May 22 (Bloomberg) -- Cable networks are rebranding themselves, and pay-TV operators aren’t pleased.
At least six channels are changing their names and programming this year to attract more viewers, advertising dollars and higher subscriber fees. News Corp.’s Speed, for instance, will become Fox Sports 1 in August.
DirecTV and Time Warner Cable Inc., two of the largest U.S. pay-TV services with 32 million total subscribers, complain they have no control over the changes and are wary the networks will demand more money for unproven shows. The companies agreed to carry specific content, their executives said. Now they’re saddled with programming they didn’t order, and unsure they can pass on future fee increases to customers.
“You bargain for a specific service that you were pitched to meet the needs of consumers,” Dan York, head of programming for El Segundo, California-based DirecTV, said in an interview. “If that doesn’t work, it doesn’t mean the content provider has a unilateral right to turn it into something else or even call it something else.”
News Corp.’s decision to change its Nascar-focused Speed into the all-sports Fox Sports 1 starting Aug. 17 marks an effort to turn a channel with low ratings into one that rivals Walt Disney Co.’s ESPN.
ESPN, the most-watched sports network, reaches about 100 million homes, collects $5.54 a month per subscriber and had 2012 revenue of $7.83 billion, according to research firm SNL Kagan. Fox’s Speed network is in 86 million households and charges 31 cents a month, SNL Kagan said.
News Corp. was little changed at $33.22 at the close in New York. DirecTV fell 1.6 percent to $63.97, while Time Warner Cable fell 1.5 percent to $95.56.
“Our job is to create value for News Corp.,” Randy Freer, co-president of Fox Sports Media Group, said in an interview. “To create asset value, you need to create programming that people want to watch. If people aren’t watching in either large enough numbers or with enough passion, then you have to evaluate where you can go in this landscape.”
Distributors didn’t always pay for programming. In cable’s early days, programmers like Turner Broadcasting and ESPN built audiences by charging pay-TV operators little or nothing to secure carriage. Additional viewers meant higher advertising revenue to pay for new shows.
“The single hardest hurdle is to get your distribution,” John Skipper, president of Bristol, Connecticut-based ESPN, said in an interview. “Taking a channel and creating something that will be better is good for fans and it’s good for distributors.”
Big programmers typically package new channels with must-haves like Fox News or Comcast Corp.’s USA. In addition to Fox Sports 1, New York-based News Corp. plans to change Fox Soccer into FXX, an entertainment channel for younger audiences with shows such as “It’s Always Sunny in Philadelphia.” It also will introduce a second sports channel, Fox Sports 2, in August.
Comcast’s NBC Universal changed Versus into the NBC Sports Network last year. This year it’s switching G4 to the Esquire Network, with upscale programs for men.
Other changes are coming from new owners. CBS Corp. acquired 50 percent of TV Guide Network in March and plans to revamp it into a new entertainment channel. Al Jazeera bought Al Gore’s Current TV in January with plans to rechristen it as Al Jazeera America.
Some of the rebranding is driven by pressure on networks from pay-TV operators to improve their ratings, DirecTV Chief Executive Officer Mike White said in an interview.
“Every negotiation we have now is data-based,” White said. “It’s different than the old days of getting in a smoke-filled room and hammering out a contract. The programmers are realizing they need to deliver with actual numbers.”
That’s especially true for independent owners like Al Jazeera, which lacks the clout of companies with multiple networks, such Time Warner Inc., owner of TBS, CNN and HBO.
When Al Jazeera acquired Current TV and announced its intentions to turn the channel into Al Jazeera America, Time Warner Cable stopped carrying the network. Time Warner Cable and Cox Communications Inc., the third-largest U.S. cable provider, also dropped Mark Cuban’s HDNet before it became AXS TV.
Carriage is “not a birthright,” Glenn Britt, CEO of New York-based Time Warner Cable, said in December, as a warning to low-rated networks that they’re at risk of being dropped by the New York-based cable provider.
Pay-TV providers should press for agreements that let them drop rebranded networks, said Melinda Witmer, Time Warner Cable’s chief video and content officer. Most contracts require them to pay the old affiliate fees, according to David Bank, an analyst at RBC Capital Markets in New York.
Programmers still face the task of drawing more viewers, a prerequisite for growth in ad sales and fees.
Discovery Communications Inc. has been one of the most aggressive rebranders, according to Jaison Blair, an analyst at Telsey Advisory Group in New York. Investigation Discovery had prior identities in the past 10 years as Discovery Civilization and Discovery Times.
More recently, Discovery Health became the Oprah Winfrey Network and Discovery Kids turned into the Hub. Discovery, based in Silver Spring, Maryland, hasn’t lost coverage by avoiding fights and blackouts with cable operators and agreeing to reasonable rate increases, he said.
“Anytime a network is taking real estate and investing in original programming, that’s good for the TV ecosystem,” Blair said. “The stress comes when there’s a major step-up in rates.”