Tracing the hidden costs of BSkyB’s ‘bonus’ Disney service

I learnt a new phrase last week: “full line forcing”. I heard it from Mark Beilby, media analyst at Deutsche Morgan Grenfell, who got it in turn from the diamond trade.

There, it apparently means extracting every last ounce of value from your stocks by selling the dross alongside the gems – using the desirable goods as leverage to persuade buyers to take the less desirable as well.

In the world of the media this is precisely what Disney is doing with the launch last Sunday of the Disney Channel. For every Snow White or Lion King in the Disney catalogue, according to Beilby, there are plenty of routine or even second-rate shows. Broadcasters around the world might think twice about buying them. Starting a channel, 60 per cent of whose airtime is devoted to the company’s own product, is a way of ensuring that even Disney’s duds make money.

It is this kind of thinking that lies behind the continuing spate of media mega-mergers.

Giant companies such as Disney (which, following its merger with US television network ABC, was briefly the biggest media organisation in the world, though it has since been overtaken by the merger of Time-Warner with Ted Turner’s empire) are chasing vertical integration and getting into the business of broadcasting as well as making programmes because they believe it gives them greater strength when it comes to exploiting their assets – especially their back catalogue.

Personally, I’m not convinced. It seems to me that, if you have a brand name as strong as Disney, other broadcasters will quite happily buy even your second-rate product and you can always threaten to sell The Lion King to their rivals if they don’t.

What’s more, Disney’s new channel risks competing with other Disney businesses in the UK – if not with cinema exhibition of the latest animated feature then with its exploitation on home video, with sales of the CD or with broadcasts on GMTV (in which Disney has a shareholding).

Of course, humble pundits should not try to second-guess the thinking of Hollywood colossi such as Michael Eisner, the boss of Disney, who earns roughly two thousand times as much each year as me. But, whatever Disney’s strategy in launching its own channel, what effect will it have on the wider UK media scene?

There are two important points. The first is that the Disney Channel will not carry advertising. Any audience it attracts – not only the kids but also their mums and dads, attracted by the likes of Elton John concerts and Disney’s grown-up movies, shown in the evenings – will be an audience lost to advertisers. That’s further bad news for the ITV companies and for those cable and satellite channels which carry ads, and further fuel to the fire of the doom-mongers in the world of advertising and marketing who believe conventional television is quietly expiring under the onslaught of the new media.

The second point is that BSkyB will offer the channel (at no extra cost) only to existing subscribers paying for its two movie channels, who are typically young families with children and thus just the market Disney is after.

The new channel will, according to the industry jargon, be a “bonus premium” service. The advantage of this from Disney’s point of view is that it secures immediate access to 2.7 million homes – whereas if it tried to launch as a stand-alone premium subscription service it might take several years to reach that level of penetration.

But where lies the advantage for Sky, which is reported to be paying Disney 80 pence per subscriber per month but getting no additional revenue? The answer may lie in the forthcoming launch of digital satellite services and pay-per-view.

BSkyB is extremely worried about the impact on its existing analogue business – which is very profitable indeed – of a whole raft of new digital channels. Encouraging folk to go out and buy an expensive new decoder and to sign up for exciting new digital services is all very well – provided they don’t stop paying for their existing subscriptions in order to afford it.

Throwing in the Disney Channel for free provides an added incentive for analogue film subscribers to stick with it, even when they are also being offered some of the same films, perhaps, on a digital pay-per-view or near video-on-demand basis.

Actually, of course, the Disney Channel will not be a free extra for very long. The cost of subscribing to BSkyB’s movie channels is scheduled to increase from 19.99 to 21.99. In addition, the cost of subscribing to Sky’s basic package will be hiked to coincide with the launch on November 1 of a further six channels, including the Playboy Channel, a sci-fi channel and a “gold” sports service.

But Disney, with its world-famous name, remains an important weapon in BSkyB’s battle to launch an entirely new digital television era without cannibalising the revenues of its existing business.