Diginets Building Themselves A Market

Don’t expect them to come up with a Breaking Bad any time soon, or a Louie, or even a Real Housewives. The networks residing on broadcasters’ digital subchannels — so-called diginets — aren’t at the stage where they are likely to create must-see original fare. Only a few dozen diginets reach more than five million households, and of those, only a handful are generally reckoned to be profitable. 

Yet as they begin to fly above the radar, they are becoming more meaningful to viewers, and more financially promising both to their owners and to the stations that are fast filling out their spectrum allotments with the subchannels.

Broadcasters are devoting hundreds of subchannels for the distribution of diginets — be they devoted to lifestyle, news, sports, weather, multicultural or rerun programming. And the number of nets is still climbing.

The TVNewsCheck Top 25 Digital Broadcast Networks contains 12 that reach half or more of U.S. TV homes. The ranking is topped by Me-TV (91%), This TV (85%) and Bounce TV (72%). (See the full list below or click here.)

“So far, there is little buzz about these diginet hopefuls, just a low hum,” one skeptical source notes. Still, that hum translates into a modest, but growing new revenue stream.

While no one wanted to be quoted as to the current value of the sector, or its year-on-year growth rate, several sources coalesced around a range: between $250 million and $350 million a year in total ad revenue. The figure, they further hazard, is edging up 4% to 5% a year.

“There’s just not enough data or break-out figures in annual reports to get our arms fully around the financials,” says one researcher speaking not for attribution.

It’s still early in the game, says Bill Carroll, director of programming for the rep firm Katz TV Media. “They’re in the ‘build-out phase,’ the news being they’ve extended the reach, and enhanced the profile, of broadcast stations. A few are already visible in ratings terms, and others are quickly becoming so.”

ADVERTISER ATTRACTION

The revenue is starting to come because the advertisers have started to notice. “There’s definitely a place for these mini-nets, and from the advertiser’s perspective, they can be useful in targeting a very specific segment of viewers,” says Brad Adgate, SVP and director of research for the media buying agency Horizon Media.

Adgate explained that in many cases the diginets are “concept sells,” since they don’t necessarily have audience data from Nielsen or Rentrak. Wider footprints and bigger ratings numbers help attract the larger advertisers, he continues, suggesting that that is beginning to happen for the ones that have “well-known backers” and “rich, safe content.”

“Diginets are a real business — and they’re getting bigger,” says David Brenner, who is a founder/partner of Marathon Ventures in New York. For the last three years his company has been selling national ads on behalf of several of these multicast networks.

“Yes, it’s true that most of them start out with direct response advertising, and that will likely always be part of the mix. But as the best ones get rated by Nielsen, mainstream advertisers begin to pay attention.”

Not that it’s a cinch that anyone can make money by casually throwing up a bunch of musty reruns and hoping for the best. What does drive the business, Brenner says, is “consistent performance.” The channels that have a clear-cut value proposition and are laser-focused on branding are gaining traction.

The Hollywood studios have their own reason for liking diginets. They are enthused whenever another opportunity comes along to exploit their libraries since several of their other business lines are flat, if not in decline.

“Diginets have created a viable business model for over-the-air channels that are delivering programming which, in some cases, was either not previously available on TV and/or not being sufficiently monetized,” says Ken Werner, president of Warner Bros. Domestic Television Distribution.

To his mind, these digital newcomers represent “a win for consumer, station owners and content owners.”

His own division recently closed a deal to deliver 135 film titles from its archives to two soon-to-launch contenders in the field — Katz Broadcasting-owned Escape and Grit.

Four studios have gone from mere suppliers to active participants, operating networks on their own or in partnership with others. Sony launched getTV, MGM partnered with Tribune on This TV, Fox joined with Weigel on Movies! and NBCUniversal has Cozi TV.

MAKING  A MARK

A few of these networks are delivering real audiences, besting any number of cable channels in certain markets, and are beginning to make a mark on the television landscape. Take Me-TV, which also got to the party early with a cornucopia of classic TV series.

Owned by Weigel Broadcasting, Me-TV in April ranked 19^th among all national cable networks in adults 25-54, outperforming brands like CNN, TLC, Bravo and 79 other outlets, per Nielsen data. 

Neal Sabin, vice chairman and head of the diginet operation at Weigel, says that Me-TV is profitable after just three years in operation. “How so? Because we have programs that resonate with viewers and advertisers, including those that work best with direct response advertising.”

In addition, he adds, “we have a terrific affiliate base made up of some of the strongest stations in the country as well as primary affiliates in a few key markets.”

Another apparent winner is relative newcomer Bounce TV, which has adroitly carved out a niche among African-American viewers. “So far, we’re in 48 of the top 50 DMAs for Afro-Americans, with only Seattle and Greenville/Spartanburg [S.C.] remaining to be cleared,” says Jeffrey Wolf, EVP of distribution for Bounce.

In its just completed first year of Nielsen coverage, Bounce could boast a 43% increase in households; a 25% increase in the 18-49 demo, and a 28% increase in the 25-54 demo, all in primetime. Its total-day results are even more dramatic: up 48% in households and 62% in the 25-54 demo.

Bounce TV was the No. 1 TV network when ranked by time spent viewing among persons 18-49 (seven hours, 53 minutes per month) according to the network’s analysis of Nielsen data for this April’s ratings period. It bested every single broadcast and cable network in that category.

“We’re now working with some 40-odd blue chip advertisers — McDonalds, Walmart, L’Oreal among them,” says Bounce COO Jonathan Katz. “They wouldn’t be with us if we didn’t have the ratings, and we wouldn’t have those if we didn’t offer an authentic voice that viewers respond to.”

Bounce TV’s commitment to multicasting is evident from its investment in original scripted programming — a risk other digital have so far avoided. In April, the sitcom One Love debuted on the network, attracting 1.1 million viewers in its first-week runs. It will soon be flanked by a handful of other first-run sitcoms.

STATION REVENUE STREAM

Some networks lease subchannels from broadcasters either because their programming is narrowly focused or because they were late to the game.

But most networks, particularly those with national rather than regional ambitions, have forged partnerships with stations just as the traditional networks have since the dawn of broadcasting.

In exchange for carriage, the diginets share advertising inventory with the stations. The splits vary and are, of course, negotiable.

So what do local stations derive from partner diginets? “It could be as little as 2% to 5% of overall ad revenues pocketed by the station — or as much as 8% to 10% in a very few instances,” says another well-placed source. “There’s plenty of room for growth by subchannels, as long as the ad sales reps are incentivized and enthused about selling the ‘dots.’ ”

Emily Barr, president-CEO of the Post-Newsweek station group, notes: “So far our diginet revenues are small — not terribly significant — but they are growing. Getting rated by Nielsen helps. And the fact that we can cross-promote across platforms is boosting the business.” The half-dozen stations in her group air a variety of diginets, most prominently, Me-TV and This TV. The group also carries Live Well, but ABC has announced it is shutting that service down in next January.

If selling diginet avails began as a headache for some ad sales departments, Barr doubts that’s true now. Her own teams, she stresses, are “duly incentivized” and “responsible” for selling dot.2s and 3s as well as their primary station. Barr suggests too that these outlets are “a really good counter” to cable channels in any given locale as their pricing and design are “quite potent” to prospective advertisers.

Frank Biancuzzo, SVP of Hearst Television, which operates 29 stations, says that his company is “effectively monetizing” its various diginet offerings, and that part of that success depends on training the ad sales force from the get-go to implement “a multi-platform approach” to its pitches.

In the beginning, some two to three years ago, 30-second diginet spots were going for as little as $5 a pop for local ads, and $50-$100 for national ads, but several sources insist that those rock-bottom figures have gone up noticeably, at least for the wider-distributed diginets. Nowadays, local 30-second spots are more like in the $25-$50 range, and national ad avails go for as much as $250-$400 apiece.

There’s another reason why stations allot some of their digital spectrum to these channels. “We look at diginets as another way to enlarge our footprint and further strengthen our grip on [any given] community,” says Hearst’s Biancuzzo.

The Hearst executive points to a number of recent Nielsen ratings success stories.  For example, on a subchannel of Hearst’s WMOR Tampa, Fla., diginet Estrella placed third (in the 18-34 demo) in April among the six Spanish-lingo outlets, right behind Univision and Unimas.

In Louisville, Ky., on Hearst’s WLKY, Me-TV’s afternoon block of Bonanza, Gunsmoke and The Big Valley outgunned not only all other diginets in the market but also the market’s CW and MyNetworkTV affiliates.

“In allotting spectrum on stations, it’s all about matching the product to the right market,” Biancuzzo says, “be it Spanish-language content in Florida, or old westerns in the Midwest, or regional sports or lifestyle programming, wherever.”

OUTLOOK UNCLEAR

Despite the proliferation of networks and the apparent success of ones like Me-TV, prospects of the diginets are still uncertain.

“So far, I’d say what we’ve seen is fairly low-risk plays, and, inevitably, low-risk translates into low-rewards,” says Jaime Spenser, a VP with research firm Frank N. Magid Associates.

The ABC Owned Television Stations two weeks ago announced that it was shutting down its Live Well Network next January after a five-year run. The network stood out in the  multicasting universe because of its heavy reliance on original — and costly — reality programming. The network has 64% U.S. coverage.

“Despite Live Well’s tremendous accomplishments in distribution and original programming, we made a strategic decision that our priority must be local content, and we want to maximize our investment in our core local news brands in the digital space,” says station group chief Rebecca Campbell and network VP Peggy Allen in a joint email to staff and the media.

Live Well is the latest in a long line of networks that have failed to make a go of it in the multicasting arena. Even networks in the seemingly sure-fire classic TV/movie genre like Dot.2 and RTN have fallen to the wayside or stumbled badly.

Getting wide distribution, either by leasing or partnering, is not easy. And once a network gets distribution, it often finds getting attention is an even greater challenge.

It takes a while for viewers to realize these nets are even out there, they are so high up on the cable dial, says Michael Kokernak, the head of Boston-based media consultancy Across Platforms. 

“They have the worst placement in the industry, buried in tiers that consumers can’t readily find,” Kokernak says. However, “a few already have decent ratings and, as more money pours into programming, I suspect that the channel placements will improve.”

“Yes, [Me-TV is] profitable, and thus a lot of people will think the recipe is easy,” says the network’s Sabin. “But remember, there’s a secret to the sauce: you have to have great programming and operational expertise, quality affils and ad sales acumen.”

TVNewsCheck‘s Top 25 Digital Broadcast Networks

Ranked By TV Households Coverage

Notes: Coverage figures are from the networks, except for those with an asterisk by the coverage percentage. They are estimates of Across Platforms, a research and consulting company. Networks whose primary distribution is through cable like HSN and QVC are not included. **ABC announced last week that it will shut down Live Well Network in January 2015. Two new classic networks from Katz Broadcasting, Escape and Grit, are scheduled to debut this August with at least 45% coverage, which would place them in the top 20.