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CNE in Egypt: Some Light at the End of an Arduous Tunnel

During the 1990s, the Middle East has experienced an explosion of growth in new media services, especially those delivered by satellite. The Middle East Broadcasting Centre (MBC), Orbit, Arab Radio and Television (ART), Emirates Dubai TV, and Egypt's Spacenet have all become well-known entities in the region (Bulloch 1995). Most of the attention generated by these media deal with their increased penetration and potential success.

While there is a clear hunger for additional media outlets in the Middle East, not all initiatives have been successful. This paper examines the case of a private, encrypted television channel in Egypt that, despite optimistic forecasts, has had limited success in its quest to be a viable enterprise in the highly populated Cairo market. Cable Network Egypt (CNE), formerly called Cable News Egypt, is the country's first private television channel and only UHF subscription channel. This paper describes the founding of CNE, its initial success as a free channel, problems associated with its beginnings as a pay channel, its limited subscription base, the expansion of CNE as a network offering additional channels, and the subsequent investment by South Africans in an effort to revive and expand the service.

Background of CNE
Until recently television has been the sole province of the state, which has operated three channels since 1960. One mass channel offered entertainment and news. A second channel was aimed at more sophisticated urban viewers, while a third served the foreign community in French and English (Amin 1995).

The impetus for bringing CNN to Egypt as the country's first private channel came from a small group of entrepreneurs who began to court CNN International executives in the summer of 1988. CNN International's response was positive, and one of the group was retained by the then CNN International Vice President Robert W. Ross to lobby the Egyptian government on behalf of CNN and to prepare pre-feasibility studies that would argue the case for CNN. Ted Turner was interested in expanding the service into the Arab world. But given the near absence of dishes in the region at this time, the idea of a retransmission UHF facility that would secure Egyptian government approval (and if necessary, for the sake of that permission, Egyptian government participation) for CNN in Egypt was quite attractive. CNE would be the test case or door opener for expansion throughout the region, via retransmission by UHF, MMDS (wireless cable) or cable and allow CNN to establish viewer loyalty before any eventual rivals in the field of international television journalism began satellite transmission for a global audience.

The project appeared feasible because of demand for the service from the expatriate and tourist community and because Egypt's state-run broadcasting system had spare channel capacity that could be used to send CNN over the air using a scrambled signal. Egypt was to become the first nation in the Arab world to have access to CNN 24 hours a day.

CNE backers at first discussed providing CNN to hotels only, but found that the Egyptian government was not as opposed to consumer distribution as they had thought. In October 1989, after several months of negotiations, CNE's private sector partners reached an agreement with the Egyptian Radio and Television Union (ERTU) to support the distribution of CNN. Under the preliminary agreement, Cable News Egypt (CNE) would be granted a license to receive and distribute the news service in Cairo.

The ERTU preliminary decision was but one of many that would have to be made in a highly centralized Egyptian bureaucracy not known for receptiveness to controversial new ideas. The entire process would take nearly three years and moved, according to one journalist, at the pace of a "dyslexic pharaonic scribe" (Mishinski 1990).

Many of the arguments for bringing CNN to Egypt appealed to the pride Egyptians had in a broadcasting system they believed far surpassed any in the Arab states and which frequently trained broadcasters from other countries. Government officials reasoned that if a significant technological innovation were to be made, Egypt was the country destined to begin it.

Another important reason for having CNN in Egypt was to promote tourism. Egypt knew that American tourists could receive CNN in hotels in virtually every major tourist destination except Egypt. They saw the presence of CNN as a selling point to promote the country's chief industry. CNN backers sweetened the deal by promising four minutes of free advertising on CNN to the Egyptian Ministry of Tourism, a move that could enhance tourism in the country (Nessim 1990).

While the tourism argument carried great weight, it was not without critics. Hamdi Kandil, former director of UNESCO's division of free flow of information and communication policies, disputed the notion that having CNN in hotels would enhance tourism, saying that tourists do not come to Egypt to sit in hotel rooms and watch television and that no tourist would make a decision on whether to visit Egypt based on the availability of CNN (Mishinski 1990). A third argument for having CNN was that the financial incentive to the CNE majority stockholder, the ERTU. Subscription royalties would be a much-needed antidote for the ERTU's emerging financial problems. If Egyptian television journalism was to be competitive with Western news sources, it would have to have a comparable budget, and there was little other place to find new revenue sources than the CNN project.

While momentum from these arguments propelled the CNE proposal through the bureaucracy, many in the government thought the last thing Egypt needed was a Western cultural intrusion to stir up its people and threaten the status quo. Others in Egyptian broadcasting were not enthusiastic about their work being compared to a global news network. Some thought too much effort and money were being wasted on a service that would serve only the needs of foreigners and an Egyptian elite.

In the end, CNN was probably the least offensive signal the Egyptians could import. Certainly, MTV and other entertainment programming laced with American-made sex and violence posed a greater threat than a global news channel already seen in more than one hundred countries. In fact, a conference on the Arab Media and Direct Broadcasting held in Cairo in 1990 had awarded CNN the distinction of being the "least offensive" of potential offerings (Brindle 1991).

If the Egyptian government allowed an alien signal into the country, it wanted to ensure some control and share in the profits. Egyptian investment laws stipulated that any foreign enterprise should be a joint venture with an Egyptian company. With ERTU being the majority stockholder in CNE, the government felt reasonably sure of its ability to retain control over its operations.

CNE Structure and Operations
In October 1990 the Egyptian government formally approved the establishment of Cable News Egypt as a corporation for a period of 25 years. The estimated capital for CNE was LE 1.608 million to be paid in both local and hard currency, later increased to LE 25 million (CNE 1992). CNE also used the Video Link System to scramble its signal (CNE 1992). The initial capacity of the system was 100,000 subscribers. Subscription fees were set as follows (CNE 1992):

  • 360 Egyptian pounds annually for Egyptians at their individual homes
  • US $120 annually for foreigners at their individual homes
  • US $250 annually for embassies, banks, international organizations, language schools and foreign institutes
  • US $3500 annually for newspapers
  • 8 US cents per room for five-star hotels
  • 7 US cents per room for four-star hotels

While the Egyptian individual subscription fee was heavily subsidized, all except the most wealthy Egyptians were priced out of the market, in effect limiting the service primarily to expatriates, foreign business people, news organizations, and tourists in luxury hotels (Brindle 1991). The hotel rate included a standard discount to allow for less than full occupancy (Mishinski 1990).

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.

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).

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.

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.

About Joe S. Foote

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