioli-Davis loves is that USA goes out of its way to get advertisers to become partners with the network in its series, going well beyond just buying 30-second spots. For “The Starter Wife,” last spring’s limited series USA has picked up for more episodes, Pond’s beauty products came in with a sponsorship that included displays in major retail stores.

If the writers strike drags on, USA may not be able to get fresh episodes of two series, “Starter Wife” and rookie hit “Burn Notice,” on air this summer. The network also cancelled two of its veteran scripted series “The 4400″ (four seasons) and “Dead Zone” (six seasons) late last year. Large numbers of viewers had deserted both shows during the last two seasons.

But USA has greenlit a third season of “Psych,” and is negotiating for a seventh season of “Monk” with Tony Shalhoub, its star and co-exec producer. And USA’s Universal Media Studios’ sibling has completed a pilot and 11 episodes of “In Plain Sight,” a lighthearted action series with Mary McCormick; she plays a woman trying to juggle family life with her job as a federal agent who relocates witnesses.

Among its series in development are a tongue-in-cheek thriller about a father and daughter who assassinate people for a living; a drama dealing with an FBI hostage negotiator; and a TV series version of the movie “Thank You for Smoking.”

What Hammer looks for in original series is upbeat, blue-skies action thrillers and procedurals. “We don’t rule out a bit of edginess, but you won’t see anything that’s dark or bleak.”

Her biggest goal in programming is to be the first cable network to harvest more primetime viewers, on average, than a broadcast network. According to Nielsen, USA came within about 100,000 viewers of topping the CW in 2007.

Hammer’s prediction for 2008? “Excuse me, CW, but move over,” she says. “Because here we come.”

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