Ziff-Davis aims to strike gold when the boxes merge. But would you watch a show about hard drives?
An amazing dance is unfolding on my television. Kate Botello and Leo Laporte, ZDTV's Screen Savers, are trying to help a viewer with some kind of download problem. The guy, from North Carolina, is streaming in live via Netcam. Leo looks concerned and friendly in a Father Knows Best kind of way. Kate's another story. She bounces. She smirks. Her eyes pop. Her head swivels and nods. She punctuates every remark, hers or Leo's, with full-on body English.
Sitting on my bed in the Comfort Inn in Wahpeton, North Dakota, I'm swept for a moment into the sphere of her buzzing, loopy TV aura. And I'm coming to understand the fabulous, ludicrous phenomenon of ZDTV.
Why Wahpeton? Among the town's other distinctions (it marks the merging of the Otter Tail and Bois de Sioux Rivers to form the Red River of the North, and is a center of sugar-beet harvester manufacturing), Wahpeton gets ZDTV and 100-odd other cable channels. In my own town, on the shores of San Francisco Bay, we don't get Ziff-Davis's 24-hour cable computing network. If I want to see what's on, I have to get a satellite service or horn in on a friend's TV time. But no one in my nationwide network of pals gets ZDTV either.
In fact, Kate and Leo and the nuggets of computer wisdom they proffer can be found on only 227 of roughly 12,000 US cable systems. Though in the first eight months after its launch last May ZDTV signed deals making it available in nearly 10 million homes, that's another way of saying it's unavailable in 89 million.
As The Screen Savers – computer tips and first aid for us budding Botello groupies – gallops along, I ponder the question that, indirectly anyway, prompted my trip to Wahpeton. What was Ziff-Davis thinking? Sure, there's some sort of technology audience out there. And yes, there are legions of people just waiting to get a life who might gravitate to something like this. But all tech, 24 hours a day, seven days a week? You gotta be kidding.
As it happens, there was more than an urge to burn cash behind Ziff-Davis's 1997 decision to expand its TV production operation into a full-time network. With 26 computer magazines and 60-plus trade events a year, the company dominates the world of computer media. In print, PC Magazine's 1.2 million circulation and claimed readership of 6 million gives Ziff a category dominator. On the Web, 7 million individual monthly viewers make the company's ZDNet one of the busiest nonsearch sites. As CEO Eric Hippeau says, TV was "a natural next step."
The aim was to build the first cable destination for computer and Net users, Hippeau says, to join the array of narrower and narrower special-interest channels that have popped up on cable in the '90s. ZDTV would feature six hours of original programming shuffled in a cycle of four six-hour blocks. Eleven months after launch, there's still no one else focusing solely on high tech.
That leads, ZDTV CEO Larry Wangberg argues, to what's called "an endemic advertising opportunity" – a group of big, wealthy companies who can find the same high-end technology consumers Ziff delivers to its print accounts. ZDTV launched with 20 charter advertisers – including Microsoft, Dell, Intel, Hewlett-Packard, and Gateway – and now boasts 38.
"Some networks that have been around for years still haven't figured out what their natural advertising opportunity is," Wangberg says. "For us, it's very clear-cut."
But the company's calculation goes deeper than a ready-made viewership and a passel of natural advertisers. Hippeau notes that Ziff-Davis and its parent, Tokyo-based Softbank Holdings, along with new ZDTV investor Paul Allen, all have had an eye on the convergence of television, the Net, and interactive services. "Clearly, we're positioning ourselves to take advantage of that," Hippeau says. "And we have a lot of expertise and a lot of content that is extremely suitable for delivery through cable."
The macrodemographics of PC ownership, cable subscribership, and tube use (about half of US homes have computers; about two-thirds get cable; and a recent Media Metrix survey found that in 17 million homes the PC and TV are in the same room) suggest PC-TV crossover of some kind is looming. Technological convergence, albeit still an untidy knot of initiatives that involve bringing more bandwidth to the home on one hand and merging the TV-viewing and Web-surfing functions on the other, is beginning to build momentum. But those developments are matched by a form of convergence that's even simpler: Technology users new and old are so immersed in the PC experience that their appetite for it extends beyond the machines themselves. Users' interest in how their boxes work, how to get the most out of them, how to revive them when they die, and, increasingly, how to negotiate life and work on the Net have combined to fuel a giant how-to industry in print and online – big enough, one might sanely bet, to provide an audience for always-on TV.
An audience, say, for The Money Machine – tech, finance, and you – wherein we learn that, our nascent ecommerce utopia aside, a mall crawl still beats online shopping for most merchandise and services. Or Zip File, hosted by two neon-bright digital characters, Tilde and Dash. This show "compresses" selections from the channel's other programs – ZDTV, one presumes, for people who don't have time for ZDTV.
In Wahpeton, my shopping choices include JCPenney, a computer store, an arts 'n' crafts mall, a pair of liquor stores, and a big discount center called Pamida, where I've found a set of bargain long johns. But no one around Pamida resembles the busy, rich geeks that The Money Machine is targeting. Ten miles off the interstate, this town is just big enough to smudge the night horizon with its glow. How the hell did ZDTV get here?
A short course in cable-affiliate sales, the process of wheedling and cajoling that leads to becoming Channel 294 in Wahpeton: First you visit parent companies – unloved household names like TCI and Comcast and Time Warner, which are known as multiple-system operators, or MSOs. You negotiate what Wangberg is fond of calling a hunting license. That gives you the right to traipse cross-country trying to convince the MSOs' operators in places like Tuscaloosa, Kennebunkport, and all 24 Springfields that you have something their viewers don't know about yet but are nevertheless barely able to live without. The pitch is backed up by other considerations: How much of a launch fee, if any, you're willing to pay the operator to get a position in its lineup. How much you'll charge in license fees once you've secured a spot. What kind of fringe benefits – free airtime or promotion, an ad-revenue split, equity, or some other perk – you might offer. The goal is to get into as many of the roughly 66 million US homes with cable and 10 million with satellite dishes as possible.
It's not easy. Shelf space – available bandwidth on local cable systems for new channels – is scarce, and competition bloody. CNN, ESPN, Discovery, MTV, and the like, regarded as gotta-haves by most operators and their audiences, wield enormous clout. They can charge sky-high license fees – ESPN's rate card is reportedly 80 cents to a dollar a month per system subscriber. They can buy distribution with huge launch fees – Rupert Murdoch's News Corp. is said to have spent $10 per subscriber to get space for Fox News, for instance. The cable networks can also lean on operators to give space to their new channels (think ESPN2).
Halsey Minor, who founded CNET in 1992 with the aim of building an all-computing TV network, notes that it's the hefty license fees, not ad revenues, that often make the difference between black and red ink for even the established players. "No one knows," he adds, "what the model looks like for building a cable channel that has to live off advertising in a 150-channel environment." Those daunting realities led him to refocus CNET, now a Web portal with a modest TV presence that serves mostly to build brand recognition.
ZDTV is hammering on something that looks like a model, though. In the nine months after launch, the channel struck distribution deals with 12 of the top 20 MSOs, companies controlling 90 percent of all cable households. Those deals give the channel the right to negotiate with the firms' local operators. By scrabbling through small-town America, searching suburb by suburb in big metro areas, and signing up DirecTV and EchoStar's Dish Network satellite services, ZDTV managed to extend its reach from fewer than 1 million households last May to 10 million by January. Larry Gerbrandt, senior analyst with Carmel, California, media research firm Paul Kagan Associates, says that most start-ups "would kill for ZDTV's numbers."
But there's a catch. The company's VP for affiliate sales and marketing, Mike Mason, acknowledges that a quarter of the 200 local operators who've picked up ZDTV have made it part of their digital, rather than basic analog, offerings. That's very cutting-edge, and people at the channel gush over how rapidly the industry is deploying digital set-top boxes (about 1.1 million are in homes now, according to Paul Kagan Associates; Gerbrandt estimates growth to 10 million "within a couple of years"), but for now, being digital means being limited to a fraction, 10 or 15 percent, of each system's subscribers.
The value of getting on analog channels is underlined by the fact that ZDTV often offers its programming free for the first few years to operators who will carry it analog. For operators who have given the channel a digital slot or made it a premium, or tier, offering, Mason says, ZDTV charges 8 cents a household, a rate it will increase 5 percent a year.
The real hitch is, there's no way to tell how many people in those 10 million households are watching ZDTV. Nielsen Media Research generally doesn't track channels until they reach 2.9 percent of the ratings firm's metered households, and the newcomer's not there yet. Wangberg says advertisers are signed on for the distribution promises – 16 million to 18 million subscribers by the end of '99.
Avis Althoff made my introduction to Kate and Leo possible. She's the office manager for TCI's system in Wahpeton and its twin city, Breckenridge, Minnesota. In her mid-40s, she's short and alert but, despite her name, not at all birdlike.
Avis has been managing the cable system, which she says has an 86 percent subscription rate among the towns' 15,000 or so residents, for 16 years. "I'm a hometown girl, and most of the people have known me since I was in diapers," she says. She has a habit of describing all of TCI's offerings as "wonderful" – its basic 17-channel lineup, its basic expanded 52-channel, its panoply of digital packages. And her system is a bit more of a community service than those in the big city. "People know me well enough that if they see me in the grocery store, they'll say, 'Hey, I'm having a problem with my cable.' I'll say, 'OK, we'll check on that.'"
The very high subscription rate (the Cable Television Advertising Bureau puts the US average at 70 percent) is a tribute to nature. Butch Moteberg, TCI's manager in nearby Grand Forks, says winters that show up in late September and refuse to leave until April or May keep people in front of their sets. Most people want cable because they can get only four or five broadcast stations, channels coming from so far away across the table-flat Red River valley that even the shelterbelts of trees that line farm fields in the area can block their signals.
What Butch and Avis are telling me is that their towns are ideal cable markets. But digital – despite the "wonderful" features like parental control and the ability to set reminders that your favorite programs are starting – isn't a big seller yet. Maybe it's the price – a $15 jump over the basic expanded package – or maybe it's the fact that the basic expanded service is so wonderful, but just under 10 percent of Wahpeton's subscribers had gone digital by Christmas.
Which pretty much explains why I haven't happened across anyone in town who gets ZDTV on cable. Digital isn't in the bars, the restaurants, or my motel. After watching a little bit of the computer channel on her office set, I tell Avis I'm crestfallen that I can't see more. She eyes me. "Well, you know, you could borrow one of our set-top boxes," she says. Try to imagine this happening in a major city. "I'm giving you my last one," she says, "and it's a $500 box."
In the midst of a tough turn in its print-publishing business that led to a 10 percent layoff last fall, Ziff-Davis said late last year that the tab for running ZDTV in 1998 came to $55 million and that it was spending about $30 million more to buy out Softbank CEO and chief Ziff stockholder Masayoshi Son. In December, the company announced plans to "unlock the value" of its ZDNet by taking it public – a further indication that despite a huge load of debt, the publisher is steadily banging the drum for new media. If only for the benefit of Wall Street, Ziff's Web operations are on parade, all dressed up as the future.
And so is ZDTV. Mason, the affiliate sales chief, says another big ZDTV selling point is its value as a service provider for cable operators headed toward their new role as technology companies. In the slowly gestating future anticipated by outfits like @Home, cable is America's high-speed data pipe. (See "Fat Pipe Dream," page 148.)
"When I was at HBO in the '80s, you could go to a cable guy and say, 'How can you call yourself an entertainment provider if you don't have HBO?'" Mason recalls. "Well, today, he wants to be a technology provider, and I think it's a pretty legitimate question to ask: 'How could you be a technology provider without having a channel like this, dedicated to computers and the Net?'"
Of course, ZDTV is offering operators more direct services, too. "The other thing we bring to cable operators is a menu of marketing solutions for selling cable modems and high-speed access," says Mason. "We offer them a preemptable half hour every day on our air – literally an infomercial for cable modems."
Insofar as bringing cable operators into the computer age is a viable service, even CNET's Minor concedes Ziff-Davis has a head start. No other tech media company is pitching itself quite the same way. On television, CNET has four shows it puts out on two widely distributed cable channels, the USA Network and the Sci-Fi Channel. Minor says the shows have a weekly audience of 2 million-plus. And then there's the Jones Education Company, an Englewood, Colorado-based outfit that shows several hours of computer programming every day on its cable channel, Knowledge TV (household reach: 26 million). So competition in the niche isn't a factor. And if success is a question of staying power, of having the will to spend until the channel succeeds, Ziff-Davis purports to be committed. CEO Hippeau, asked whether the venture can outlast the downturn in the company's core print business, is firm: "Look, it's a long-term investment. I would not want to put a real time line on it, but we are ready for a multiyear investment."
After six hours, I'm getting videologged. Internet Tonight, ZDTV's Web-lifestyle show, features a short segment on a defunct Web site that focused on rude driving in the Santa Cruz Mountains. Then ZDTV News rolls by. Reporter Luke Reiter, who with law-school pal Alex Wellen does the channel's CyberCrime show, is startlingly commanding in a brief news spot – kind of like seeing Harrison Ford show up on local cable access. Elsewhere on the tube, the story of the day is the US-British attack on Iraq, and ZDTV chimes in: Editorial director Jim Louderback does a segment on an alpha version of a Persian Gulf combat-sim game. And the point is … not clear. Perhaps the audience would like to act out its own attacks on Baghdad?
A couple of other things have been happening onscreen. Netcams are used for station promos and, wherever possible, on programs to bring viewers into the mix. And the day I happen to watch is chat day. Hundreds of viewers spouting the usual chat-room profundities – "Kate rocks!" – get a scrolling piece of screen real estate.
These charming features represent ZDTV's attempt to walk the walk about building community. Every day, the channel features viewers live (or by video mail) from their home or work PCs. Last spring, ZDTV began a promotion with 3Com to give away 10,000 Webcams as a way of creating a sort of Studio Everywhere. During "Netcam week," 35,000 people signed up for a free camera on day one. Suddenly, it looked as if they were bringing down the walls – like the glass one between Katie Couric and Today show gawkers on Rockefeller Plaza in New York – that have always stood between programmer and audience.
What do the Netcams do for ZDTV's bottom line? Hard to calculate. But there's no question that to earn itself even a footnote in media history, ZDTV has to offer more than a primitive audiovisual device that makes the worst dub you've ever seen in a foreign film seem like flawless sound syncing.
Next morning, I return the cable box to Avis. I'm longing to compare notes with somebody, to hark back collegially to yesterday's hour with Kate. But Avis, I know, has never seen her. So far, not one person I've met, save a TCI technician who doesn't even own a computer, has watched ZDTV.
So before leaving Wahpeton, I hit the only place in town where I feel sure I'll find someone: the North Dakota State College of Science. I climb the steps of an old red-brick hall that was the campus's original building back in the 1890s and find the computer center just inside the doorway. I approach the center's tech-support per-son – a relaxed-looking, slow-smiling guy named Steve Oakland – with the unpromising icebreaker, "Have you ever heard of ZDTV?"
"Oh, yeah," he says. Score. He says he lives up toward Fargo, beyond the reach of the local cable systems, and gets the channel on DirecTV.
"I turn that on every night when I get home, and it stays on until I go to bed," Steve says. He's a fan of Kate and Leo – refers to them by their first names – and confides that he sometimes wonders why, "when I have all these umpty-ump channels, I'm watching only this one."
His answer: the mix of "computer stuff," news, and Internet info.
ZDTV has scored: Steve has found his destination channel. All that remains is to multiply him by 10 or 20 million.
