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BUSINESS PLANNING: DISTRIBUTION A SUCCESSFUL PLATFORM FOR AN ISLAMIC TELEVSION CHANNEL

The Broadcasting Strategy


THE INFRASTRUCTURE ...........................................................................................................................1 ISLAMIC TELEVISION PROJECT COPYRIGHT2003 .1

UK CARRIAGE DEALS.............................................................................................................................3 EUROPEAN SATELLITES...........................................................................................................................3 EUROPEAN PLATFORMS..........................................................................................................................4 CARRIAGE CRITERIA...................................................................................................................5 THE PROCESS.......................................................................................................................................5 KEY PLAYERS IN BROADCAST SERVICES.............................................................................6 PLAYOUT........................................................................................................................................8 ADVERTISING INSERTS..............................................................................................................9 FOREIGN FEEDS............................................................................................................................9 SKY CONDITIONAL ACCESS....................................................................................................................10 IN CONCLUSION...................................................................................................................................12

The Infrastructure
Distribution is fundamental. The content can be brilliant, but without distribution it cannot generate revenues. The forces of supply and demand have moved in favour

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BUSINESS PLANNING: DISTRIBUTION A SUCCESSFUL PLATFORM FOR AN ISLAMIC TELEVSION CHANNEL


of the distributors with greater competition amongst channels for carriage and consolidation amongst the platforms. The economics of cable and satellite channels has not therefore really improved as a result of the digital age. Distribution costs are significantly lower than they were in analogue and the costs generally of producing a channel are much lower. But this reduction in the cost of entry has led to a more competitive market. In the UK, BSkyB achieved fast growth in digital subscriber numbers by giving away set-top boxes, a strategy that effectively wiped out its profits. At the same time cable in Britain has been burdened by huge debts and both NTL and Telewest have been forced to restructure. They have been under severe pressure to cut their costs as they have piled up debts in the process of building their networks and consolidating their businesses. There are now only two cable operators left in Britain after several years of consolidation, NTL and Telewest, but the cost has been debts of 15 billion and 5 billion respectively. The third platform, ITV Digital, went bankrupt because it overpaid for secondary league football rights that failed to boost subscriber growth. It has become a buyers market and this has caused the carriage fees offered by the distributors to drop towards zero, fundamentally changing the economics for the channel suppliers. Some new entrants may even face having to pay for carriage. The growth in the number of pay-TV subscribers has not been enough to compensate for the drop in carriage fees. Any service that can guarantee distributors a boost in subscribers would still be in a strong position, but it is now very difficult to come up with an entirely new and essential service. The vicious circle for the content providers is likely to continue until there is consolidation amongst the channels and power shifts back in their direction. Good content allied to strong distribution is king, not content on its own. Without distribution, television channels are not only deprived of potential subscription revenues, they cannot build up a share of the audience to sell to advertisers. When BSkyB launched its digital package in 1998 it was keen to get as many new channels and strong brands as possible to persuade its analogue subscribers to switch and to attract new customers. They were therefore prepared to pay high carriage fees. But once the digital platform had established itself and the supply of channels increased, the tide reversed and fees dropped substantially. This change of climate has made it very difficult for the channel suppliers, particularly the small independent suppliers that lack economies of scale. New independent channels cannot obtain much revenue, if any, from subscription and there is a need for all channels to reduce back office costs. At the same time they must invest more in content, putting money on screen, and in marketing in order to boost ratings. Any channel that can establish itself and prove itself popular with viewers will be in a much stronger position when the time comes to renew carriage contracts. According to UK observers there are carriage fees available at BSkyB for the right channels as the satellite operator still has money to pay for content, although if it

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BUSINESS PLANNING: DISTRIBUTION A SUCCESSFUL PLATFORM FOR AN ISLAMIC TELEVSION CHANNEL


does pay a new entrant there is less in the pot for other channels. As subscriber numbers grow, higher revenues are generated not just from carriage fees but from advertising. Content still very important. The platforms need good content to keep their customers happy to reduce churn, and to attract new subscribers. The distributors would begin to worry if large numbers of channels started failing and they know that it is in their interest to pay enough to allow them to produce the quality and kinds of programming that their subscribers want. They cannot therefore afford to be too aggressive in driving down fees as then they will deprive themselves of the content they need to satisfy their customers. The explosion of digital channels has led to a commoditisation of some genres in particular, with music and news being perhaps the best examples. MTV is facing strong competition in the UK from Emaps music channels which have been able to take advantage of the lower entry barriers as well as free content provided by the record producers to launch channels on the back of their publishing brands.

UK carriage deals
Recent UK carriage deals illustrate that even the bigger players among the channel suppliers have found the going tough. At the end of 2001, MTV was forced to accept lower fees after a tough negotiation with Telewest. The renewed carriage contract included a cut in fees but added MTV Dance to the Telewest line-up. Flextech was forced to accept a cut in its rate per subscriber from BSkyB of at least 10% in 2002, according to Press reports. This was part of a new five-year carriage deal for all its 13 wholly-owned and joint venture UKTV channels. Previous fees ranged from around 15 pence per subscriber per month for UK Gold to around eight pence for Bravo and Trouble, according to the reports. These fees were already significantly lower than those obtained on Skys analogue platform. Flextech noted that any loss of revenues per subscriber would be offset by an increase in the number of subscribers. Subscription revenues should not be seriously undermined over the longer term as long as the pay-TV market continues to grow. A five-year deal was regarded as important by the company as it provided secure longterm subscription income and allowed it to plan ahead. At the end of 2001, Discovery reached agreement with NTL covering its 10 whollyowned or joint venture channels from 1 January 2002. This also involved a reduction in carriage fees in return for a long-term distribution deal of five and half years. NTL and Telewest have also been negotiating new deals for carriage of BSkyBs channels. The Office of Fair Trading rejected a deal between NTL and Sky in September 2001 that set a pricing structure over five years following its investigation of an alleged abused of a dominant position by the satellite operator over the supply of its premium film and sports channels. In December 2002, the OFT finally cleared BSkyB of breaching competition rules after a three-year investigation.

European Satellites

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Luxembourg-based SES Astra is the leading satellite provider, and with the acquisition of GE Americom its parent company SES Global is a leading supplier of TV services in the United States. SES Astra satellites at 19.2 degrees East provide digital transponders for Frances CanalSatellite, Germanys Premiere World, Spains Canal Satelite, while its satellites at 28.5 degrees East provide transponders for Sky Digital. Astra has 13 satellites with footprints that provide coverage across the whole of Europe. It transmits more than 1,000 digital and analogue TV and radio channels, reaching over 90 million homes, over 30 million of which are via DTH and nearly 60 million via cable. Eutelsats Eurobird also has satellites at 28.5 degrees East where clients include BSkyB and Globecast. In addition its satellites at 13 degrees East provide transponders for Frances TPS and AB Sat, Italys Tele+ and Stream and Polands Cyfra+. Eutelsat has 23 satellites reaching into four continents encompassing Europe, the Middle East, Africa, Asia, eastern North America, and South America. Eutelsat transmits more than 1,250 television channels and 650 radio stations to a total audience that exceeds 100 million homes connected to cable or equipped for directto-home reception.

European Platforms
A new channel must aim for the widest possible distribution. Exclusive distribution on one platform, for example, does not make a lot of sense unless it can get much higher carriage fees as a result. Even then it may prove costly over the longer term. Where there are two competing satellite platforms, in France, for example, an exclusive DTH contract with one normal, but then it makes sense to try to get distribution on the platform with the most subscribers, unless carriage terms are significantly better on the other. In the UK, distribution on BSkyB must be the priority as with over six million subscribers to pay TV of a total nearly 10 million, it dominates the market. Satellite distribution, however, tends to be more expensive than distribution for cable only as the channel needs to be on a DTH satellite transponder that can be picked up by individual households. It costs more to lease space on such a satellite than on one that only needs to be picked up by cable headends. But in a country like Britain, a channel will be losing access to the majority of subscription homes if it is exclusively on cable. Not only does this mean no DTH carriage fees for these subscribers, but also a substantial loss of potential advertising revenue. In addition, carriage on Sky in the UK is likely to improve the chances of getting carriage on cable. The cable companies no longer see their pay-TV packages as a means of differentiating from Sky, rather the telephony and broadband services they offer is regarded as the differentiating factor. And while it may be very difficult to get paid carriage from Sky, it is not impossible if the product is right. The platform has a budget to spend on content which may not be increasing, but there is money there for new channels, although any fees to new channels will come out of those paid to current incumbents.

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BUSINESS PLANNING: DISTRIBUTION A SUCCESSFUL PLATFORM FOR AN ISLAMIC TELEVSION CHANNEL


CARRIAGE CRITERIA
There are at least five major criteria that a distributor will be looking for in a new channel launch. It will want to know that the channel has enough finance to survive early years of losses, particularly if it is not getting much in terms of carriage revenues. It will need to be able to generate other revenue streams to compensate for lower or non-existent carriage fees, and if it is a shopping or an adult channel it will probably have to offer sizable minimum guarantees up front. The distributor will only be interested if the channel is likely to appeal in relation to other competitive offerings. It must also fill a well-defined niche not necessarily with a big audience, but one that could still be attractive if addressing an audience that the platform is not reaching. It must also be a well-thought through proposition, and it must be future facing in the sense that there might be interesting technical applications which could fill the interactive space. This is particularly important for cable operators, as they need to exploit what they perceive as their unique selling points their capacity and their two way facility that allows for much greater use of interactivity, plus the ability to offer localised community services. CI Interactive would attract the demands of the Cable, SKY and FreeView operators, as it fulfils their long-term strategy

The Process
First a channel needs to get distribution in place and lease capacity on a transponder with uplink. It then has to arrange encryption/ conditional access and playout deals. Negotiations can be simultaneous, but everything obviously hinges on carriage. The playout contract should not be signed until the last minute as the other deals need to be in place for revenue to be generated. It may be possible to combine the distribution deal with encryption and conditional access if, for example, a channel does a deal with BSkyB in the UK which includes leasing transponder space as well as encryption and conditional access. Otherwise, transponder space can be leased from BT or NTL in the UK, while companies like Pearson or Molinaire supply playout services. It is always possible to go free to air, in which case it may not be necessary to encrypt. A channel might do this if it cannot negotiate carriage fees or if it wants to build its brand for a period by offering it free. If it follows this strategy, the channel does have to clear the rights across the satellites footprint or it has to soft encrypt so that, although free to air, a card is still needed from the platform to receive it. In either case, the channel will still need to do a deal with the platform to be on the Electronic Programme Guide, although in the UK on BSkyB this is not a problem as Sky is obliged by regulation to provide access. The rights issue is more problematic. If the channel does own its own content, going free to air will make it difficult to sell the rights to its programming in territories where it is not distributed directly as a localised version. Up until 2003, the UKs terrestrial broadcasters the BBC and ITV had been paying BSkyB 5 million and 17 million respectively for conditional access for their digital channels. Faced with a hike in its rate to the same level as ITV, the BBC decided in

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BUSINESS PLANNING: DISTRIBUTION A SUCCESSFUL PLATFORM FOR AN ISLAMIC TELEVSION CHANNEL


March 2003 to go free to air when its contract expires, moving its channels to Astra 2D which has a tighter footprint. This may be thus an option for those channels that wish to be free to air, but want to avoid being easily watched in Europe. A channel needs to lease satellite capacity, whether for Direct to Home (DTH) broadcast or to deliver to cable headends. Satellite capacity is supplied via transponders and there would normally be around ten digital channels on each transponder. In the UK suppliers of satellite capacity include companies like NTL, BT, Kingston TLI and Globecast. Another option is to find out if one of the major channel suppliers has any spare capacity. Groups like Turner, Viacom, Flextech and Discovery have their own transponders and it is always possible that they have something spare, although if they do they will usually give brokerage rights to a company like NTL which then acts as a clearing house. Other companies like the London Satellite Exchange act as a wholesale broker for spare satellite capacity. Another alternative is to go directly to the satellite companies themselves, Astra and Eutelsat for DTH in Europe. Eutelsat has more capacity and is typically around 25% cheaper than Astra. There is also the possibility of combining a distribution deal with a transponder. This can be possible with BSkyB, but it is only likely be to be interested if the channel is special and it may want an equity share in the venture. Sky might even offer a free transponder, but this will then be reflected in the lower carriage fees. In addition a channel will need an unplink deal and it will have to choose whether to take a package deal where uplink and transponder are combined or to do each deal separately. It is easier to do a single deal for both. The uplinking industry is a highly competitive business with dozens of operators. These include BT Broadcast Services, NTL, Kingston, Globecast, and NSS.

KEY PLAYERS IN BROADCAST SERVICES


BT Broadcast Services, part of UKs British Telecom, is a leading player in broadcast services. It is a major shareholder in various satellite operators like Eutelsat, Intelsat and Inmarsat. It reserves capacity on satellites such as Eutelsat's Hot Bird and Eurobird and sells it on to broadcasters. BSkyB takes several of Eutelsat's Eurobird transponders from BT. The company is also building up its customer services division, offering call centre management, subscriber management, billing, and conditional access systems to would-be broadcasters. The services offered by BT Broadcast Services thus cover all the main elements of subscriber management services as well as satellite capacity and uplink, including on-site uplinking.

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BUSINESS PLANNING: DISTRIBUTION A SUCCESSFUL PLATFORM FOR AN ISLAMIC TELEVSION CHANNEL


CHART 1: BT'S SERVICES FOR BROADCASTERS

[Source: BT Broadcast Services]

CHART 2: BT'S MULTIPLEX SERVICE

[Source: BT Broadcast Services]

Its satellite services supplies broadcasters requiring satellite solutions either for DTH or to cable operators, as well as backhaul for redistribution. For DTH, BT helps to identify appropriate satellite capacity, as well as providing uplink facilities if required. NTL is the UKs leading cable operator, with interests across Europe. In addition to this, NTL is also the distributor of the UK commercial terrestrial network, ITV, as well as other channels, and it provides satellite uplinking services.

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BUSINESS PLANNING: DISTRIBUTION A SUCCESSFUL PLATFORM FOR AN ISLAMIC TELEVSION CHANNEL


CHART 3: EUROBIRD FOOTPRINT

[Source: BT Broadcast Services]

NTL services include playout as well as uplink. It offers an automated server-based multi-channel playout for both live and pre-packaged multimedia programming. NTL has Digital Media Centre at Langley, Berkshire, providing playout and production services for ITN, British Eurosport, SDN and Front Row. Other channels that it uplinks include the shopping channel QVC as part of a three year deal worth more than 1 million. The channel is played out from QVC's studio in London and sent to NTL's teleport at Crawley Court in Hampshire for onward distribution. From there NTL uplinks to Sirius GE1E, as well as providing an alternative analogue route for QVC. NTL uplinks Cartoon Network, Bid-Up TV and TV Job Shop from Crawley Court, although it is developing a new 20 acre uplink site near Winchester, giving extra access to Eutelsat and Astra's fleet of satellites. Conditional access and encryption is likely to be part of the deal with Sky and there is an annual fee charged for this, as well as inclusion in the EPG. BSkyB charges were around 30,000 for the EPG, but rose to up to 75,000 from January 2003. Once the carriage, transponder and uplink have been put together, the channel will need a transmission facility. They will take a schedule and all programme material, prepare it for transmission and then transmit it. The signal will be distributed, probably by line (fibre), to the uplink facility that will then send it up to satellite. UPC Media in Amsterdam provides a wide range of broadcast services, particularly suitable for pan-European and Central Europe feeds, from its Digital Media Centre. This includes channel management and language versioning as well as uplinking and playout.

PLAYOUT

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Delivery of the material still tends to be by tape. The 50 or so tapes that provide the content for the channel need to be delivered and they will then be played out. The price for the service will depend on the schedule model. One model, for example, might be six hours of programming that rolls four times to make 24 hours. A full channel with different voice-overs will cost more, but a new channel is likely to have a high repeat factor initially, played off a server. In the UK, companies providing this service include Pearson, Advanced Satellite (which does a lot of the Asian business very cost effectively), Molinaire, Corinthian Television, Kingston TLI, NTL, and Chrysalis. Normally, the programming is supplied up to six weeks in advance, although they could probably work up to something around two weeks if the content is all English language. In terms of actually doing transmission, some of the facilities houses have channels on the shelf, which means that they can get a new channel up and running very quickly, within weeks. Previously, there was a 16-week lead-time if a channel started from scratch. While there is a lot of extra capacity around as a result of channel closures, they can do things quite cheaply as they need to utilise their equipment.

ADVERTISING INSERTS
The advertising goes in at the last minute. The playout companies will have every advertisement on their server that has been approved in the UK. These are therefore ready for insertion. They will normally get central playouts from BACC three or four times a week and they can insert any of them into the channel. It is also possible to get them to handle quality control so that all the channels material is in compliance with ITC standards and that it is both technically suitable and does not have anything shocking in it editorially. The channel only needs to send the playout facility the list with the ads sold and they will be inserted from the server. If there is a foreign feed with foreign ads, then these would have to be trafficked in from the agency in the traditional way and shipped to the playout centre. UK ads should not be broadcast in Europe and it is therefore necessary to have a second channel, Channel B, with identical programming, but in which the ad breaks are filled in or replaced with promos or something that will fill the space if the channel is to be available outside the UK. The alternative to filling the gaps with promos or short programmes would be to sandwich all the programmes closely together leaving no gaps, but this means a second deal with playout centre, plus an ability to do different languages. It will therefore cost more than Channel A as extra equipment is needed to deliver the feed.

FOREIGN FEEDS
Distribution across Europe can generate new revenue streams and this can always be an option for a channel once it has established itself in one territory. These days it is not advisable to put out an identical channel across several territories without localising it for the different markets, but with digital technology this has become

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easier and cheaper. Much depends on the genre of programming as to how much it needs to be adapted as well as the demands of the markets themselves. Documentaries travel easily across frontiers and need little localisation beyond subtitling or voice-overs, while childrens television, aside from animation, generally needs much more. Some territories, France, for example, require more focus on them than others, such as the Scandinavian countries where UK-based channels need very little adaptation. Some countries demand dubbing or voice-over, while others prefer foreign programming to be sub-titled. Scandinavia, for example, prefers subtitling, while Germany and France prefer dubbing. Normally if a channel is to be broadcast on a platform in another territory, the feed has to be backhauled via satellite to that territory where it is then downlinked and uplinked again to the satellite used by that platform. For Scandinavia sub-titles go with the picture, while integral to each satellite feed is a potential for four different audio tracks that can be sent out as part of that stream. The Astra 2a or Eutelsat feed can be used for backhaul, but it still requires the platform at the other end to redistribute it. In Scandinavia, for example, a channel may do a distribution deal with Canal Digital, or it could buy capacity on the Thor satellite or some other satellite beaming into Scandinavia and then do a deal with cable operators. If the necessary feeds are on Eutelsat, then the cable operators can just downlink from there and there is no need to backhaul. If localisation is largely confined to providing different languages or sub-titles, there are specialists who can do this. SDI (Subtitiling & Dubbing International), for example, acts as a clearing house for Scandinavian and for Middle Eastern languages in particular, while Zonevision does the same for the Central European languages. It is possible to go directly to suppliers, but it is much easier to go to SDI or Zonevision, at least initially. There is a bottleneck with audio on the tape rather than on the satellite. Most programming uses Digibeta tape that has a limit of four audio channels, although UPCs Digital Media Centre overcomes this problem through its digital asset management systems. It may be possible to generate adsales focused on some of these markets as well as subscription revenue. When a market gets to a critical point, the costs for extra satellite transmission required are weighed against the new revenues from adsales. It may then be worthwhile providing promotions that are more dedicated to the market and localising the programming or providing programming more relevant to that market.

Sky Conditional access Details on BSkyBs conditional access conditions and charges are in Appendix and at www1.sky.com/corporate/sssl.htm. In 2001, the UK telecommunications regulator Oftel announced that it was to review access charges for TV channel carriage on satellites, and would consider whether

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public broadcasters should pay at all or receive a substantial discount. The BBC had been lobbying Oftel to allow cheaper or free access to British Sky Broadcasting's satellite network. Public service broadcasters currently pay the same as commercial channels carried by BSkyB following an earlier Oftel ruling. Conditional access charges give an incentive for Sky to carry free-to-air channels and make them universally available to viewers with a Sky dish who do not take Sky's programme packages. In October 2002, Oftel ruled that BSkyBs conditional access charges for carrying ITV, which pays 17 million to be on Sky Digital, were fair, reasonable and nondiscriminatory. ITV responded by launching a campaign for must carry rules to be included in the new Communications Bill but the government would only accept an amendment that gave it reserve powers to ensure public broadcasters were carried on all digital platforms, with Ofcom taking over Oftels role to ensure the fair, reasonable and non-discriminatory rules. The BBC also argued that Sky should be subject to must carry rules. Although it is only paying about 5 million a year for the carriage of its channels on Sky Digital, it was clearly worried the fees would rise to be more in line with ITV once the current contract had expired. In the event, the BBC decided to go free to air and avoid the conditional access charges and ITV could well follow when its contract expires, as well as Channel Four and Five.

Islamic Television Project


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BUSINESS PLANNING: DISTRIBUTION A SUCCESSFUL PLATFORM FOR AN ISLAMIC TELEVSION CHANNEL


In conclusion
Developing an Islamic television channel and eventually a successful network is more that just acquisition of good content, but It is also about establishing a sustainable infrastructure in order to distribute the channel effectively and efficiently. This is not only critical to the channels survival but also key to the channels growth too. A strategy of sustainability should always be and remain feasible and practical, without which the management, implementation and delivery of it will be difficult and costly. There are key issues to tackle, all of which have short-term and long-term implications for the channel. The difference is between success and failure. These issues include the choice of broadcasting platform satellite, cable, FreeView or even the broadband media. Secondly, the Conditional access (subscription) or free-to-view access. Thirdly, the delivery medium of digital television, radio the web and even print media needs to be considered. Finally, location, location, location is critical. Location determines accessibility; accessibility is also limited by language too. In broadcasting, location is resolute through satellite usage, The Eurobird for footprint of Europe, Hotbird maybe used to beam into Africa and middle-east, TelStar for North America and AsiaSat for Asia and Australia. However, this involves either a uplink or relay system, ideally a combination of both. COST is the primary factor to the decision making of the broadcasting set-up. Channel ISLAM has developed a broadcasting model which allows maximum transmission whilst ensuring the minimum cost, to almost five folds down. Developing infrastructure for an Islamic television channel, that is feasible, practical and sustainable.1

Please refer to the Broadcasting Scenario Report for further reading

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