Al Jazeera's new channel struggles for U.S. distribution
* Pay TV distributors likely to seek lower rates - sources
* Distributors evaluating Current TV contracts - sources
* Al Jazeera could pay distributors for coverage - analyst
By Liana B. Baker and Peter Lauria
NEW YORK, Jan 3 (Reuters) - Al Jazeera's announced plans to establish a new U.S. cable news channel via the purchase of Current TV isn't even 48 hours old and already it finds itself in a vicious battle to retain distribution rights.
Al Jazeera's acquisition of Current TV is basically a pay-for-distribution play. The Qatar-backed network plans to replace Current TV in the more than 40 million homes where it is currently distributed with its own news network, tentatively dubbed Al Jazeera America. The new network's success is predicated on maintaining, if not increasing, that level of distribution.
One person with knowledge of cable TV deals said pay-TV operators will definitely seek more favorable terms from Al Jazeera since, "no one wanted to carry Current TV and they want to carry an Al Jazeera channel even less."
For instance upon learning of deal, which closed on Wednesday, Time Warner Cable immediately said that it would terminate its contract with Current TV, meaning its customers would not be seeing the new network to be named Al Jazeera America.
On Thursday, however, the company, which ranks as the nation's second largest cable provider with 12 million subscribers, walked back from that stance a bit.
"We are keeping an open mind, and as the service develops, we will evaluate whether it makes sense, for our customers, to launch the network," Time Warner Cable said in a statement.
Al Jazeera has been trying to break into the U.S. cable market for years, but the network has so far failed to gain significant distribution largely for political reasons. The Pan-Arab network had been viewed by many as being anti-American particularly at the height of the U.S. War in Iraq.
Cable industry sources interpreted that statement to mean that Time Warner Cable would be open to distributing Al Jazeera America, just not at the same 12 cents per subscriber per month that Current TV was receiving, media consultancy firm SNL Kagan said.
By comparison, SNL Kagan said Fox News averages 89 cents per subscriber per month, while CNN gets 57 cents and MSNBC collects 18 cents.
Sources said that Dish Network Corp, DirecTV and Comcast Corp are locked into programming deals to carry Current TV for the next few years.
But sources said the distributors, each of which held ownership stakes in Current TV, plan to re-evaluate their agreements once they expire.
Dish, run by billionaire Charlie Ergen, is likely to be a big obstacle that Al Jazeera will have to successfully overcome.
Dish is no stranger to dropping channels.
This past summer, for instance, it blacked out four AMC Networks channels for roughly four months, and Ergen regularly uses the company's earnings calls to rail against rising programming costs.
Brean Murray analyst Todd Mitchell said Dish will likely pounce on the opportunity to renegotiate terms with Al Jazeera, now that the format and the owner of the channel have changed.
"Anytime Dish even gets the scent of leverage, something opens for them to renegotiate, they start to renegotiate," Mitchell said. "This is the Dish way. Anytime they get a moment of leverage, they'll think 'let me get you for cheaper,' and will start negotiating."
A Dish spokesman said the carrier "has ongoing relationships with both Current TV and Al Jazeera and we are evaluating the future plans for Current TV."
Comcast ranks as the nation's largest cable television provider with about 23 million subscribers. DirecTV, with just under 20 million subscribers, and Dish Network, with 14 million subscribers, are the two biggest satellite TV providers. Taken together, those three companies would account for the vast majority of the distribution. (Not every subscriber gets Current TV, as it depends on the programming package they receive.)
The channel will also take over Current TV's distribution of Verizon's FiOS and AT&T U-verse, which together have 8.9 million subscribers.
A DirecTV spokesman declined comment. Comcast said it will continue to carry Current TV as per its affiliate agreement. A representative for Al Jazeera said nine operators will carry the new channel, the largest being Comcast, DirecTV, Dish, AT&T and Verizon.
PAY TO PLAY
Current TV generated an average nightly audience of just 42,000 viewers, steeply below ratings for Fox News, CNN and MSNBC, all of which are "fully distributed," meaning they reach more than 90 percent of the 100 million pay-TV households in the United States.
Indeed, part of the reason why Current TV has lasted seven years amid an environment in which low-rated, independently owned networks of its ilk are being dropped by pay-TV distributors is because of the influence wielded by its co-founder, former Vice President Al Gore.
Though Gore will remain an adviser, Al Jazeera America will be negotiating new distribution deals largely without his influence.
Sources said that perhaps the only way for Al Jazeera to prevent being dropped and ensure distribution is to take a page from Rupert Murdoch, who 15 years ago, paid operators to carry Fox News after it was created instead of asking them to pay him. With Qatar's financial resources, it reportedly paid a rich $500 million for Current TV, that could be a viable short-term solution.
"You can buy your way on. It's not unheard of for networks to pay cable operators to get on," said Larry Gerbrandt, principal of Media Valuation Partners, who added that such a move wouldn't be a long-term strategy.
Al Jazeera has not had to offer money for distribution, sources said.
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