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Discovery, CBS eye-to-eye
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July 27, 1998: 3:45 p.m. ET
Media concerns form 50-50 venture to operate 'Eye on People' cable channel
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NEW YORK (CNNfn) - CBS Corp. and Discovery Communications Inc. are forming a joint venture to operate the 24-hour cable channel, CBS Eye on People, the two media concerns said Monday.
The partnership -- exact terms of which weren't disclosed -- represents a retrenchment of sorts for the Tiffany network, analysts said.
Since its launch in January 1997, the cable channel, which will be renamed Eye on People, hasn't turned a profit, losing roughly $2 million to $3 million every quarter, analysts said.
"It's a sign that their new management is focused on the bottom line," said Jeff Jones, broadcasting analyst at Donaldson Lufkin & Jenrette. "It wasn't going to be turned around soon."
In a conference call with the media, executives of CBS and Discovery told reporters the network already has racked up "significant" losses.
In the past, CBS executives have stated publicly that they were reviewing their options with regard to Eye on People. As a result, CBS approached the Bethesda, Md.-based Discovery Communications, which last month expressed enthusiasm about the partnership, said Donald Mitzner, president of CBS Cable.
Under terms of the agreement, Discovery will manage the network and has committed to match the investment made by CBS since the channel's inception. Any profits will be split on a 50-50 basis.
"We both will do whatever it takes, but it will be a while before CBS puts in any additional money," Mitzner said.
Mitzner declined to disclose the amount CBS has invested thus far, except to say that it typically takes $100 million to $150 million to build a cable network.
"We believe in this concept and we will invest with the goal of reaching break-even as soon as possible," which is projected in three to five years, said Johnathan Rodgers, president of Discovery Networks U.S.
But Discovery brings more to the table than simply increased investment spending, analysts added.
With the assistance of its parent companies, Discovery can help increase the distribution of the fledgling network. Discovery is 49 percent owned by Tele-Communications Inc. through its Liberty Media Corp. subsidiary and 24 percent by Cox Communications Inc.
The remaining stake in Discovery is split between the Newhouse family's Advance Publications Inc. and Discovery Chairman John Hendricks.
Eye on People has about 11 million cable and direct broadcast satellite subscribers, far below the cable industry's consensus estimate of 30 million subscribers that is needed to ensure the success of a network.
"The challenge for any new network from Eye on People to the Food channel is to continue to get broad-based distribution," said Christopher Dixon, analyst at PaineWebber.
"So if you are aligned with a joint venture which includes partners like Cox, TCI or Liberty, as new channels become available, new channel capacity becomes available. Clearly, Eye on People can gain needed distribution," Dixon said.
The joint venture will be overseen by an executive board with representatives of CBS and Discovery, which owns the Discovery Channel, the Learning Channel and Animal Planet. 
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