When attempting to gauge the chances of success for the newly announced Al Jazeera America, it helps to understand exactly how the cable television business works…
AJ plans a new channel, Al Jazeera America, to replace Current, but filling in some of the time with content from its global, but also distribution-challenged, Al Jazeera English channel.
The project will be, to use a golf term, a long putt.
To understand why, one needs to understand at least a little about the cable television business. In brief:
A) There are an estimated 100 million cable households in the U.S. To be considered “fully distributed,” a cable channel must be available in 90% of those homes.
B) Cable channels must negotiate with multiple cable companies, sometimes known in the industry as MSOs (multi-system operators) and satellite companies for distribution into those households.
C) MSOs and satellite companies pay the cable channel for each household reached (carriage fee), which could range from pennies to dollars, every month — regardless of how many people are watching it. That is, cable is all about some channels subsidizing others. Not a sports fan? Too bad, you still pay $6 per month for the suite of ESPN channels.
D) Cable channels can sell advertising within their programs for more revenue, splitting the inventory with the MSO, which is also selling ads.
E) In rare cases, the cable channel will pay the MSO or satellite company for distribution.
F) Cable channel contracts are generally locked into format, and have minimum audience ratings thresholds — so if a channel changes its format or fails to gain enough audience, the MSO can bounce it from the system for a different channel.
G) Even if there is significant audience, if the channel and the MSO cannot agree on price, the MSO can simply choose to not carry the channel.
H) Generally speaking, cable television audiences are actually much smaller than perceived.
So let’s now look at the Al Jazeera/Current deal.
AJ paid a reported $500 million for Current, really looking to acquire its distribution deals. Current was not fully distributed, but it reached a formidable 60 million households.
Media analysts SNL Kagan reported that MSOs were paying Current 12 cents per household per month. We have sources that suggest the number was higher, but we’ll use SNL Kagan’s number to show that Current had $86 million per year in carriage fees (60m x 12 cents x 12 months). This, before advertising.
While Current put together a string of distribution deals, it could not put together an audience. After parting ways with its single star, Keith Olbermann, the network repeatedly failed to reach an agreed-upon audience threshold of reportedly 60,000 viewers on average.
Yes, fewer than 60,000 viewers out of 60 million subscribers. One tenth of one percent. More often, the peak was 42,000 viewers.
Word on the street for months had been that the channel was for sale, and one of its owners, former Vice President Al Gore, had taken to personal pleas to prevent the channel from being dropped from cable channel lineups.
In fact, upon news of the sale, Time Warner Cable, with 12 million subscribers, dropped Current from its lineup (an instant $17+ million loss in annual revenue for the new owners).
It is possible that other cable MSOs will pull the trigger on similar clauses, or renegotiate at the first opportunity, pulling further revenue from AJ America.
There are other issues.
Whether it deserves it or not, Al Jazeera is a toxic brand to many. Lauded for an even hand on Al Jazeera English, watchers of Al Jazeera’s Middle East and Balkan services have suggested the channels are playing by a different rulebook.
Al Jazeera knows its brand is troublesome, as evidenced by the re-branding of its sports network as beIN Sport. Again looking to guarantee distribution, AJ bought up must-see soccer rights but ultimately re-branded.
Regardless, the AJ America channel is likely to be shunned by many advertisers at first — a common practice known sometimes as a “no controversy” edict. This hurts both the channel as well as the MSO. You can see this in practice on Fox, MSNBC, and Current as ad inventory is soaked up not by blue-chip advertisers, but often by bottom feeder ad categories such as buying gold coins, or “as-seen-on-TV” wonder products.
But again, the real money is in carriage fees. Unfortunately for AJ America, 12 cents per household is going to be a tough sell. Unlike the famous “I Want My MTV” campaign that got hordes of kids excited in the early days of cable, almost no one is asking for Al Jazeera.
In fact, they barely watch the news channels they already have.
The big three news channels deliver audiences that are much smaller than most people perceive.
In the first quarter of 2012, before the election really kicked in, the undisputed audience leader, Fox News, delivered an average of 1,879,000 viewers in prime time — good for 7th overall. But their story isn’t quite as good when advertiser target demographics are factored in. Fox News’ audience is older. In the 25-54 demographic they drop to 34th, and 18-34, they’re 40th.
Still, Fox beats up on second place MSNBC, which posted 817,000 viewers in prime time, and third place CNN with 762,000 viewers on average. MSNBC wins the battle of all three in the 18-34 demo.
While possible, Al Jazeera America is a long way off from competing even at that level, where a heavy dose of infotainment and punditry contribute to better ratings.
A straight-ahead international news channel is more likely to be in the ballpark of the channel it is replacing, Current, or Fox Business Channel, which posts just 50,000 viewers in prime time.
Deep pockets may help change the game. If Al Jazeera is willing to offer the channel for free, or even pay MSOs to carry it, they may get the distribution they seek. But as one can see from Current, distribution hardly guarantees viewers.
A better play is to go after talent. Olbermann would double the ratings instantly, if they have the management skills to keep him happy. But that’s something no one else has been able to do.
– Paul Marszalek
BBG Office of Strategy and Development