A new business model
PBS, producers may try cable kids’ channel
PBS is talking with the producers of Barney & Friends and Sesame Street about creating a digital cable network for preschoolers that would earn license fees from cable operators. The channel, co-branded with local stations, would replace the existing PBS Kids service that 74 stations now air as a DTV multicast service.
For public TV leaders looking for a new business model, the channel would dip into the cable economy where system operators partially pay the cost of channels they want to carry.
The proposed channel fits into PBS's larger strategy of creating market-based digital businesses that could eventually subsidize its broadcast service or at least pay their own way. But PBS executives, barred from naming potential partners by a nondisclosure agreement, also said the network risks losing signature programs to a new competitor if it sits out this venture.
"There are two major programmers that are looking to move to cable irrespective
of whether PBS participates or not, because they're following the money,"
said Deron Triff, v.p. of digital ventures, during the Public Television Programmers
Association conference in Atlanta last month.
HIT Entertainment, a London-based children's entertainment firm, announced in March it would seek partners in a new digital kids channel in the United States.
Sesame Workshop also is participating in talks about the channel, according to public TV sources, along with Comcast Corp., the cable company that recently attempted to acquire Disney.
A spokeswoman for HIT declined comment.
HIT's extensive portfolio of kids' shows includes Barney, Angelina Ballerina and the Nick Jr. hit Bob the Builder. In 2001 it bought the Lyons Group, the Dallas-based producer of Barney and Wishbone. It recently acquired the Jim Henson library of Muppet programs and Thomas the Tank Engine, a PBS children's hit in the early 1990s.
Sesame Workshop entered the talks because it is looking to re-license rights to its Sesame Street library when its agreement with the Nickelodeon-owned Noggin expires in September 2005, said Gary Knell, president. The nonprofit company joined Nickelodeon in a venture to launch Noggin in 1998 but sold its stake in 2002. It may still renew its deal with Noggin.
No more freebies for cable?
Rather than launch a channel from scratch, PBS is considering recasting its existing PBS Kids Channel as a direct-to-cable service. The shift would end station multicasts of the channel, which cable systems carry without helping support it. Instead, PBS could negotiate with cable operators for license fees of up to 10 cents per subscriber per month, Triff said. The children's service that stations broadcast during the day would continue to deliver free programs for children.
The digital PBS Kids channel that stations distribute "is available on basic cable just like Disney and Nick, but the cable operators need to start paying for it," Triff said at the PTPA meeting.
The satellite operator DirecTV now pays the market rate to distribute PBS Kids to its satellite subscribers, generating several millions of dollars a year in subscription fees, according to Triff. Giving the same channel to cable systems undercuts that revenue stream, as PBS sees it. Cable companies pay nothing to pick up the channel because Congress gives them a statutory license to retransmit broadcasts. "So DirecTV has to pay," Triff recapped. "Time Warner doesn't have to pay."
PBS uses the satellite income to cover operating costs of the Kids channel, the adult learning channel PBS You and the new PBS HD channel, according to John Wilson, co-chief program executive for PBS.
By adopting a business model for PBS Kids based on license fees, PBS expects it will be able to upgrade the channel, which now feeds repeats from children's shows on PBS's broadcast service. The network could invest cable licensing revenues to build a stronger National Program Service and "acquire the best children's product in the marketplace," Triff said.
The cable network under discussion, designed for preschoolers, would feature
"a significant amount" of content from channel partners that's not
on the PBS schedule, Wilson said. PBS would also try to clear digital cable
rights for all of the preschool shows in its broadcast schedule.
PBS wants to co-brand the channel with stations at each local cable system and offer incentives for stations to participate. The incentive package would include co-branding and promotion materials and "financial compensation that probably far exceeds" what stations now earn from PBS Kids, Triff told station reps. Viewers would still perceive the channel as a service of their local station.
PBS hopes to replicate BBC's success with digital kids' services, particularly CBeebies, one of two digital channels launched in early 2002, according to Knell of Sesame Workshop.
Two series popular with British tots, Teletubbies and Fimbles, quickly attracted preschoolers to CBeebies, which has a 7 percent audience share, the Guardian recently reported. CBBC, the Beeb's digital service for 6- to 12-year-olds, has a 3 percent share. Almost all content from these channels also airs on BBC's broadcast service for kids.
What about folks without cable?
PBS's negotiations in the channel venture are exploratory, execs say. "The work that is going on now is to understand operational costs," Wilson said. PBS still has to determine if it will make enough on any investment.
Digital cable channels typically cost more than $100 million to launch and take up to seven years to start earning a profit, according to Derek Baine, a senior analyst with Kagan Associates.
The participation of Comcast or another major cable company will be crucial
to the channel's success. "If you want carriage, you need to get a cable
[multiple system operator] in your family," said John Carey, a professor
of media studies at Fordham University's business school. The participation
of a big MSO would guarantee carriage on cable systems operated by other companies
PBS also will have to sell the deal to station leaders, many of whom are concerned that the channel could undercut public support of public TV's free services to children.
Last year, PBS made an effective case to station managers to explore its options for "taking the kids service and, to use their word, 'monetize it,'" said Jim Pagliarini, president of Twin Cities PTV. Station execs agreed PBS should pursue the idea, but want more details before PBS moves ahead, he said.
The network needs to present a clearer vision of the channel, how it will roll out and an analysis of risks and benefits in the cable venture, Pagliarini added. He fears the channel will undermine public TV's case statements for public and member support.
Wilson plays down that worry. "It would only undercut the argument if we were not continuing the children's lineup on PBS as you know it today," he said. "It will be available over the air as it is today, and nothing will be taken away from that lineup that distinguishes us." The cable channel will add to the broadcast service by "making sure it's available where parents and kids are looking for content."
Web page posted May 26, 2004
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