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Family-Friendly Package Vexes Cable Biz

The cable industry's move toward G-rated channel tiers has prompted R-rated grumbling among programmers.

Under intense pressure from FCC chairman Kevin Martin, some of the biggest cable operators in the U.S. indicated they will begin offering a family-friendly package of channels early next year. On Thursday, Time Warner Cable went as far announcing its Family Choice lineup, which will include Food Network, Disney Channel and Discovery Kids.

The new tier won't be as financially detrimental to programmers as another option Martin and others have recommended: a la carte. Entertainment conglomerates have long deemed per-channel pricing a death blow to the current cable-programming business model.

And yet interviews with 10 senior executives at nearly every major entertainment conglomerate yielded considerable concern about the potential impact family-friendly tiers could have on their business. All spoke candidly on condition of anonymity, citing the politically sensitive nature of the subject.

"The family tier is the lesser of the evils," the programming chief at one top-rated cable network said. "But this really smacks of censorship. It leaves a bad taste in everyone's mouths."

That said, there is strong skepticism that family-friendly tiers will get significant market traction. Many hope that those tiers will join the scrap heap of little-used parental controls the industry has instituted to appease Capitol Hill, including the V-chip.

And yet a nightmare scenario persists, where family-friendly tiers could catch on and siphon a sizable portion of the subscriber base for expanded basic, dropping the reach of top channels by untold millions. That would be a drain on the affiliate fees that are doled out per subscriber per month, as well as the advertising revenue linked to aggregated eyeballs.

The cable industry has been under a microscope with the rest of television since Janet Jackson's breast-baring incident during the 2004 Super Bowl. But the issue took on an entirely new urgency in recent months, many cable execs contend, because Martin made clear to the two largest cable operators, Comcast Corp. and Time Warner, that FCC approval of its joint acquisition of Adelphia could be held up if concessions on indecent content weren't made.

"Adelphia was used as leverage," one network programming chief observed. "Comcast and Time Warner would have done anything to keep that on track."

Cable executives contend that Capitol Hill essentially gave the industry three options: adopt broadcast content standards, institute an a la carte pricing scheme or form family-friendly channel tiers.

Family-friendly tiers won out, but that option was far from the favored choice. Although most of the programmers favored adopting broadcast standards, sources said two prominent companies refused to toe the line: News Corp., owner of the edgy network FX, and Viacom, which has several envelope-pushing networks in its portfolio, including MTV and Comedy Central.

This could set the stage for a future faceoff between leading programmers and operators, sources suggest. News Corp. and Viacom, armed with retransmission consent of broadcast networks and powerful cable brands they could yank at a moment's notice, might end up demanding rate increases to compensate for projected declines in affiliate and advertising fees for channels hurt by the new tiers.

Cable operators are reviewing carriage agreements with all of their content providers to determine the possibility of tiering existing channels. Legal language varies from contract to contract, but most established channels are cuffed to clauses restricting the kind of shifts that would diminish their distribution.

If anything, TWC's announced lineup elicited a sigh of relief. Almost entirely comprised of digital channels, Family Choice lacks the kind of top-shelf brand that could drive a mass migration to the tier, including Nickelodeon and ESPN. But each operator will put its own lineup together. "The nerves come from the fact that all it takes is for one top channel to move, and expanded basic will feel real pain," one programmer explained.

Consumers also might likely balk at the price comparison between expanded basic and family-friendly tier on TWC. Family-friendly is cheaper, with TWC estimating $33 being the average monthly charge (including $8 for set-top box), but subscribers who pay $42 for expanded basic will get nearly three times as many channels.

Moreover, outfitting multiple televisions in a home -- presuming the content protection is being extended to children who watch on their own televisions -- might require the additional cost of extra boxes.

If the family-friendly tier proves popular, the operators and FCC will share one benefit: hastening the digital transition. With the FCC calling for analog broadcasts to cease by the end of 2006, family-friendly tiers provide a timely impetus for cable subscribers to get the digital set-top boxes necessary to order the tier. The cable operators have spent an estimated $70 billion going back to the 1990s to upgrade systems for digital delivery, and have since been underwhelmed by the conversion rate among subscribers.

The biggest question, of course, is what constitutes a family-friendly channel. Some networks like Disney Channel are shoo-ins, but others defy easy categorization. Viacom's Noggin, for instance, is aimed at preschoolers during the day, but the channel switches format after 6 p.m. and becomes the N, which targets "tweens" with more mature fare.

It is quite likely that broadcasters could be the most risque channels on the family-friendly tier, with ABC's "Desperate Housewives" and Fox's "Family Guy" racier than anything cable would put on the tier.

The cable industry is satisfied that its concession will help kill several indecency bills under consideration in Congress; Senate Commerce Committee chairman Ted Stevens, R-Alaska, suggested as much in comments after a hearing last week. And yet the fear is the industry will have to fight Martin again in the future.

"The scary thing is when he finds out about the infinitesimal fraction of the populace that buys this tier," said one executive. "Is Martin going to come back with a la carte? I fear we haven't heard the last of him."


Andrew Wallenstein writes for The Hollywood Reporter.

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