U.S. Cable Firms Find Tough Crowd Abroad

The international television market has long been hailed as the growth market of the future, and U.S. cable and television networks have built an impressive portfolio of international channels over the last decade to prove it.

What many executives are less likely to discuss, however, are the mistakes that have been made in the rush to international expansion and some of the channels that have failed.

Among the operations consigned to the graveyard are Viacom’s Nickelodeon in Germany, MGM and Encore International’s MGM Gold in Asia, European versions of Weather Channel and CMT (Country Music Television), and NBC’s foray into Latin America with a Spanish-language news channel--Canal de Noticias.

“What we have seen is that many of these markets are really developing countries which will take a longer time than anyone imagined to develop the kind of cable and satellite business that is going to be a meaningful contributor to the bottom line,” said Jeff Dunn, chief operating officer of Nickelodeon.

Nickelodeon, which has been exporting its children-oriented channel around the globe, abruptly shut down Nickelodeon Germany in May after 2 1/2 years of trying to make the channel work. While Germany is not a developing market--German cable and satellite coverage reaches more than 70% of all homes--it does have idiosyncrasies that contributed to Nickelodeon’s problems.

For starters, cable channels must pay for carriage in Germany--rather than being paid per subscriber by cable operators as is the norm in other parts of the world. The business relies entirely on advertising. Channels with children’s programming also have to compete with the government-subsidized public children’s channel, Kinderkanal, which German cable operators are obligated to carry. Nickelodeon Germany proved to be unprofitable despite reaching 20 million homes.

“It was a sobering reminder that no matter how good the content, the market itself may have characteristics which conspire against making it a good business for you,” Dunn said of the German experience.

What is clear from talking to a range of U.S. companies with international channels is that there are no hard and fast rules about why some channels fail and others work. While Nickelodeon Germany may have been caught by kinks in that market, other channels have been wrong-footed internationally by unrealistic business plans, a mix of content that doesn’t match what the market wants or a rush to colonize too many markets too quickly.

Tony Garland of USA Networks, who oversees international channels such as Sci-Fi Channel, USA Latin America and 13th Street, a horror-suspense channel, said, “It’s the ‘We’ve got to be there’ syndrome, where planting the brand flag is as important--if not more important--than creating a business which, in and of itself, is compelling to be in.”

It was probably a mix of that syndrome with weak content that stymied NBC when it bought European entertainment service Super Channel in 1993 and relaunched it as NBC Super Channel Europe. NBC Super Channel Asia followed in 1995. Both Asian and European channels carried NBC news and the few shows that NBC owns copyright to, such as “The Tonight Show With Jay Leno” and “Late Night With Conan O’Brien.” But after struggling for viewers and advertising, NBC announced earlier this year that it would hand the channel slots in Asia and Europe (with the exception of Germany) over to National Geographic Channel, in which it holds a 50% stake.

The niche appeal of documentaries has proven a better approach in global cable and satellite channels than general entertainment networks. “Our strategy was always to find strong content,” Stuart Goldfarb, senior vice president of worldwide development for NBC, said of the decision to switch to National Geographic programming.

Previously, NBC had been burned by the expensive and risky news channel business when it stumbled badly with Canal de Noticias, the 24-hour Spanish-language cable channel that was launched in Latin America in 1993 and was closed in 1997. It also had difficulties with its CNBC business news, which was losing money in Asia and Europe, where it went head to head with the Dow Jones business news services Asia Business News and European Business News. In February the flow of red ink stopped when CNBC merged with Dow Jones services, keeping the CNBC name on the business channel.

“In order to be successful in international, you have to be willing to respond to the market,” Goldfarb said. “You also need fairly deep pockets and a lot of patience.”

The cost of launching an international channel can range from $50 million to $300 million, depending on the country, the amount of original product owned, the genre of channel and the platform.

Industry estimates of the losses on an international channel failure are more than $60 million for Nickelodeon Germany during its three years of operations as a fully fledged service, and much lower for services such as Weather Channel, which was a low-cost part-time service during its 18 months in Europe.

For NBC, without a large library of its own, its international forays have been particularly expensive. Don Wear, president of Discovery Networks International, explains that Discovery set up a channels operation in Asia in 1994 with a lean cost base and has been able to launch new services, such as the Animal Planet in June, using programming it owns at only incremental increases in its investment.

“The comparison to our approach is what NBC did in Asia. They went in and spent the big bucks, they staffed up to very robust levels, they put a great deal of money into a lot of discretionary spending categories like marketing and promotion, and made the kind of initial investment we could not sustain.”

While Discovery’s approach may be characterized as lean, it still represents a major investment. Discovery Asia loses more than $10 million a year and will not break even until at least next year. Discovery’s investment is put at more than $80 million in Latin America, where it hopes to break even this year, while Discovery Europe lost $100 million between its 1989 launch and its break-even point in 1995.

Discovery owns much of its product, or can cull it from the BBC, with which it has a joint venture for international channels. Discovery’s adventure, documentary and science programming also have strong international appeal.

Even having a library of content is not enough to guarantee success, as MGM Gold Asia--a movie service launched by MGM and TCI’s Liberty Media division Encore International--has proved. After 18 months, the service shut suddenly in April with losses of more than $20 million. Rick Phillips, executive vice president of MGM Networks, cited competition from at least 13 movie channels, a slower-than-expected growth in Asian subscribership and difficulty entering the major markets of India and China, combined with the Asian economic crisis.

The more stable economy of Europe proved problematic for Weather Channel Europe, which was launched in June 1996 and closed in January this year, and for CBS’ (Country Music Television) Europe, which was launched in 1992 and closed this March. Both channels found that their content was not compelling enough to win carriage on European cable systems.

Ultimately, it may be guts that distinguish the survivors from those who fail, according to Phil Kent, president of Turner Broadcasting International, who oversees the international versions of networks such as CNN, TNT and Cartoon Network: “We have also had a lot of intestinal fortitude. In every territory, in every year, it was not always a pretty financial picture, but we stuck with it.”