01 Mar 1998

Reading the news over the first two months of the new year has been a little troubling for those in the business of niche TV channels in Europe.

January 26: The Weather Channel announces it is closing down all of its several country-targeted services after (for the oldest) barely a year and a half on air. It says the services have been "expensive". A week later, on February 2, Country Music Television (CMT) announces the closure of its 24-hour Astra satellite service, revealing losses of $20 million (£12.2 million) over the last two years.

These were pan-European services. One (Weather) had local weather content.

The other (CMT) relied on the language of music (and two-stepping) to make it play.

So what was the problem? Simply put, these channels couldn't get on enough TV sets. It's ironic that even as we are walking in the door of the digital age there is a lack of TVs available at a price that a niche channel operator can afford.

Why is that? Well, European cable operators (most still grappling with analogue) still talk of "scarce channel capacity". In Germany not only does Deutsche Telekom not have enough space, channels have to first pass muster with regional media groups (there are 15 of them) and then pay a fee to use what channels they can get. That's a killer business model.

In the UK cable operators are throwing channels like Sky News off the system because new news rival BBC News 24 doesn't require a fee for its (public) service.

Okay, so it's tough. But these are the old days, right? The days before digital came and cleared up the mess. But unfortunately it looks like channel economics will not get a lot better in the digital age. In fact, the explosion of channel numbers could make the whole exercise even worse.

More (digitally-created) space equals more capacity for niche channels, but also more audience fragmentation, and so less eyeballs watching and less revenue. Doesn't sound like the digital land we were promised.

And another sobering note. Remember the fanfare-accompanied launches of Sport 7 in Holland and in Denmark of TVS? Both sports channels. Both with some pretty powerful backers, including in both cases the country's soccer federation. But both failed, even with exclusive live coverage.

Why? Simply put, people in those countries weren't used to (ready to) pay for TV. Public service broadcasting - supported by a TV tax - is pretty good. So why should people change their habits and pay for more TV? In the case of TVS, the goal was to sign up 200,000 subscribers in three years. But after nine months on air, the channel was far behind, having secured about 11,000 subscribers.

"Digital will forever change the way people look at their television.

The digital experience will be one of the primary tools we will use to reinvigorate the multi-channel television business and drive DTH growth."

These were the optimistic words spoken on February 3 by Mark Booth, the newly installed head of pay-TV giant BSkyB. His words were meant to explain the flat operating profits posted by BSkyB that morning.

The number of people turning off the UK subscription service (or churn) was up to 15.4 per cent from 9.4 per cent, partly explained by a rate increase. One thing was clear to analysts: it's costing BSkyB a lot more - Nikko Europe estimates as much as £412 per incremental subscriber - to sign up new paying customers. So even as the costs of the programmes it buys - particularly sports - rises, the company is also spending more to add subs, putting more squeeze on channels wanting a berth on the Sky system.

So BSkyB, like its brethren platform operators across Europe, is playing Sugar Daddy and either taking a stake in niche channels (like Nickelodeon in the UK), or in the case of Hollywood studio-owned channels, linking the pay and pay-per-view movie rights to the launch of the studio's niche channel.

Moves like these help the platform operator build its profile in the market. The investments and deals can also lower the economic risk for the channels but, of course, the channel's upside is limited.

But even if the economics look pretty dire, enthusiasm to launch channels into the digital world seems undaunted. Italy's Mediaset plans a channel based on its library of series, films and magazines. Disney Channel Italy is coming. France's TPS is to launch a classical music channel. Sony Pictures will bring its Hindustani-language channel to the UK from India.

Will they succeed? Maybe. The key is in how many homes will see the channel (to attract advertising) and/or how much can be charged for it (to attract subscriptions). Or/and how little can be spent to run it (to cut costs).

And I have first-hand knowledge. Dow Jones-backed European Business News merged with NBC's CNBC channel last autumn to make one combined business news channel (and bully up against Bloomberg TV). Analogue economics helped drive the deal, but digital economics don't seem set to unscramble the financial picture right away.

For all channels, including the new CNBC, the next few years will be about understanding how to use digital technology to stimulate old and new revenue streams.