Weather Channel buffeted by changing habits

2004 332,000 463,000 52.2

2005 334,000 464,000 51.5

2006 260,000 370,000 52.3

2007 269,000 372,000 53.8

2008 271,000 350,000 53.6

2009 238,000 329,000 53.8

2010 255,000 361,000 54.8

2011 263,000 357,000 56

2012 231,000 318,000 57.7

2013 213,000 276,000 58.8

SOURCE: Nielsen Media Research

With the recent snow storm in Georgia, the Weather Company found a big story right in its backyard. A correspondent stood outside the channel’s Cobb County headquarters to report the snowfall. Workers shot footage of nearby commuters trapped in the gridlock.

To CEO David Kenny, this storm, which the Weather Channel dubbed Leon, proves why the network still matters.

Kenny is counting on viewers to see that.

The Weather Company, parent company of the Weather Channel, is now facing arguably its biggest challenge in its 32-year history.

The network last month couldn’t come to an agreement with El Segundo, Calif.-based DirecTV. The major satellite carrier demanded a reduction in the fee it pays to air the Weather Channel. The Weather Channel wanted a small increase. “There was never a negotiation,” said Kenny. “It was a take it or leave it position.”

On January 13, DirecTV blacked out the network to its 20 million subscribers — or one-fifth of the Weather Channel’s audience. DirecTV said the Weather Channel’s price is too steep, given its declining ratings. People’s habits have changed, DirecTV officials said. They spend more time checking weather on their smartphones than on TV.

The Weather Channel decided to fight back aggressively. The network called DirecTV’s move a public safety concern, saying subscribers are being deprived of potentially life-saving information. Weather Channel officials encouraged fans to contact their congressional representatives to express outrage.

“We’re a good value,” Kenny said. “It’s a network a quarter of the population watches every day, yet we don’t charge very much.”

The network, he notes, employs more meteorologists (220) than any other private-held operation and has invested tens of millions of dollars in technology, research and infrastructure. It offers valuable forecasting services to everyone from financial firms to airlines to local radio stations. And its digital operations have grown sharply.

The Weather Channel app is the seventh most popular app of all time on the iPhone and second most popular app on the iPad, according to Apple. Its website received 61 million unique visitors in December, 2013, making it one of the top 25 most popular websites in the U.S., according to comScore.

Kenny said the company has diversified over the years and even changed its parent company’s name to The Weather Company in 2012 to reflect that.

The Weather Company — owned by a consortium consisting of private equity firms Blackstone Group and Bain Capital, as well as Comcast Corp.’s NBCUniversal Inc. — does not reveal revenues and profits or how much it generates from the cable network. Moody’s Investors Service estimated last month that the Weather Channel accounts for 50 to 60 percent of Weather Co.’s total revenue.

Data research firm SNL Kagan estimates the network charges carriers 13 cents per subscriber per month and was seeking an extra penny from DirectTV.

DirecTV, according to the Wall Street Journal, was seeking a reduction of about 20 percent, which SNL Kagan recently said could reduce the network’s annual cashflow by about $40 million or 24 percent since such a cut would impact deals with all distributors.

The Weather Channel costs DirecTV relatively little compared to networks such as Atlanta-based TNT ($1.21 per month) or TBS (59 cents) and the big man in the room, ESPN ($5.06), according to SNL Kagan estimates from 2012.

Then again, the Weather Channel doesn’t draw as many eyeballs as those networks. This month, the station ranked 54th among all basic cable networks with 237,000 viewers, comparable to CMT and Oxygen.

Worse, Weather Channel ratings have slipped, especially in recent years as weather fans found alternatives. Average viewership in 2013 (213,000) is down 19 percent from 2011 and down about one third from a Hurricane Katrina-boosted peak in 2005. The average age of the viewer has edged up, too, from 52 in 2003 to 59 last year.

When the network debuted in 1982, it was considered an indispensable part of the cable menu when other options to find immediate weather information were limited. By August 2013, Nielsen said the Weather Channel had the deepest penetration of any cable network, reaching about 100 million households.

But in recent years, its viability has come into question. To bring in more viewers, the network added shows featuring the Coast Guard and gem prospectors. It even aired weather-themed movies such as “The Perfect Storm” for a brief time.

Terri Valery Copeland, a 50-year-old Kennesaw small business owner, said she has lost faith in the channel because it no longer focuses on hardcore weather as much as it used to, thanks to its reality programming. Denis Rand, a 39-year-old musician from Atlanta, feels the channel tends to over hype the weather.

And other options have multiplied. “Even if there’s a big storm, I can watch coverage local TV or CNN,” said Dunwoody apparel entrepreneur Larry Peck, 50. “They’ve become irrelevant.”

He said they are, in effect, cannibalizing themselves. Peck checks the Weather Channel app on his iPhone or the website on his laptop every day. When the storm hit last month, he said he checked weather.com at least a dozen times.

Kenny, a former Bain executive, decided when he came aboard in 2012 that the network needed to shift back to more hard-core weather coverage. Last year, it began independently naming winter storms like the National Weather Service names hurricanes. In November, Kenny introduced a major re-brand, which included 24/7 weather information on the screen — even during commercials — and a new slogan, “It’s amazing out there!”

In December, he hired popular meteorologist Sam Champion from ABC’s “Good Morning America.” Champion will host a revamped morning show set to debut in March. Ratings, Kenny said, have gone up since the re-brand.

He is girding for a long-term battle with DirecTV. “I’m prepared,” he said. “We have a strong business and we have great fans. I think our other operators understand our value. I think this will hurt DirecTV reputationally first, then economically.”

Alison Newby Taylor, a 49-year-old Grayson software consultant and DirecTV subscriber, said she’s been a frequent user of the channel when there’s a big weather event or when she travels. “I miss it terribly,” she said. But she doubts she would drop DirecTV for a rival — “unless it was a fantastic package.”

William Lee, a telecommunications professor at the Grady College at the University of Georgia, said both DirecTV and the Weather Channel are facing basic challenges to their business models. Cable subscription fees have risen far in excess of inflation for many years and people are beginning to resist. Cable/satellite penetration peaked in 2010 and has started to drop.

He thinks DirecTV has more leverage in this showdown. “The Weather Channel is not ESPN,” he said. “It doesn’t have that type of must-see programming. If DirecTV cut ESPN, they’d lose a lot of subscribers quickly.”

At the same time, Lee thinks DirecTV is sending a message to other TV networks, which DirecTV CEO Michael White himself said in a public letter last month: “TV Networks feel it’s their absolute birthright to be paid more and more each year for the same content they offer, regardless of how many customers actually watch their channels.” DirecTV declined to comment beyond public statements.

Lee said this battle, while financially insignificant to DirecTV’s bottom line, “is sending a message to everybody else. ‘Don’t expect big bumps in what we’re paying you like we have in the past because the current model is not sustainable.’ This was a very calculated move on DirecTV’s part. I expect we’ll be seeing more battles like this. Programmers may have to be a little more humble — unless they’re ESPN.”