continued: "CNE in Egypt: Some Light at the End of an Arduous Tunnel" by Joe S. Foote
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Missed Opportunities
Clearly, CNE did not prove to be the financial bonanza backers anticipated; it had lost its first window of opportunity for success. There were six basic reasons why CNE never achieved its earliest promise: 1) involvement of the government sector in its development and management; 2) costly delays in launch; 3) technical, marketing, and management problems; 4) initial reliance on a single news service; 5) lack of public experience with subscription media services; and 6) arrival of direct-to-home satellite broadcasting sooner than anticipated.

CNE backers knew from the beginning that the Egyptian government through the ERTU would be involved in their enterprise. But they underestimated the impact and scope of that involvement. The initial proposal had limited the ERTU's share of CNE to 40 percent, but the final ownership agreement elevated the ERTU to 50 percent. Thus, the government had the ability to delay or recast management decisions at will. The public sector socialist management style typical in Egypt dominated the enterprise.

The delays in the launch of CNE proved critical. Had CNE been launched with its free trial early in 1990, the service could have turned subscription by summer of that year, just as Kuwait was being invaded by Iraq. The interest of Egyptians in this conflict would have been a huge boost to subscribership, no doubt pushing many middle-class Egyptians past balking at the high installation and subscription fees. While the January 1991 free launch was a huge publicity boost for CNE, it did little to bring subscribers to the service eight months later when the war was over. The delay also shortened CNE’s window between its launch and the arrival of satellite.

Technical problems plagued the channel from the beginning. A shortage of decoders, decoder signal noise, and a poor CNN signal from a Russian satellite provided disincentives to subscribe. Marketing of the channel was also lackluster, taking much of the bloom off the heralded launch. Management’s inability to move quickly without government approval exacerbated these problems, but more fundamental was the fact that in its first years, the management of CNE, nominally a private sector shareholder company, was in fact an extension of bureaucratic-style public sector management, with its corresponding lack of competitiveness and marketing sense. It was not until the relaunch of CNE in late 1994 that these problems would be corrected.

While it was difficult to sell CNE as a one-channel news service, it may have been difficult to launch any subscription service in Egypt. There was a strong heritage of free over-the-air TV and no experience with paying for alternative services. It was likely that most middle-class Egyptians felt no compulsion to start paying for media during tight economic times.

The arrival of satellite to Egypt much sooner than expected greatly shortened the window of opportunity for CNE. No sooner had the single-channel CNE service been launched than dishes appeared in the clear. The satellite boom automatically limited the potential for a relatively expensive subscription service. Even the December 1994 relaunch with its solution to most CNE problems, could not completely overcome the decisive advantage satellite distribution had over terrestrial subscription television in Egypt.

However, in the past few years CNE has begun to move successfully in two seemingly opposite directions. In November 1996 the company launched CNE DTH (direct to home), a pay-TV satellite service offering, at a slightly higher price than that of the older CNE UHF service, two very competitive bouquets. These were initially on the same satellite platform (PanAmSat); after a year-long separation that did CNE DTH little good, they are again on one satellite platform, this time that of Nilesat. The first bouquet consists of al-Awal, the ART bouquet for the Middle East, which means that CNE in its DTH operation can now move aggressively into the far larger market of Arabic-speaking dish owners or prospective dish owners. The other bouquet is that of Viacom’s Showtime, which includes Discovery, MTV, Nickelodeon and Paramount (American sitcoms), TV Land, (TV action series), the Movie Channel, Style (women’s features, celebrity profiles), Set (the Sony entertainment channel in the Filipino language for expats), and Hallmark (made-for-TV movies).

The marketing of two allied bouquets provides a strength born of flexibility. Strictly Arabic-speaking viewers do not have to pay for the English-language programming in the Showtime bouquet, while strictly English-language speaking expatriates who will be attracted by Showtime do not have to pay for ART’s al-Awal. But for English-speaking Egyptians, CNE DTH can now offer a package to compete with Orbit, which has its own blend of English-language and Arabic programming, something that ART on its own or Showtime on its own never could do.

At the same time, MultiChoice Egypt has undertaken over the past few years an aggressive and imaginative private-sector-style marketing campaign on behalf of CNE’s original, terrestrial UHF service, under the direction of Khalid Abu Nuwar, a hardworking and efficient Jordanian marketing expert. Reinforcing that campaign has been the commitment (a dynamic one on the part of the private sector minority shareholders in CNE, and with acquiescence and even growing sympathy and understanding on part of the ERTU representatives on CNE’s board, now headed by ERTU chairman Abdel Rahman Hafez) to improve the content of CNE’s terrestrial network. M-Net, the CNE movie channel provided by MultiChoice South Africa, is showing more and better movies. More, because the amount of program time on the M-Net channel set aside for K-TV (the children’s channel) has been reduced. The CNE terrestrial sports channel, SuperSport, has not only gone from 12 hours to 24 hours, but its programming has also been improved, with MultiChoice management arranging for hotswitching from its three different sports channels that are provided to various markets throughout the African continent. The result of the hotswitching has been much more football (soccer to Americans and the game of games to Egyptians) as well as more tennis (which has a following in the sports clubs, where MultiChoice Egypt has been staging promotional events) and less rugby and cricket. That was possible because this past year, when the Kuwaiti TV contract expired, MTV, which had shared a channel frequency with SuperSport, migrated to the former Kuwaiti TV position.

Right now it shares that position with a new channel, Style, which is in effect a terrestrial showcase for Showtime's DTH programming. It features a mix of women’s programming, American soap operas and American serials. Showtime offered the programming to CNE at most favorable terms in order to aggressively use the channel to promote its DTH service, a marketing practice that observers in Cairo believe ART would be wise to follow. ART will have the opportunity to do so if it wishes within a few months, when CNE acquires the one, final available UHF frequency from the Egyptian authorities. At that time Showtime will provide 15 hours of daily programming and the balance, according to CNE plans, will be Arabic movies. Arabic movies happen to be an ART trump card, since ART’s various sister companies hold the rights to most Arab movies. As a result of all this promotion, CNE’s terrestrial subscription base has quadrupled since the MultiChoice Egypt relaunch of CNE, and CNE has had a net profit for the past three years to show for these efforts.

But the “MultiChoice miracle,” as one CNE shareholder put it, is particularly “miraculous” since it goes against the grain. Every day more and more Egyptians buy dishes, every year those dishes become smaller and cheaper, and every couple of years the number of satellites with footprints that include Egypt increases substantially. This means the future for CNE is not terrestrial, despite the recent surge in subscriptions, but in its DTH venture, which will soon not only include entertainment and news on Showtime and al-Awal but inevitably pay-per-view, home shopping and internet facilitation (an important area given the limited conventional telephone-driven internet service in Egypt and the rest of the Arab world). In that sense, CNE terrestrial’s rapidly rising subscription base will inevitably stabilize at best, or at worst enter into an eventual state of deterioration and loss of income.

Conclusion
The transformation from an exclusively state-run government television system to a multi-channel environment with foreign news programming was a major development for Egypt in 1990. For a country not prepared to allow unlimited signals through direct satellite broadcasting, the UHF subscription broadcast was the least risky alternative. The CNE prototype also conformed to Egypt’s highly centralized tradition in mass communication. The system allowed the government maximum control with little financial risk. CNE investors, meanwhile, received exclusive entry into a market ripe for alternative media.

Despite clear dissatisfaction with the quality of Egyptian television and the impetus gained from the Gulf War, CNE was not initially a financial success. Investors and government officials badly misjudged the demand for the CNN product. Financial, technical, and language constraints were more formidable than expected. Government delays and changes of direction proved very costly. After encryption of the service, the bold forecasts for instant success quickly faded. Even after adding MTV and the Kuwait Space Channel, CNE did not gain more than 4,000 subscribers. While CNE made incremental improvements in its service, the arrival of satellite dishes and the access they provide to scores of channels put the subscription channel in an insecure position.

The launch of CNE in late 1994 under the auspices of a South African satellite programmer and distributor seemed to be the only chance of making CNE a viable enterprise. What started as a means to deliver CNN to the Egyptian public was transformed into a multi-channel subscription service offering sports, movies and TV serials as well as CNN. The improved programming, coupled with new management, has dramatically increased the number of subscribers and made the operation profitable, although the number is still far from the over-optimistic projections in CNE’s start-up period. One could argue that investors could never have convinced the Egyptian government to start a news, sports, and entertainment service, but CNE’s initial setback forced the ERTU into a broader service to recover its investment. Having ERTU as a principal stockholder gave CNE its best opportunity for long-term success, but it also brought the most difficult obstacles. Clearly, having the challenge of going first into privately owned commercial media, with all of the government anxiety that accompanied it, was an almost fatal constraint for CNE.

In a world dominated by satellite-delivered services, the UHF subscription service of CNE—despite the recent surge in subscriptions—has an uncertain future. Yet, it can offer local programming far more easily and more economically than a satellite service. Also, terrestrial or wireless cable subscription services are appealing to the government because of the ability to limit certain types of programming (which is not possible with satellite delivery), although now that the Egyptian government has launched its own commercial service, and with CNE DTH’s two bouquets ART al-Awal and Showtime, these considerations are becoming less important.

Like most first efforts to break a government broadcast monopoly, CNE paid a heavy price to get on the air. Delays in regulatory permission, over-involvement of the Egyptian government, first-time mistakes by local entrepreneurs, overly optimistic assumptions about the popularity of a single-service news channel, and lack of a robust consumer base all handicapped this new channel’s development. In a fast-changing environment, improved technology, cheaper access, better delivery systems and greater programming options can quickly eclipse even the best of pioneers with the best of ideas. Being first in the market with a new service can be an enormous advantage, but the case of CNE shows the significant liabilities associated with pioneering ventures as well. TBS