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Nancy Dubuc’s Exit at A+E Networks Reflects Turbulence in Pay TV

A hasty CEO exit has put the spotlight on A+E Networks as a symbol of the business trends that are troubling the pay-TV arena.

Nancy Dubuc surprised the industry March 13 by decamping to Vice Media as CEO after five years at the top of A+E Networks, which is partnered with Vice in the struggling Viceland cable channel.

A+E Networks — home of A&E, History, Lifetime and four other channels — is one of television’s most profitable companies, with annual revenue around $3.8 billion. It’s privately held as a joint venture of the Walt Disney Co. and Hearst Corp. And therein lie some of its problems.

A+E is caught up in the maelstrom of both digital disruption and industry consolidation. Over the long haul, it needs to find new ways of making money from its programming, and its parent companies need to figure out the optimum ownership structure for the clutch of cablers in its orbit in light of the larger shifts in the marketplace. The conventional wisdom is that a company of A+E’s size is too small to compete in an environment where free-spending streaming services are pacing the race for programming.

But Disney at present is too preoccupied with its pending acquisition of 21st Century Fox assets to take on a buyout of A+E. Hearst, by many accounts, does not want to buy out its longtime partner, nor would Hearst offer much in terms of heft for A+E.

Comcast is seen as a natural suitor for A+E, but the cable giant is itself distracted, jousting with Disney in its quest to snare some or all of 21st Century Fox’s jewels. Other media companies and investors are on the sidelines awaiting the outcome of the antitrust trial over AT&T’s acquisition of Time Warner before pouncing on new acquisitions.

When A+E was an ATM machine churning out ever-growing profits for Disney and Hearst, there was no urgency to act. Now that the long-term forecast for advertising-supported cable channels has grown cloudy across the industry, A+E’s leaders need to think hard about the future. Dubuc’s exit for a digital media concern — albeit one that’s facing its own growth challenges — is a sign that one of the most prominent and ambitious CEOs in media has been reading the writing on the wall.

For most of the past three decades, A+E’s cable channels enjoyed gaudy 50%-plus profit margins. But in the past two years there’s been no more challenging task in TV than to deliver ratings and profit growth for established cable networks.

The reasons are not hard to understand. Cord cutting and consumers’ embrace of Netflix and other on-demand platforms have taken a toll on the customer base for old-fashioned pay-TV services.

The steady drip of subscriber losses amid a growing array of content choices for consumers has forced old-guard distributors to take a tougher stance in deal negotiations with programmers like A+E Networks.

The loss of subscribers for an MVPD has a direct impact on mature channels like A+E, History and Lifetime because they have long enjoyed the widest distribution base. Cable carriage deals are structured around a monthly fee per subscriber paid by distributor to programmer. In this construct, even the loss of 1% to 2% of an MVPD’s base per year adds up to a big hit. The acceleration of MVPD losses in the past few years months has rattled the largest media conglomerates, all of which are heavily invested in cable programming as a central source of profits. There’s hope that the entry of digital MVPDs such as Hulu, YouTube, and DirecTV Now will bring sustainable growth back to the affiliate revenue line.

The high stakes and tension in the air was evident in the messiness of Dubuc’s departure. A+E insiders were aware Dubuc had been eying the exit after she engaged in talks with Amazon Studios about taking the top job there. But the move to Vice was a surprise.

Sources said the shuffle came amid frustration by the board that governs A+E in the performance of the cable group of late and of Amazon’s public courtship of Dubuc. But the exec had also begun to engage in new contract talks with A+E. As word surfaced March 12 in Variety that Dubuc was in talks with Vice, her 19-year run at the company came to an abrupt end. Disney and Hearst quickly summoned A+E chairman emeritus Abbe Raven to take the helm on an interim basis.

Dubuc lieutenants Paul Buccieri (president of A+E Networks Portfolio Group) and David Granville-Smith (COO and CFO) were tapped to oversee operations, reporting to Raven. Both are seen as candidates for the permanent CEO job.

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