Cable TV Not Achieving Dream of Limitless Choice : Broadcasting: Economics, lack of channels causing mergers. Single-topic networks like FNN are hard hit.

Not very long ago, media futurists believed that the TV dial would become the video equivalent of the corner newsstand. Thanks to the myriad channels offered by cable, viewers were promised as many program choices as there are magazines to read.

But, over the last several months, this video cornucopia is bearing less fruit. A wave of consolidation has hit the cable TV business, forcing several competing networks to merge. The most recent example is the Financial News Network, whose sale to NBC for $145 million was approved Thursday by a federal bankruptcy court judge.

Despite recent technological developments heralding the arrival of 150-channel cable systems and “video on demand,” the industry is actually going through an intense shakeout period. Not enough channels exist to carry all the available networks and program services, and those that are picked up have problems attracting enough advertising to survive.

NBC now plans to merge FNN into the network’s Consumer News and Business Channel. In December, Home Box Office and Viacom agreed to merge their comedy cable TV channels. Only a couple of weeks earlier, two courtroom channels merged to avoid a costly fight for channel space.

And, on the horizon, two regional sports channels also could combine if current discussions are successful.

“This is a maturing industry,” said Roger Werner, president of Los Angeles-based SportsChannel America, one of two regional sports networks. “Multiple channels have been launched in almost every (program) category. As the economy takes a downturn, there is pressure on everybody to improve their performance, and the best way to do that is to merge.”

NBC, which began CNBC in April, 1989, entered the cable business as a way to offset declining audiences at its core network television business. Capital Cities/ABC has done the same by investing in cable networks ESPN, the Arts & Entertainment channel and Lifetime Television.

Cable TV has been on a roll for more than a decade. While the major broadcast networks grappled with shrinking audiences and less advertising, new cable TV channels sprouted like dandelions after a spring rain. The number of cable networks soared to 69 last year from 27 in 1980.

Cable viewership generally also has increased. Prime-time basic cable network ratings soared 38% in February--the most recent period for which figures are available--to 12% of all cable households, propelled largely by CNN’s war coverage. The other six largest advertiser-supported channels--USA Network, TBS, TNT, ESPN, Lifetime and MTV--rose 4%, while pay channels, which include HBO and Cinemax, declined 13%.

“What has really driven the growth of all these new channels is the dual revenue stream that they get from both advertising and subscriber fees,” said Erica Gruen, senior vice president at Saatchi & Saatchi Advertising in New York. “But operators are becoming very cautious about which of these channels to bring on now.”

On the launching pad are at least 15 other cable channels, including the Sci-Fi Channel, the Cowboy TV Network, the Auto Channel, the Food Channel, the How-To Channel and Celticvision, a cable TV network targeted for Irish-Americans. Some of these channels have been trying to get off the ground for more than two years.

But would-be networks now are finding it harder to get local systems to carry them and more expensive to stay on the air once they get started.

Facing the toughest problems are the so-called competing niche networks--the ones that originally gave rise to the newsstand analogy. Instead of scheduling a mix of programs, as traditional broadcast networks or established cable channels have, these services are dedicated to a single format such as comedy or business news.

Viacom Inc. started the Ha! channel in April, 1990, and Time Warner Inc.’s HBO unit followed in November with the Comedy Network. The newly merged channels will begin broadcasting on April 1 with 12.5 million subscribers under the new name CTV: The Comedy Network.

NBC’s CNBC has about 18 million subscribers, compared to FNN’s 35 million subscribers. NBC says the merged channel, which may keep the FNN name, will have about 30 million subscribers--enough to begin turning a profit.

In November, Time Warner and a joint venture formed by Cablevision Systems Corp. and NBC merged their respective planned courtroom channels and plan to begin broadcasting this summer. The channels will broadcast trials live from around the country.

“It’s not the mid-1980s anymore with all the room under the sun,” said Merrill Brown, vice president of corporate development and programming at Courtroom Television Network. “Our situation was that local cable system operators were very reluctant to make a choice between two qualified channels. The elimination of that roadblock makes it easier to succeed.”

A major obstacle has been the lack of channel capacity on local cable TV systems. Just 50% of all local systems have between 30 and 53 channels, compared to 36% in 1985. And the percentage of local systems with more than 54 channels has grown only to 8.4% from 5.8% five years ago.

In fact, many local cable TV systems are delaying plans to expand channel capacity because banks won’t lend them the money. This has made it harder for new cable networks to get a foothold, because local cable systems are reluctant to drop established networks.

“In the past, when you started a new channel, cable companies were in the midst of huge capital improvement programs and adding capacity all the time,” Marc Nathanson, president of Falcon Cable TV, explained. “Now, the 30-channel systems aren’t expanding to 54 channels because (the banks) have cut off money to do it.”

A recent survey in the trade magazine Cable World reported that capital expenditures among nine major cable operators will drop 14% this year, compared to 1990 levels. Operators were slowing expansion because of lack of financing, uncertainty over cable reregulation and rapid technological advances, the magazine said.

The mergers are occuring partly because local cable systems are insisting on it. “The (operators) have encouraged this service integration,” said Al Barber, president of CNBC. “They will only carry one niche network now.” Dow Jones & Co. and Group W, which lost to NBC in the bidding war for FNN, had maintained there was room in the market for two competing business news channels.

Barber said he expects operators to begin expanding their systems once banks loosen their purse strings, although he doesn’t know when that will happen. However, whether TV viewers want as many channels to watch as there are magazines to read remains to be seen.

“The challenge facing (niche) networks is not becoming so narrow that there is not an audience out there to support it,” Saatchi & Saatchi’s Gruen observed. “There is a vanishing point at which the advertisers and audience become harder and harder to attract.”

Technological developments such as fiber optics and “video compression” will eventually deliver hundreds of channels into the home.

Time Warner is building a 150-channel system in Queens, N.Y. Denver-based Tele-Communications Inc. is to test a “video on demand” service that eventually will allow viewers to call up hundreds of movies from their TV sets. And HBO and Cinemax this week said they were planning to offer up to six different versions of the two pay-TV networks.

“The channel scarcity issue is finally being addressed,” said Richard Aurelio, president of Time Warner’s New York City Cable Group.

But these high-tech cable TV systems are being designed to provide mostly pay-per-view channels, locally targeted news and information programs and “transactional services,” such as home banking, bill paying, home shopping and travel booking.

“The ultimate in consumer friendliness is video on demand. It’s clear the marketplace is telling us that is what they want,” Aurelio said.

CNBC WINS FNN: General Electric Co.’s CNBC unit won the auction to acquire Financial News Network. D1