Content's King
 
Jamie Kellner controls Turner's programming riches. What he does with
them could speed up--or slow down--the transformation of television.
by Staci D. Kramer
 
Cableworld
Monday, April 29, 2002

A big piece of the future of television is in the hands of Jamie
Kellner. Kellner, a launcher of broadcast networks, sits atop the
empire built by Ted Turner, who acquired programming libraries and
turned them into cable leaders. Now Kellner must steer Turner's
networks through a media recession and find the best way to exploit
the company's vast resources in a new era of television, filled with
digital promises and opportunities.

This time last spring Jamie Kellner was at the center of intrigue. The
new chairman and CEO of Turner Broadcasting System was brought in just
as the company was reeling from the wave of layoffs and cost-cutting
that came along with the AOL Time Warner merger. Kellner, who launched
and was running the WB, was handpicked by AOL TW co-COO Bob Pittman to
run the company's ad-supported television properties. Pittman told
Cable World that, in Kellner, he had someone with "terrific vision for
where the network industry is headed," someone who could push Turner
forward.

Kellner helped make Fox the fourth broadcast network and created the
fifth network, the WB. He was responsible for putting the risque
Married With Children on Fox. Kellner also had the sense to put the
Aaron Spelling family show 7th Heaven on the WB. His new Turner
reports wondered how he would apply those skills and
sensibilities. How many more heads would roll? And just where would
the WB fit in?

A year later many of the faces on the air at CNN and the revamped
Headline News have changed, but most of the people running the show,
including Turner Entertainment's Brad Siegel, are the same. Kellner
brought with him Garth Ancier and Brad Turell, but Cartoon Network
powerhouse Betty Cohen, who left for a mysterious in-house project,
was replaced from within. The biggest change came at CNN when News
Group chairman Tom Johnson suddenly resigned--totally his idea, says
Kellner--and was replaced with Time Inc.'s Walter Isaacson, who
brought along heavyweight journalism credentials combined with his rep
for energizing Time magazine. The rebranding of CNN was already
underway when the terrorist attacks of Sept. 11 and the subsequent war
in Afghanistan changed the dynamic of cable news. As AOL Time Warner
touted in its mixed first-quarter earnings report, CNN was up 55% in
total viewers and 50% in ratings year to year, while Headline News
jumped 29% in total viewers. Fox News Channel may be winning the
battles for ratings and publicity, but CNN's improvements are
considerable.

On the entertainment side, Kellner was given the chance to experiment
with spreading the same content across multiple channels. The WB
started to feed shows like Charmed to TNT, and the results have
encouraged more of the same. He also set up a second in-house studio
to create content for TNT, TBS and the WB.

While Pittman focuses on underperforming AOL, at least he doesn't have
to worry about Turner. "In just over a year on the job, Jamie has
worked with the teams at CNN, TNT, TBS, Cartoon Network and the WB and
our other programming channels to further extend these powerhouse
brands and foster even closer collaboration within our expanded
Networks Group," said Pittman.

In an interview at his CNN office in Atlanta, Kellner discussed the
last 14 months and his plans for the future. The following is an
edited transcript.

CW: How is Turner doing now?

JK: I think the entertainment networks are in great shape. The growth
of Cartoon and hooking Cartoon and WB with the Warner animation studio
and Cartoon studio--I think our kids business is going to be strong. I
like the kids business a lot, so that's a fun one. We've put a lot of
new programming on CNN, and we have Connie Chung's show still to go on
and a lot of upgrades in our facilities and other little changes we're
making, so I think we're going to keep working really hard on CNN, and
with what's going on in this world right now, it's going to be a
pretty iffy place for a while. CNN International is an important part
of that. We've been trying to get into native tongue, and I think
that's a place where we can do it with partners, where we bring in our
global newsgathering, our expertise, marry it with their expertise,
and I think that's a good strategy.

CW: When you got here did you feel the lines for each network were
clearly defined?

JK: From a content standpoint, yeah.... The great thing about the
Turner Entertainment networks is by having Ted be the visionary--who
in many ways helped lead the cable industry into the cable programming
business in a bunch of different categories--we're 'first in' in a
bunch of different categories. Ted loved programming, so he was always
willing to have the company invest so we were able to get out in front
of everybody else. By adding funds, bringing TNT in as well, all of a
sudden we had more shelf space, more capacity for programming than any
other networks. What's going to happen in the next couple of years at
TBS as we add all the sitcoms is there's not going to be anyplace
anywhere over the air or cable where you can get as high a
concentration of the very best sitcoms as TBS.

CW: Is this like a modern TV Land?

JK: This is different because TV Land took programming from the shelf
and said that there's still value in it.... The fact that we continue
to step up in the outside marketplace and buy packages is an example
of what we have done in the past and what we plan to do: We want to
have the best.

On the original programming front we've restructured ourselves into a
model we think will be far more efficient and lead to better
programming. We have a lot of experience between all of us in making
original programming.... The cable industry has a disadvantage because
the way you get to the hit shows is by developing a lot of product,
and out of that gigantic development process of 100 scripts you'll end
up making 20 to 25 pilots and out of the 20 to 25 pilots you may make
five to six series and out of the five to six series you may get one
or two shows.... The broadcast networks--that's been their model. The
cable model has been to start out with a limited number of
made-for-television movies, go to 13 episodes from a script, bypassing
the pilot process because they haven't had the resources available to
heavily invest in program development. There has been less original
programming that has succeeded, that has become a hit. Certainly South
Park became a hit in many ways and propelled [Comedy Central]
forward. I'm not suggesting that there hasn't been a quality effort,
but I'm suggesting that the odds are against you that you'll have that
big hit.

CW: What are you seeing come out of the studios?

JK: There's a couple of pieces I think are very interesting. We've
done a pilot of The Lone Ranger, which is a WB development, but we're
doing a two-hour movie. And since the two-hour movie easily fits onto
TNT because of the success with the Western genre over the years, that
one becomes a natural project where we could help finance the project
by selling a couple of runs to TNT. It would have been much harder to
do a two-hour movie without TNT there. When we see it my biggest fear
about the Western is: Will it play young enough for the WB? If it
doesn't and it's still a good show, it could easily play more broadly
on TNT.

CW: Can cable networks afford to be more committed?

JK: Wait longer for something to develop? Definitely. The ability to
play it multiple times is greater in cable.... In cable you can give
it a couple of airings and try to get more exposure for it and the
multiple airings will come up a larger audience.

The industry has now experimented with multiplexing, and the results
so far say that you can play programs on two different networks and
get more new viewers to watch them.... Most industries that don't pay
attention to satisfying the demands of their customers fail. You have
to realize that television has changed dramatically as much as any
other industry I can think of in the past ten to 15 years. American
lifestyle has changed dramatically. People are on the Internet a lot,
out of the home a lot, having families at a different age than they
did ten to 15 years ago. The idea that you can put programs on once a
week and expect them to reach their full potential of popularity and
their full audience is a joke. If you're interested in satisfying the
needs and desires of our customers, we have to offer them multiple
times in the week, and that means probably across multiple networks,
because the broadcast networks do not have the shelf space to play
their program many times during the week.

CW: When you started in your current job, Headline News was on the
verge of being remade.

JK: They hadn't really started yet. It was the allocation of resources
where they could really make it over versus trying to tinker around
with it. The company really hadn't really separated Headline News from
CNN, hadn't tried to differentiate the mission of Headline News from
CNN, so the two networks had similar demographics, and the resources
that would enable them to do what's on the air today weren't
available.... The good news is that [CNN/U.S. EVP and general manager]
Teya Ryan was someone who was well worth making the investment in, a
very imaginative thinker, a very passionate hardworking person,
someone who's willing to take chances--and a quality journalist.

CW: Have you had to have conversations with the folks at AOL TW--with
Bob Pittman or anybody else--and explain why CNN doesn't have Fox News
Channel's numbers?

JK: They wouldn't want CNN to go there. There's nobody who's a better
believer in the power of brands than Bob Pittman. I've done a lot of
different kinds of television shows over the years--some of them very
responsible and respectful [like] 7th Heaven [and] shows like Married
With Children and Cops. I think you can put all different kinds of
shows on the air.... That's the beauty of television...advertisers are
willing to pay much higher premiums to reach certain groups of viewers
than other groups of viewers. There's a reason. In the news business,
people pay for credibility. They always have and they always
will.... CNN is the credible source in this country, and advertisers
support it because of that.

CW: Have you had any pressure from advertisers?

JK: Our business is so much better this year than it was last
year--it's remarkable. Rates are higher. Our CPM is up above scatter
last year. Business is starting to get healthy. Scatter is well above
the pacing of last year.... The CPM dropped significantly the previous
year. So when you look at the end of the year, scatter is not going to
go up enough to mitigate the lower prices for the upfront, so you're
not going to end up with a top season. But if you compare scatter this
year to scatter last year, the market has definitely firmed. There's
more money in the market, and the prices are going up.

CW: The broadcasters--especially when it comes to sports programming
rights--say the cable networks have it easier because of their dual
revenue streams. Do you feel like you have a certain cushion there?

JK: I don't think so at all. I think just the opposite.... I think our
company believes that it has to act responsibly to the cable industry
maybe more than other network providers that don't own a big piece of
the cable industry. With the basketball contract, I was ready to walk
away from the NBA deal. Not that I would want to; it's a valuable
franchise. If we couldn't have created a deal that had enough value in
it for us and the operators, I would have walked away. The
enhancements in our contract--I watch a lot of basketball, but for me
when we get to postseason play is when I get really interested--and
the enhancements to the package on postseason play are
extraordinary. I think by having a multiyear package--the All-Star
Game and All-Star package is an event that we will be able to make a
really important event on cable, one of the most important events of
the year that's exclusively on cable. The fact that there will be no
games played against us on Thursday night--we want to focus and
promote Thursday night into a basketball event much like Monday Night
Football is a football event.

CW: How does the proposed AOL-NBA network fit in?

JK: If the cable operators are interested in supporting another sports
network, that with David Stern and ourselves we could over the next
three to four years become a formidable competitor in the category. If
that's in the interest of cable operators, they'll support the plan;
if it's not in their interest, they won't support it. David is out
there discussing that with them today--meaning right now.

CW: There's a feeling among cable operators that if the guys who own
the teams and own cable systems aren't going to get behind this, it's
just not going to work.

JK: This is something David's been talking about a long time. It
requires the support of the major cable operators, and if they think
the business is worthy of being entered into, I'm sure they'll give
David every opportunity to understand the strategy, understand where
it's going. And my guess is they would like to be supportive of
something the league is involved in if they are in business with them
already. If they don't think it makes sense for them, for their other
businesses, then they'll say no.

CW: How did you get Time Warner Cable on board?

JK: I think there's recognition in the company of an opportunity. We
have a lot of assets and we can afford to invest if we want to in that
space. We know we can't do it without Comcast, Cablevision, Charter
and others that have to be interested as well. David Stern has a
unique relationship with a bunch of his owners. If he can't get them
to sit down and say, here's what the opportunity is and it's a good
opportunity, if he can't get them to agree to it then who could?

CW: What are the dynamics like now with you and the other pieces of
AOL Time Warner?

JK: We're all running our own businesses, certainly, but where
something makes sense for one part of the company it's a lot easier to
go in with the good relationships that exist throughout the company at
this point, because we all sit together every two weeks. I know [Time
Warner Cable chairman and CEO] Glenn Britt very well through that. I
didn't know [former Time Warner Cable CEO, current CEO of AOL TW's
Interactive video division] Joe Collins. Joe was in here for lunch
last week, but we didn't spend a lot of time together. Everybody was
off running their own businesses. Now every two weeks we sit down
together. We have breakfast together, we work together. We share each
other's good news and bad news, usually in New York. I think in many
ways that has broken the ice...between the divisions. Instead of
festering, problems are put on the table, and we find resolutions. I
think everybody is certainly rooting for each other. At the end of the
day we're responsible for our bottom lines, which means we have to
operate our businesses wisely.

-

VOD's Ad-Skipping Irks Kellner

Jamie Kellner would be the first to tell you he is no VOD
visionary. What he is, though, is the chairman and CEO of Turner
Broadcasting, which puts him in charge of what could be one of the
most potent collections of VOD content anywhere.  The eclectic
catalogue spans CNN's multiple networks, Turner South's cooking show
from Commander's Palace, the TNT library of original movies including
its successful Westerns, The Powerpuff Girls, WB hits and sports along
with series being developed at two Turner studios. It's a VOD library
few, if any, cable or broadcast entity could match.

And yet, ask Jamie Kellner about the opportunities (or challenges) for
his company and VOD won't crack the top of his list. He's still too
busy making the most out of today's reality: opting for multiplay and
multiplex, which he describes as the low-tech way to offer multiple
viewing options, creating more network-owned content, pumping up the
networks Turner already has (particularly CNN).

If and when Turner gets into VOD in a serious way, it will be pushed
there by MSO demand. Think reactive, not proactive.

That doesn't mean Kellner is ignoring the potential of VOD. Far from
it. Along with creating and owning content comes control. Outside
contracts increasingly include VOD clauses--TNT, for instance, has VOD
rights during the windows of some of its exclusive movies.

It's just that he has little patience or time for something that after
more than a decade of buzz has finally graduated to trial status.

While Kellner was building two successful broadcast networks--Fox and
the WB--and amassing Acme Communications, his own chain of television
stations, VOD was on the industry list of next big things (think PPV,
ITV, HDTV) that never quite happened. (One network executive recalls
graduating from business school 13 years ago when "pay-per-view was
just about to explode as a business.") Like the Eiffel Tower, which
looks like it's just around the corner even when it's miles away, VOD
was an optical illusion of sorts.

Now VOD is part of the alphabet soup that makes up the jargon of cable
these days. Kellner talked to Cable World contributing editor Staci
D. Kramer about VOD and his concerns about PVRs.

CW: You said earlier that you're getting to know the cable operators
better.

JK: This is my second year on the NCTA board, and I've gotten to know
some of the guys by going to board meetings and listening carefully,
trying to hear more about what their needs are.

CW: What do you hear?

JK: I would say that everybody's focused on costs.

CW: They're looking for alternative revenue streams.

JK: We sell that hard. One thing about our networks is they sell
well. They're well branded, so it's easier for the local sales people
to sell our networks. And delivering marketing plans and promotions
and things that help the operators sell their inventory is important
to us.... I think what's going to be on the digital tier is important
to them.

CW: Where do you fit into that? Offering alternative product for the
digital tier? Making it possible to move material to digital from
analog?

JK: I don't think you want to move your product from analog to digital
unless you have very narrow networks that are supportable on a digital
tier. Most of ours are much broader networks than that. What is the
programming model going to be in digital? What can you afford to
produce and do with a high enough quality level to satisfy viewers on
digital? There's probably going to be a lot of multiplexing and time
shifting and things like that that provide a lot of convenience like
HBO provides to its subscribers.... Taking our networks TBS and TNT,
multiplexing them, taking the sports out, putting the movies in prime
time--there's ways you can repackage our networks that would add a lot
of convenience for people as well.

CW: How do you do that without destabilizing the current model?

JK: How would that destabilize it? We'd be running the exact same
spots. It would all be incremental viewership. That's just one
idea. I'm a big believer we have to make television more convenient or
we will drive the penetration of PVRs and things like that, which I'm
not sure is good for the cable industry or the broadcast industry or
the networks.

CW: Why not?

JK: Because of the ad skips.... It's theft. Your contract with the
network when you get the show is you're going to watch the
spots. Otherwise you couldn't get the show on an ad-supported
basis. Any time you skip a commercial or watch the button you're
actually stealing the programming.

CW: What if you have to go to the bathroom or get up to get a Coke?

JK: I guess there's a certain amount of tolerance for going to the
bathroom. But if you formalize it and you create a device that skips
certain second increments, you've got that only for one reason, unless
you go to the bathroom for 30 seconds. They've done that just to make
it easy for someone to skip a commercial.

CW: What if I'm using my PVR to rewind a story on CNN or pause during
Moneyline With Lou Dobbs? That's good for you, isn't it, if I can keep
watching the network when I might otherwise miss the shows?

JK: Is it good for me? It's good to make it easier for consumers to
watch the programs they want to watch. I'm not opposed to consumers
getting a program without commercials in it. But they have to create a
new model that charges them for that programming the way HBO charges
them.

CW: Operators are putting PVRs in their boxes. A lot of people are
getting into this concept and operators are saying, hey, if people are
willing to pay for SVOD give us something we can sell. How do VOD and
SVOD fit in with Turner?

JK: Our company is working on a number of different VOD models. The
question's whether these are going to be head-end-based models or
in-home models and whether ultimately there's going to be a license
required for use of the copyrighted material, or whether people make a
bet the Betamax case can cover this usage. My bet would be the Betamax
case is not going to cover this usage. What was a highly questionable
decision with the new technology will not stand up to the potential of
the digital world. Whether there's going to be a challenge or whether
it's going to be legislation, there's going to be some way in the
digital world that we can protect copywritten material. I think that
that's inevitable.

CW: The New York Times has an electronic edition that disappears a
certain time after it's downloaded. Do you see a possibility that I
download that show and you give me a license to watch it three times
and then it disappears?

JK: Again, I think that whether it's legislation, whether it's new
technology, whether it's challenging Betamax, whatever it is in the
video marketplace, we're going to have to find a way to protect
copywritten material or there will be less of it made or it will not
be made available in windows where it's not protectable and that's not
good for consumers, so there's got to be some way it's protected. The
audio marketplace--Napster and other companies had a great game
going. They figured out how to use the Internet to give music away
that they didn't own and make it into a business. Everyone was
planning on getting rich there at one point. The companies that are
financing and own copyrights stepped in and challenged it, and it's
not a very rosy picture for them right now. I think the idea of
copyright is very important--and it's respected by the courts and our
government--and as people realize the potential of what the Internet
with digital can do in terms of distribution, I think there's a good
decision to be made that will protect the copyright.... Someone's
going to have to recognize that once we've entered the digital world
people can send out perfect copies without any costs to large numbers
of people in many different territories of the world [and] can
dramatically disrupt the system that we've built that allows us to
produce and distribute content and pay for it and make...a profit in
the investment, and that has to be addressed.

CW: Assuming this is dealt with satisfactorily and you feel
comfortable with the way content is being distributed digitally, what
are some of the models that might work for a Turner?

JK: We have classic films. We have Western films. We have a lot of
different things. We have original films every year that could go into
VOD. There's a lot of stuff that could go into VOD. We also have
exclusive windows for pictures that can go into VOD while we have
them. I think there's a lot of product in our networks that could go
into VOD.

CW: Would it be a revenue-sharing model that would work best where
every time I download something you get money and the operator gets
money?

JK: I think that these are new rights that have not yet been
exploited, and viewers are going to be moved eventually to the new
service. So I've paid money to exploit that picture on my service, so
I'm not going to let anybody else do it unless I've recouped whatever
loss I would have and make some money. The studio that has the
copyright that's licensed it to me is going to say that they need
something or they don't want you to do the deal, or they're going to
tell you "you don't have a right to exploit this new area," and I
would say they'd be right as well. The cable operator is going to say
that this is a new service that they're making available and they will
be entitled to make a profit. It's going to require a lot of
cooperation from a lot of different people to do it. At the end of the
day, though, it'll provide customer satisfaction for cable, more use
of the cable service and that's good for all of us. It's somewhat
inevitable. Hopefully the ad-supported network will be
protected...there was one button I heard of that could eliminate the
entire commercial pod. That would just remove all the network's
promotion, all the sponsors that paid for the film and obviously
that's not acceptable to anybody.

CW: If cable operators are putting PVRs in their boxes would you like
to see them make a decision that they're not going to put ad-skipping
PVRs in?

JK: Yes. Yes.

CW: Is this something you've talked to any of them about?

JK: I've spoken out about this a number of times. Again, it doesn't
handle the deal that exists. The only payment for a lot [of content]
is the willingness of the viewer to watch the spot, the
commercial. That's part of the contract between the network and the
viewer. For anybody to step in between that content and encourage the
viewer to disregard the payment in time that he's making--I think
everybody should fight those people...or let the viewer have a
subscription model where they pay for that, in which case the monies
can be taken in and distributed back to cover the loss of the ad
revenue. This is the time to honestly address it; also, for people to
deal with it. If you think it's something that's good for consumers,
give them the choice of either watching the commercials or paying
incremental money for the service and make sure that people in the
business understand the economic damage they can do by licensing this
product.

CW: If VOD were delivered with all the commercials intact would that
make you more comfortable with the concept?

JK: Yeah. The skipping of commercials is part of it. The second part
of it is whether anybody has the right to take product and deliver it
in a different way on a subscription basis by getting between the
consumer and the network that owns the product with the service.

CW: What if you're cooperating with the delivery?

JK: That's fine. If I've made a decision to do it, I'm licensing them
the product.

CW: Have you started to write in VOD rights in?

JK: Right now between networks and studios nobody wants to deal with
it because there's no real money there yet, and so it's not worth
fighting over quite yet. At sometime down the road when it starts to
grow, they'll start fighting over it.

CW: In doing research for this interview one of the few mentions I
found of Jamie Kellner and VOD was in a roundup that featured an NCTA
session about the future of VOD and a story about Fox adding a third
night of programming. Ten years later I'm sitting down to do an
interview and we're still talking about the future of VOD.

JK: I can only give you the network side of it. The network side of it
is to protect our business, protect our rights. We believe in the
value of copyrights and the licenses that we've got. The other side of
it is more of the Glenn Britt [chairman and CEO of Time Warner Cable]
side, which is probably where you should go for the other side of this
because mine is really not trying to get into the VOD business as much
as making sure it doesn't adversely affect the businesses I've got.

CW: If operators say to you "we want it," then you're going to find a
way to work with them.

JK: I encourage innovation, and I believe that we should try to
satisfy the marketplace, make it as easy and convenient for people to
get what they want out of their cable subscriptions, so I'm all for
that. I'm for multiplex and multiplay because in many ways it does a
similar thing, and it doesn't add in the cost of VOD. It's sort of
half a step in the same direction for those who don't want to take the
full step, and it's something that can be done relatively quickly and
easily. But I'm certainly not opposed, and I encourage the idea of
exploring new models with new technology that make it better for
people. At the same time, we have to make sure we don't damage the
existing businesses, whether it's pay-per-view business--what does it
do to that on the cable side--and that we don't damage the
advertising-supported networks, cable and broadcast.

CW: You were part of the fragmenting, in a sense, of the viewing
audience by creating new broadcast networks. PVRs, VOD, even PPV, all
of these things, are almost the ultimate fragmentation of an
audience. If we're all watching at different times, we can't have that
next-day "did you see what happened last night?" Does that change the
way you have to deal with things as a programmer?

JK: I don't think it changes the way you make programming. I think it
may change the way you market programming. If you have something you
really, really believe in and you have a large installed base of PVRs
out there, you may be willing to invest a lot more money on the
launching and the marketing just to get the PVR/VOD viewer to go home
and log in to receive the show because you can probably get a lot of
additional viewership. If you're against tough competition, you could
put a program against Friends and if there's a large PVR base you
could try to pick up people who are still going to watch Friends, but
will you watch the next half-hour, the next hour? You pick up People
magazine and see this ad for a new show and you see a lot of promotion
on the air and if it's a good enough idea maybe you go home and log in
on your PVR. You may get very aggressive at promotion because you have
two shots at getting people there versus one.

CW: Is there a problem right now because you don't know who's watching
on a PVR? Does that hurt you when it comes to advertising?

JK: No. You're not getting any Nielsen credit for it so it doesn't
help you. I think they'll eventually figure how to get around that,
how to measure them if there's enough of them out there. They'll make
sure they have a representative sample of PVR households.

CW: Operators are seeing an uptick in the amount of money consumers
are willing to pay for extra services.

JK: You test it and you see if the consumers embrace it. If the
consumers embrace it-- as long as everybody can get fully paid for
their rights--I'm certainly not going to fight something that's good
for consumers as long as there's distribution of the results.