continued: "CNE in Egypt: Some Light at the End of an Arduous Tunnel" by Joe S. Foote
page 1 | 2 | 3 | References

CNE’s Debut
After nearly three years of political wrangling, bureaucratic obstruction, and high-profile debate, CNE went on the air on January 10, 1991, just six days before the start of the Gulf War, with a free trial service for four hours each day for all Egyptian television viewers to see. On January 16 and 17, CNE broadcast 24 hours a day before falling back to eight hours daily after the 17th. The inauguration of CNE, delayed by several months, appeared to be highly auspicious since it coincided with the beginning of the Gulf War. For two and a half months, from January 10 to March 31, the unencrypted signal was on display for all to see, providing an eager public with round-the-clock coverage of events that vitally affected the life of every Egyptian.

No one could have conceived of a better promotion for CNE. Egypt had connected itself to the broadcast journalism mainstream at precisely the time that this linkage assumed extraordinary importance. While there was frustration with the decidedly American tilt to CNE’s coverage of the Gulf War, the immediate access to multiple information sources simultaneously largely made up for the network’s ethnocentric shortcoming. But the timing was not coincidental; CNN had been rushed on the air in response to the crisis, even though CNE was not yet ready to market the service, encrypt the signal, sell decoders, and collect subscriptions. CNE co-founder S. Abdallah Schleifer of the American University in Cairo (and a former NBC News Middle East bureau chief) feared that the auspicious beginning was in part a premature one. Schleifer worried about the possibility of letdown of interest in CNN after the war: “Once the Gulf crisis has been resolved, how many Egyptians will be interested in what’s happening on an ordinary day in China or Ecuador? Not too many” (Mishinski 1990). Schleifer was hoping for a residual appetite for CNE among Egyptians that would push them to subscribe when the encrypted service began later in the year.

Schleifer believed that the long delay by the ERTU in getting CNE on the air greatly hurt its financial viability. He said that the free test should have come long before the Gulf War, with the encrypted service beginning in mid-1990. Had this occurred, CNE would have been enticing paid subscribers at just the height of interest in having a global news service in Egypt.

Initially, the business prospects for CNE were highly optimistic; the consensus was that it would be financially successful. While the debate flourished among Egyptians about the effect of the service on their country, it was the affluent foreigner who would make or break this venture.

ERTU chairman Fathi el-Bayoumi forecast in September 1990 that CNE would have between 60,000 and 100,000 subscribers (including 10,000-15,000 expatriates) and an additional 10,000 hotel rooms. Schleifer’s forecast was equally optimistic. Hamdi Kandil predicted that individual subscriptions would peak around 20,000 and then decline: “The novelty element is more important than any other element in a foreign channel. After the novelty loses its impact, in the final analysis, people go back to their own national channels, which deal with local issues and problems close to their own heart in their own language. CNN won’t even have the influence of video recorders, which I think have a penetration of almost 40 percent of television receivers in greater Cairo” (Mishinski 1990).

CNNI’s Robert Ross acknowledged that viewers would be “measured in the tens of thousands” and that there would be a surge to buy the service, followed by a drop-off, followed by a promotional campaign to attract a second tier of viewers, perhaps non-American expatriates (Mishinski 1990). Language and economics would be two powerful constraints limiting the success of the service, even if interest ran high. The hotel market would be more stable than the subscriber market. Most major Western hotel chains had already bought into the CNN package worldwide. CNN research showed that the business traveler increasingly preferred hotels where the cable news service was available.

CNE investors assumed the financial risk of the enterprise, but the majority partner ERTU had the most to gain financially from CNE. ERTU officials were anxiously awaiting an attractive financial return to relieve the Egyptian TV deficit, which was becoming more onerous by the year. Although there would be grumbling about CNE from the rank and file at the ERTU, who saw CNN as an intrusion into their monopolistic world, the leadership clearly saw the economic windfall and the prestige of collaboration with a global broadcaster as outweighing any negatives the new channel might bring (Mishinski 1990).

Encryption Reality
Despite great expectations, CNE’s encrypted service, which began in the greater Cairo area on August 1, 1991, initially had fewer than 3,000 subscribers. Subscribers were limited mainly to embassies, hotels, expatriates, and a very small percentage of Egyptian elites. Schleifer said: “We lost our novelty. After the Gulf War, there was no more excitement, no crisis. Unless the news is very hot, no one cares. I overestimated the number of subscribers” (Schleifer 1995).

Within weeks of the launch, CNE organizers realized how difficult it would be to market a subscription service based on a single news channel. Expect in times of crisis or intense interest in news events, entertainment offerings were what subscribers wanted most. CNE management believed that the presence of a sports channel and an entertainment service acceptable to Egyptian standards would provide enough incremental value to entice reluctant potential customers to subscribe.

In 1993, CNE added MTV to its repertoire, offering viewers a service in addition to CNN International. While MTV was a controversial programming service in a country sensitive about violations of traditional Islamic moral codes, it was not a channel that would reach the masses. The elites could rationalize the availability of this kind of entertainment for themselves without fear of corrupting others. The arrival of MTV was the helpful for CNE, but no panacea; one thousand new subscriptions for MTV were coming from Egyptians, while it was mostly foreigners who wanted CNN (Amer, 1994). In June 1994, CNE began carrying the Space Channel from Kuwait, adding further value to the CNE package. The Kuwait channel did not attract many subscribers, but the $1 million yearly lease fee for the channel kept CNE from going bankrupt (Schleifer 1995).

By July CNE still had only 4,037 subscribers, far below what had been predicted and far short of profitability. That number did not represent the number of paid subscribers but the number of people with decoders. Nearly half of the four thousand were in the “non-active” category (CNE 1994). When CNE was just a concept under consideration by the Egyptian authorities, there were very few dishes in the country, perhaps no more than fifty, and most of those were in the hands of diplomats or well-connected Arabs with diplomatic papers so they could manage to get their imported dishes in past the customs office at Cairo International Airport. Meanwhile, hundreds of dishes shipped according to standard operating procedures gathered dust in the customs storehouse following their inevitable confiscation.

But by the time the UHF subscription service went on the air, Egypt had legalized the import of dishes; there were now thousand of Egyptian dish owners, and the numbers were increasing rapidly. Egyptians quickly learned that they could get a whole bundle of channels through the satellite, including Arabic services like MBC. If a satellite master antenna TV system was available in their apartment building, the cost would even be lower than CNE. Because CNN International was unencrypted on the satellite, dish owners were able to get free what CNE subscribers were paying for. CNE pleaded with CNN to encrypt, but it was still facing competition elsewhere in Europe from a number of unencrypted services and had no choice but to keep its service in the clear.

Relaunch
Faced with the rising tide of satellite competition, CNE seemed in a hopeless position; the best it could do was hold on to what it already had rather than hope for growth. In July 1994, CNE signed a contract with the South African satellite giant, M-Net, that had the potential to bring new life to the failing Egyptian service. Under the agreement, MultiChoice Egypt (MCE), a subsidiary of MultiChoice Africa, would provide a sophisticated subscriber management system and aggressive marketing of CNE, which would include a movie channel and sports in addition to CNN and MTV. MCE would bring strength where CNE had been weak: installation, bill collecting, subscriber management, promotion, and marketing (Amer 1994).

CNE was relaunched in November 1994 with a big promotional blitz. MCE offered new, improved decoders with remote controls, a much higher quality picture, and better and more varied programming. The new service also cut off the inactive subscribers rather than giving them free service as the previous management had done (Schleifer 1995). The arrival of MultiChoice Egypt has given CNE new life and an opportunity to compete as a viable company against satellite competition. Yet the infusion of South African talent and management style came very close to being too little too late. Satellites are clearly the dominant player in Egypt, and there were barely any more UHF frequencies available for a new CNE bouquet to utilize if it were to significantly expand the number of channels it could offer. An alternative might have been digital MMDS, which would have allowed anywhere from 10 to 25 channels. But a feasibility study by MultiChoice Egypt showed that MMDS would not be feasible for Cairo because of line-of-sight constraints caused by the city’s multiple high-rise buildings and the surrounding terrain (Schleifer 1995). continued

Next page: Missed Opportunities
page 1 | 2 | 3 | References