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New cable TV channel aims to reel in film fans

The network devoted to movie news and reviews will require patience as well as deep pockets if it's to become profitable within a crowded field.

January 04, 2007|Meg James | Times Staff Writer

What better place to launch a cable channel with the lofty ambition of being the authority on movies than in the industry's own backyard? From its headquarters at the bustling Los Angeles Center Studios downtown, the new ReelzChannel resides in a complex where countless commercials, TV shows and movies are shot every year.

Hubbard Media Group, a pioneer of satellite television, is placing a big bet that the channel, which began airing in late September, will have one of those feel-good Hollywood endings.

But that may require some pixie dust, considering that the channel already has burned through more than $25 million during six years of gestation and in gearing up for its launch.

"This has been a very expensive, high-risk venture, but we're committed to it," said Stanley E. Hubbard, chairman of Hubbard Media, the privately held Minnesota company behind ReelzChannel. "We are prepared to continue to fund losses for another year, perhaps more."

Launching a channel today requires patience and deep pockets. Studies have found that most people watch only about a dozen or so channels on a regular basis even if they have access to more than 100. As a result, cable operators are devoting bandwidth today to phone and Internet access services, high-definition television and video on demand rather than to adding to their well-stocked lineup of channels.

"It's a tough, tough world out there," said Derek Baine, cable analyst for Monterey, Calif.-based Kagan Research. "And this is not one of those rinky-dink, no-capital start-ups. It just shows how difficult it is these days to get cable carriage."

No one should understand these dynamics better than the Hubbard family, which has been in the broadcasting business for more than 80 years and made a fortune from its investment, alongside General Motors Corp., in DirecTV. The leading satellite TV provider is now owned by Rupert Murdoch's News Corp., which recently agreed to sell it to the cable enterprise controlled by John Malone.

The Hubbards sold their interest to DirecTV in 1999 for $1.6 billion and have since been dabbling in the content side of the business. In August, the family teamed up with a group of investors, including movie moguls Harvey and Bob Weinstein, to buy Ovation, a tiny cable channel devoted to the arts. The new owners are gambling that the network could attract an affluent audience that advertisers would pay a premium to reach.

The ReelzChannel, on the drawing board since September 1999, was a bet that emerging digital technologies would change movie-viewing habits as consumers embraced the conveniences of Internet download and video-on-demand services to watch movies at home.

What could be more alluring to a cable operator trying to get traction for such offerings than a channel that delivered in-depth news and reviews about movies and DVD releases? ReelzChannel and its website were designed to help steer viewers to movies playing in local theaters or on TV.

The challenge for the Hubbards was convincing distributors that ReelzChannel was economically compelling.

"Right from the get-go we knew that we would have to come up with a different approach," said Gary Thorne, ReelzChannel's president and chief operating officer.

The solution? Reelz would sacrifice a key source of revenue -- one that helps underwrite channels, especially in the early years, before it turned a profit.

To entice cable operators, Hubbard decided to forgo the monthly subscription fees that content suppliers typically charge distributors to license their channels. Instead, Reelz would rely solely on ad sales.

When ReelzChannel went live in late September it was available in 28 million homes, making it one of the largest debuts ever for a cable channel. Most new channels start out with about half that number of subscribers.

The Hubbards had the advantage of a long-standing deal with DirecTV that gave them access to a channel slot on the satellite service. That gave Reelz about 15 million subscribers even before it went on the air -- leverage it used in negotiating with DirecTV's satellite and cable competitors. Hammering out distribution agreements with cable operators such as Time Warner Inc. and Comcast Corp., however, took years, delaying the channel's launch.

Despite its impressive reach today, ReelzChannel has a ways to go before it reaches the 40 million subscribers that advertisers generally require before they take a channel seriously. The channel's goal is to be in 45 million homes by the end of 2007.

Eventually, the channel would make sense for such big buyers of ad time as Hollywood movie studios, automakers and fashion marketers -- essentially any business that caters to so-called early adopters eager to be on the leading edge of a trend.

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