By Kate Bulkley
Monday June 9th 2003
Bruce Springsteen's song 57 Channels and Nothing On could now be amended to 357. Kate Bulkley investigates the weird and wonderful world of niche television
Channels such as Cartoon Network, UK Gold, Sky One and Discovery are now almost as familiar to us as the main terrestrial broadcasters, but check out what lies in the higher channel numbers of the electronic programme guide (EPG).
Here in the "nose-bleed zone" of the EPG are dozens of TV shopping channels and religious channels as well as 40-plus specialist music channels. There are also channels for motor-racing fans, science-fiction junkies and Bollywood movie-watchers. Reality TV offers back-to-back real-life cops, nurses and firefighters doing their jobs, while The Games Network airs endless geek chat and demos of the latest computer video games. TxtMeTV lets you chat on screen via SMS and buy ringtones, while Fashion TV is one endless catwalk. Even the porn section of the EPG runs to more than 16 channels. Bruce Springsteen's song 57 Channels and Nothing On has become more like 357 channels, and growing.
But who is prepared to navigate, never mind watch, this many channels? Not many people, according to Barb, for the majority of these channels do not even register on its audience ratings. So how do new channels manage to stay in business?
The short answer is that some don't, such as the recently closed CPD TV, a dental channel, and Channel Health, which offered programmes on alternative medicine. But there are plenty of others eagerly waiting to pay for an EPG slot. "There are lots of channels bumping along the financial bottom," says Adrian Swift, creative director of Enteraction TV, which produces Thomas Cook TV. "There will always be people launching half-arsed television stations because TV is sexy and people want to be in it."
The economics of TV is different in the digital world. The cost of launching a digital channel can be as low as £500,000. Find a high-spending audience or a fast-selling product and the numbers add up. In the past year, 60 channels have a launched and 15 have shut, according to research by New Media Markets. Meanwhile, around 40 new channels are hoping to launch.
Richard Kilgarriff, vice-president and director of channels at Turner Broadcasting, says the latest surge in launches marks "the third age" of multi-channel TV. For Turner, this means the strong channels can create families of channels to maintain their digital "shelf space" and create a critical mass of audience for advertisers. In the past two years, Turner has spun off three new channels to sit alongside its flagship Cartoon Network.
"Over the past 10 years, the UK market has gone from four channels for kids to 26," says Kilgarriff. "In this environment, the only way to maintain your position is by multiplying across the digital TV shelf space, and getting the ratings that the advertising agencies want to see."
Attracting advertising for any niche channel is hard, but for the smaller ones it is almost impossible because the audiences are so tiny. However, they do have one advantage: small audiences form compact demographic groups so advertisers experience less wastage of their spend. David Yorath, managing director of Guerillascope, has built his business on that premise, matching specialist advertising to niche channels. He advises clients to start their ad spend with cheaper digital TV slots (as low as £5 per 1,000 16- to 34-year-old viewers), using the more expensive terrestrial channels only when necessary.
Ads are not the way forward for most new digital adventures. Debbie Mason, managing director of bingo channel Avago, says: "I don't hold out much hope for any niche channel launching an advertising-only business model in such a crowded channel market. We're going through a boom, but some channels will wash out quickly."
Avago is one of the success stories of digital TV because it has tapped into a non-advertising revenue stream - gambling. Launched late last year, it is run by the DITG group, a technology-infrastructure company that understands the potential for interactive TV revenue. Using their remote control, Avago viewers buy virtual bingo cards to the tune of £1m a month, but DITG also believes in safety in numbers. Next month it will launch Pout TV, a channel devoted to porn for women, which will generate revenue from subscriptions and from interactive services, such as voting for the best-looking bum.
Subscription revenue was also the financial thinking behind the North American Sports Network (NASN), which began screening live US college sports, major league baseball and the National Hockey League ice hockey last December. Chief operating officer Amory Schwartz's subscription model is based on a few tens of thousands of sign-ups and very limited advertising. Keeping costs low was therefore essential. NASN dodged expensive transponder time needed to bring live sports programming from the US (normally costing £550 an hour) by leasing underwater fibre cables to do the job at £66 an hour. NASN also bought ITV Digital's digital transmission suite at a "firesale price". "The key for us as a subscription channel is to know your niche," says Schwartz. Proof that the channel is on the right track are the 1,000 subscribers who signed up the day NASN screened live coverage of the Daytona 500 Nascar race.
The largest group of new niche channels is the shopping and auction market. Not only is it the fastest-growing area, but it is also the highest revenue generator. Last year, shopping veteran QVC had net sales of £198m, auction channel Bid-up.TV notched up sales of £100m, and even lower-end operators such as Ideal World raked in around £40m.
But traditional TV shopping, pioneered by 10-year-old QVC, wasn't enough for former OnDigital executives Ashley Faull and John Egan, who launched Bid-up.TV, the UK's first live auction channel in October 2000. The fast-paced bidding tapped into a (largely male) demographic of shoppers eager to outbid each other for everything from jewellery and bottles of wine to signed posters of pop stars, and even new cars.
"Our view was that what QVC did, it did brilliantly. But our unique selling point was to do something different - entertainment and interactivity," says Faull. "Auctions are more exciting. It takes seven minutes rather than 20 to sell an item. We start the bidding at £1 and accept that sometimes we lose money."
Price Drop TV
This week, Faull launches Price-Drop.TV, auctioning goods to the lowest bidder. "We'll start at the high street price for 50 Gucci handbags, for example, and bring it down as more people bid." When all 50 handbags are sold, every bidder pays the lowest price bid. Price-Drop.TV is part of Faull's family channel strategy, an approach that many of the digital entrepreneurs seek to emulate.
Ed Hall, who runs channel TxtMe TV, for mobile phone texters, and a slew of shopping channels led by TV Warehouse, has launched several sister shopping channels across the EPG's shopping section to grab the attention of channel-hopping shoppers. Even high art is not exempt. Hall manages the arts channel Performance and has slipped in infomercials for steam cleaners and inflatable double beds after chamber music concerts. "People who watch these kinds of channels recognise that the programming has to be paid for," Hall says. Meanwhile, TxtMe TV makes money from the premium SMS phone lines texters use to put their messages on the TV screen.
Richard Kilgarriff, who founded the clubbing channel Rapture TV before joining Turner Broadcasting, says that the niche channel market is now sophisticated enough for branding to be a make-or-break issue. Rapture became a brand that people wanted to wear more than they wanted to watch. "What all these new niche channels should do is find something that makes money and use the TV as a shop window," he says.
So the next development could be the influx of bigger brands. Thomas Cook has already shown the way in the travel genre. The TV service now brings in the highest value holidays per passenger against sales of holidays via its high street branded shops, the internet site or the telephone.
Hall believes that the next stage of digital niche channel development is the introduction of more high street brands. "A lot got burned in the internet bust but it's inconceivable that Marks&Spencer, Sainsbury, Argos and Dixons are not in this market. We've got £1bn of sales a year in our shopping part of the EPG and we don't have any of these high street names. This has to change."
Niche players: where the money comes from
Launched: October 2000
Owner: Sirius Retail and Ample Future
Launched: Dec 2001
Revenues: SMS premium rate phone calls and related
services Programming: TV chat and shopping
Owner: Setanta Sports and Vulcan Enterprises
Launched: December 2002
Revenues: subscription based (£10 per month)
Programming: US sports channel
Launched: September 2002
Revenues: pay per play
Programming: Bingo and gambling
Owner: Zone Vision
Launch: Oct 2002
Revenues: advertising and shopping
Programming: reality TV shows
Owner: Sirius Retail
Launched: November 2001