John Hendricks: The Conscience Of Cable Tv

Countless Americans were steamed during the New Hampshire primary when ABC News cut off candidate Bill Clinton's concession speech in midsentence to air a commercial. But John S. Hendricks was in a position to do something about it. The next morning, the chairman of the Discovery Channel offered each major Presidential candidate 20 minutes of free time on his network, at a cost of $500,000. "We have a healthy dissatisfaction around here with the quality of TV," he says.

Discovery is best known as the cable channel that airs recycled wildlife documentaries. But that didn't stop 1.5 million people--more than CNN draws in prime time--from tuning in to the speeches and a debate that followed. Hendricks lost money, but he won high praise for adding substance to a campaign of endless sound bites. "He could be the saving grace for TV in this country," says former CBS News anchor Walter Cronkite, who moderated the debate.

Discovery's 40-year-old founder is out to prove that good TV can be good business. While he's not exactly William S. Paley, his science, nature, and public-affairs channel has found a profitable niche in a notoriously difficult business. According to cable consultant Paul Kagan Associates, Discovery will have operating income of $29 million on $153 million in revenue this year. And after years of struggle, the channel now reaches 57 million homes, making it America's fifth-largest cable network in terms of market penetration (table).

`IT'S GOING TO HURT.' The question is whether Discovery can keep the momentum going. Hendricks, who is part savvy businessman, part social activist, has persuaded some heavy hitters to back his idea of what educational TV can offer. But now, he faces a major test. Hendricks is expanding Discovery's independent production of new programs just as Congress is threatening to regulate cable rates. That would allow cities to cap what cable operators charge the public, which in turn would limit the cash flowing back to cable networks in the form of programming fees. Discovery relies on such fees for half of its revenue. "There's no question it's going to hurt a lot of programmers," says Frank J. Biondi Jr., chief executive of Viacom Inc.

Ever since he launched Discovery in 1985, Hendricks has had to fight the ubiquitous notion that educational fare doesn't sell. He has thrived not by shaming people into supporting his vision but by convincing those with money that they can profit by it. While many cable execs, such as John C. Malone, chairman of Tele-Communications Inc. (TCI), are known as combative empire builders, Hendricks' style is disarmingly low-key. Says Viacom's Biondi: "He's just a decent, nice guy--and it doesn't seem to have hurt his network."

Hendricks is, indeed, an unlikely cable executive. He was working as a consultant helping universities raise money when he first thought of Discovery. As a teenager in Huntsville, Ala., he had always liked documentaries. And at the University of Alabama, he poured over film catalogs as part of a work-study job buying films for the history department. In 1982, with cable deregulation promising to expand the number of cable channels, fund-raiser Hendricks got an idea. Why couldn't he buy the rights to old, but interesting, documentaries produced by outfits such as the Public Broadcasting Service and form his own network to air them? Not surprisingly, venture capitalists scoffed at the plan. After all, they noted, CBS Inc. had just canceled Cronkite's heady Universe series.

CALLING CARD. Upon hearing the Universe gripe enough times, Hendricks wangled a meeting with Cronkite to find out what had gone wrong. The series had failed, Cronkite said, not because of poor ratings but because its highbrow audience didn't stay tuned to the sitcoms that followed. In other words, Universe did fine, but it failed to "build audience" for the rest of the evening. Armed with a letter from the most trusted man in America, Hendricks cobbled together $5 million from Allen & Co., New York Life Insurance, and Group W Satellite Communications. That bought rights to 4,600 hours of films from such sources as the National Geographic Society and PBS.

For a while, it looked as if the venture capitalists might be right. Despite Hendricks' enthusiasm and Cronkite's endorsement, few cable operators wanted to waste precious channel space on animals. By 1986, a year after Discovery's launch, Hendricks was nearly broke.

He ultimately survived by becoming a pilot fish in an industry swimming with sharks. To get the distribution that lures advertisers, he convinced the big boys that Discovery's all-American fare would help them win and keep their local cable franchises. In June, 1986, he sold 56% of Discovery to four of the nation's top cable operators--TCI, Cox Cable Communications, Newhouse Broadcasting, and United Artists Entertainment (now owned by TCI). That pumped $20 million into the coffers--and helped reach millions of new subscribers overnight.

FRESH AIR. These days, Hendricks' challenge is developing original programming rather than relying on old documentaries. In April, he aired the channel's most ambitious program to date, a $1.5 million film called In the Company of Whales, which won the network its first Emmy nomination. And he recently hired Cronkite's new production company to develop a series of one-hour films on great books, such as Henry Thoreau's Walden. The series could cost more than $10 million.

Advertisers seem to like the mix. Paul Kagan estimates that ad sales have jumped from $46 million to $86 million since 1990, as Audi, Kraft General Foods, and Apple Computer have signed on. To lure even more ads, Discovery has created a pair of "reality-based" shows to air this fall. In one, Alex Trebek of Jeopardy! fame will host Heart of Courage, a series about people who become heroes during crises.

All that costs money, of course. And with the restrictive cable legislation expected to emerge from Congress this fall, Hendricks finds himself in a particularly sticky spot. Last year, he persuaded his board to plunk down $32 million for The Learning Channel in a strategic move to get a lock on the educational-cable niche. The fledgling network, which airs everything from an astronomy series to demonstrations of brain surgery, is losing money. And Hendricks figures it will cost $100 million to improve its programming enough to expand its paltry distribution.

Hendricks has vision. But current projects are likely to soak up all the kindness his well-heeled investors have to offer. As he ventures past the low-cost strategy he started with, Discovery's founder needs to discover a new source of cash to keep his dream alive.

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