As Independents roll out IPTV services, they are finding that producing their own television programs can help them stand out from the competition

Video customers of smaller, more rural telcos such as Farmer's Mutual Cooperative Telephone Co., diversiCOM/Melrose Telephone Co. and Ellijay Telephone Co. have something their big city brethren don't — locally produced content covering local events, personalities, music and more. The shows often are produced on a shoestring budget, and the old adage about necessity being the mother of invention certainly applies.

Farmer's Mutual, an Independent telco serving about 1000 video subscribers in rural Iowa, covers a lot of high school sports, often putting the video camera in the hands of an employee who has a child on the team. To add a professional touch, the company has a deal with a local radio station to use the station's audio feed from the same game to accompany the video.

In rural Minnesota, diversiCOM/Melrose Telephone Co., an ILEC and CLEC that serves about 3000 subscribers, produces nine of its own programs, some shot on location and others in the company's small studio. One of its most popular programs is a call-in show airing every Friday evening that began on a whim when two employees decided to go live.

Ellijay Telephone Co., also an ILEC and CLEC, serves 60,000 subscribers in northern Georgia, including more than 13,000 who take video service. The company, known as ETC, now produces 25 original programs — many out of its own studio, which has several sets so different looks can be created for all of its shows. A large wall panel that looks like barn siding and some hay bales set the stage for a bluegrass music show, while a camouflage backdrop and a couple of rifles and helmets create the mood for the company's Those Who Served show featuring local veterans talking about their war experiences. ETC also gained minor fame when the host of its cooking show, Hans Rueffert, appeared as a finalist on the first season of The Next Food Network Star, which aired on the Food Network cable channel.

Local content creation typically isn't a money-maker, but telcos say it can benefit the community, differentiate a telco from cable and satellite competitors, and inspire loyalty among existing customers. Without it, the telcos can end up competing on price alone, and that's almost always a losing proposition.

While there are about 1000 Independent telcos in the U.S., only about 80 of them are producing local content today. But that number is growing rapidly, said Ken Pyle, president of Viodi, a company that helps small telcos develop video strategies.

In addition to providing consulting and education services, Viodi hosts a series of workshops that showcase innovative examples of local content. “I'm always amazed at the creativity these companies show,” Pyle said. “It can be a daunting task to go from being an organization that's been a telephone company for a hundred years to suddenly becoming a TV studio — a mini media conglomerate — for their communities, but they're doing it.”

In some cases, the telco also is the cable company, and the only competing provider is satellite. But in other cases telcos are rolling out IPTV as a way to compete with an incumbent cable operator. In both instances, local programming can serve as a unique differentiator.

“I've seen companies start off with a $6000 investment, maybe even less, and I've seen others invest half a million dollars,” Pyle said. “It's possible to do quite a bit with very little investment.”

Farmer's Mutual Cooperative Telephone Co., also known as FMCTC, has been providing local content, mostly sports coverage, for about three years. “We were a slow starter,” said Tom Conry, general manager of FMCTC. “We began with a very inexpensive camera and a staff member who liked to dabble in video.”

FMCTC's initial investment was about $2000, which included a camera, a computer and some video-editing software. The company later added more cameras, including a high-definition (HD) camera, additional computers and software for editing, as well as better-quality tripods, so that it now has about $25,000 invested in its content business, Conry said. The company has one full-time employee devoted to local programming.

By contrast, ETC over the past eight years has built a sophisticated content business that supports four local channels. One channel is dedicated to new programming and three air archival footage — one focusing on sports, one on music and the other on the rest of the content stocked in the library. The company also operates two additional channels of local advertising, which some people actually watch. Overall, 25% of ETC customers watch some local content daily, and another 35% watch it weekly.

The company is the only cable provider in its region, so it had a distinct advantage starting out: It already owned ad-insertion equipment. That meant the company could begin producing ads immediately to offset the cost of developing its own content.

ETC's content business grew out of its ad business after the telco built a TV studio so that it could produce commercial spots for local advertisers. The company now employs 16 full-time staff members dedicated to its content business, and that doesn't include the shows' hosts, who also are paid.

No matter how elaborate or how simple a telco's local content business, they all have one thing in common: They are not profitable — at least not in a way that's quantifiable.

“Local content does add value, but it's not a game-changer or a way to make money,” said Bernie Arnason, managing partner for Pivot Media. “It's a way to build stickiness, but it's not a profit-center at all — at least not yet.”

While ETC won't say how much it has spent during the past eight years, the company is only breaking even on its content business and perhaps is even losing a little money, said Will Beattie, director of customer relations for the telco.

The ad-insertion business helps offset programming costs, though. And because the company has enough material to operate several of its own channels, it reduces what the company must pay to fill its channel lineup.

“You have to look at the impact [local content] has on your company as a whole when you get a well-respected on-air personality to join your company,” Beattie said. “That has a true value. Seeing your grandchild playing in a football game on TV has value. We're adding to our bottom line and adding stickiness to our cable and telephone services and to our brand.”

Dean Mohs, chief operating officer for diversiCOM, agreed. The telco operates a local TV channel called School and Community Television, which broadcasts programs that are filmed on location and in the company's studio.

“We're losing money, but we still do it as a community service and for the stickiness,” Mohs said. “As competition gets tougher, you need something that makes people see value in what you provide, so it's important that we have local content.”

Valley Telecom Group, a telco operating in rural Arizona, began its local programming eight months ago as a community service program. The company is creating local channels for each of the 10 school districts in its serving area that teachers and students can use to broadcast content filmed in the schools.

“Our intention was never to make money at it,” said Jeremy Graves, chief operating officer of marketing and competitive services for Valley Telecom. “We wanted it to be something unique for our communities. In fact, if there is any advertising on the school channel, such as a scoreboard sponsorship, we let the school keep 100% of the ad dollars for themselves.”

But for at least one local content pioneer, the programming business has become financially draining. Ringgold Telephone Co., a telco in northeastern Georgia serving fewer than 2000 video subscribers, has been delivering local content since the launch of its IPTV service in 2003, but the company may have to scale back production if it can't find a way to make more money by the end of the year, said Phil Erli, executive vice president of Ringgold.

Ringgold has a TV studio where it produces 10 to 12 original shows monthly, such as cooking, gardening, fitness and children's programs. The company also broadcasts city council meetings and even some local sporting events.

Erli said the problem is that Ringgold isn't able to offer features such as HD programming and a TiVo-like digital video recorder (DVR) over its IPTV service. (See related story on page 6.) Without those services, subscribers won't switch to or continue using Ringgold's video service, regardless of whether the company offers local programming, he said.

“Local content doesn't make up for the things you're missing like HD and DVR,” Erli said. “Our customers love our local content, but they don't love it enough to forego HD or a decent DVR service.”

Erli is trying to come up with creative ways to pay for programming. The company was able to raise about $35,000 from local businesses to create a series of segments documenting the region's rich Civil War history. One segment focuses on the Battle of Ringgold Gap, which served to prolong the war by stopping Maj. Gen. William Tecumseh Sherman's March to the Sea.

The company also has considered creating commercials for local businesses and inserting them into its local programming as ETC does, but the ad-insertion equipment is expensive for a small telco.

“By the time we'd pay for the equipment, anything we would make on advertising would get eaten up in the cost,” Erli said. As an alternative, Ringgold has worked out a new deal with an unnamed reseller who will co-locate ad-insertion equipment in Ringgold's headend, he said. That reseller then will act as a kind of hosting provider for Ringgold's local ad-insertion business, he explained.

Ringgold also is working on a new deal with a national satellite broadcasting company that reaches 15 million homes to swap some of the telco's own local content for advertising time on the larger company's national programs. Erli declined to name the satellite broadcasting company. The idea is that Ringgold could go to various regional businesses in its serving area and offer them national exposure through the larger provider, Erli explained. “If I could do that, I might be able to make enough on advertising to offset the cost of local programming,” he said.

In addition to selling advertising, some telcos now are producing and selling DVDs of their own content. For example, diversiCOM used to go out and film weddings in the community and then sell the DVDs, but the company has moved away from that practice because of the amount of time involved on weekends and the videography expertise required, Mohs said.

FMCTC sells DVDs of specific high school games, and it compiles season highlight videos that may include award banquet footage or interviews with coaches and players. For videos of specific games, FMCTC typically charges $10 per DVD, Conry said. For the highlight videos, the company charges $15 but then donates all of the proceeds to the school's booster club.

Eventually, local programming likely will include delivery via video-on-demand (VOD). ETC and Ringgold both are working toward making their libraries of content available as VOD services.

“We're slowly moving most of our local content to VOD, and we'll use the local channel as a barker channel to tell people what's available,” Erli said. “That makes more sense than the TV model for this kind of content. We should let people choose what they want to watch and when.”