RFD-TV is channeling a niche position into growth

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Posted: Sunday, February 17, 2013 12:00 am

The RFD-TV offices at One Valmont Plaza are a little cramped these days. The staff of the rural-lifestyle cable television network shares space with a cow, a pig, a sheep and a horse, mementos from the network's Rose Bowl floats.

Fortunately, the lifelike creatures don't require care. The network's 100 employees are too busy juggling the demands of a business that's already pushing the limits of its 17,000-square-foot offices, where its parent company, Rural Media Group, moved its operations just two years ago from a space one-fourth the size.

RFD-TV has come far since its start just over 12 years ago, founded by former farmer, commodities broker and satellite dish installer Patrick Gottsch of the Elkhorn area.

Just in the last year, Rural Media Group launched a second channel, RURAL TV; acquired basic cable channel FamilyNet, with distribution to 20 million homes; hired its first CEO, a former chief executive of IndyCar racing and Professional Bull Riders; and created its first board of directors with seasoned leaders in business and agriculture.

It's all in preparation for a future, possibly as a publicly traded company, that Gottsch says will be firmly planted in Omaha but with international ambitions.

“My interest is taking this to its full potential,” said Gottsch, 59.

In the next several years, he envisions building a new corporate headquarters in far west Omaha, relocating the network's Nashville studios here and hiring as many as 150 more people.

The network known for shows like “Larry's Country Diner,” “Hee Haw” reruns, cattle auctions and ag market reports is now distributed to 41 million homes via major cable providers such as Cox, Time Warner and Comcast, satellite providers such as DISH Network and DIRECTV, fiber optic systems like Verizon FiOS, and more than 600 independent rural cable systems.

Gottsch said within a few years he expects RFD-TV and FamilyNet each to reach 50 million homes, or 100 million total.

It's not an easy time to be striving for growth in the cable television industry.

Competition for advertising revenue and consumers' time is increasing, both within the cable industry and externally.

“Consumers increasingly view programs over the Internet, through Internet TV, on iPods, cellphones and now through game consoles that are linked to the Internet,” says a recent industry study from market research firm IBISWorld.

The total number of U.S. cable television subscribers peaked in 2009 at 104.7 million and is expected to continue to slide, IBISWorld reported. That's partly because the cost of cable subscriptions is rising to compensate for rising fees charged by sports networks and other programming costs.

Some cable distributors have tried to keep costs down by reducing or eliminating the affiliate fees they're willing to pay lower-rated networks such as RFD.

That's especially difficult for independent neworks going without support from parent companies such as the Walt Disney Co. and Viacom, said Steve Birenberg, a Chicago-area investment adviser and hedge fund manager who specializes in media and telecommunications industries.

“When Discovery comes in and says it's time to renegotiate, they can pull their smaller, less distributed networks along,” Birenberg said. “That leaves a company like RFD, they don't have much leverage. All they have is, 'Our viewers really like this type of programming and we're unique.'”

Gottsch agrees his biggest advocates and assets are his viewers, who are grateful for the rural programming and feel alienated by other channels.

“Television has gotten so far out any more,” said Arlene Smith of Omaha. She uses her DVR to record RFD's “Marty Stuart Show,” “Country Family Reunion” and others, then watches them all on Saturday night.

“We like it because it's wholesome,” said her husband, Harold Smith. “You don't have to worry about bad language or anything like that on it.”

The Smiths were among hundreds of people who wrote in to the network when it put out a plea for support this winter during contract renewal negotiations with Cox Communications.

Despite the plea, Cox spokeswoman Gail Graeve said Cox was never considering eliminating RFD-TV, which it carries in Omaha, Arkansas, Kansas and Oklahoma City.

“RFD offers our customers agricultural programming that has appeal in states like Nebraska, where we have really strong ties to a rural or country lifestyle.”

There is only so much bandwidth, however, and companies like Cox weigh costs and ratings.

“We're committed to giving our customers the best value,” Graeve said.

Despite the challenges, Gottsch is optimistic.

“We've got the hard part done,” he said, as the network is already carried by major cable providers. Now he's working to expand the number of markets it's carried in.

He agrees he doesn't have the same leverage as a large, multi-network company. One strategy to combat this was the recent purchase of FamilyNet, which is distributed to nearly 15 million homes in areas of New York City; Philadelphia; Chicago; Atlanta; Tampa Bay, Fla.; Houston; Dallas; and Los Angeles.

“We were having trouble breaking into the big markets,” Gottsch said.

Rural Media Group kept FamilyNet's prime-time lineup of reruns of “The Mary Tyler Moore Show,” “WKRP in Cincinnati” and “The Bob Newhart Show,” but is also cross-airing RFD content there, including “Hee Haw” and the agribusiness Market Day Report.

New CEO Randy Bernard said there is an appetite for the rural lifestyle in urban markets, noting the success of Professional Bull Riding events at Madison Square Garden.

Feedback from legacy FamilyNet viewers has been mostly positive, Gottsch said: “Everybody has an interest in where their food and fiber comes from.”

Gottsch's other push is in growing advertising revenue. He aims to add five or six advertising sales people this year under the direction of new chief marketing officer Michael LaBroad, who has also held that position at Anheuser-Busch, Bass Pro Shops and the National Hockey League.

Current advertisers include Chevrolet, Case IH and other makers of ranch and animal health products.

“We have a huge upside potential we feel in the advertising/sponsorship side,” Gottsch said. In keeping with audience tastes, however, he doesn't accept advertising for alcoholic beverages or drugs like Viagra.

Gottsch has made political contributions to Republicans and Democrats alike, and RFD's programming stays away from politics and controversy.

A Rural Evening News broadcast coverage of President Barack Obama's State of the Union speech featured an interview with the Agriculture Department's undersecretary for rural development, Dallas Tonsager. The formulas for news and educational programming might be based off of urban networks' success, but the subject matter is pure country.

“A direct competitor, we really don't have one,” Gottsch said.

The group's holdings also include RFD-TV the Magazine, with more than 170,000 paid subscribers, and RFD-TV the Theatre in Branson, Mo.

The growth is remarkable for a business that went bankrupt at its first effort.

Gottsch says the idea for the rural network came from his satellite dish customers, who were always asking, “Why isn't there more rodeo on? What about the rural lifestyle?”

He tried to start the network in Omaha in the late 1980s but it failed, limited by a lack of capital and the smaller rural audience then available through satellite dishes. Gottsch later tried to interest investors, who didn't see the potential.

He credits another former satellite dish installer, billionaire DISH Network founder Charlie Ergen, with giving him the advice to start as a nonprofit, which Gottsch did in Dallas in 2000. DISH carried RFD-TV into 5 million homes at first.

RFD switched to a for-profit model in 2007 and was “in the black” with $25 million in revenue by 2009, Gottsch told Forbes in an article that called him the “Ted Turner of rural TV.”

Birenberg said industry data from SNL Kagan show RFD-TV reported $30.5 million in total revenue in 2012 with $13.5million of operating cash flow. Gottsch said that figure is low, and that with the FamilyNet acquisition he projects $50 million in revenue this year and $100million within three years.

KENT SIEVERS/THE WORLD-HERALD


Patrick Gottsch with daughters Gatsby Gottsch, 25, left, executive vice president for finance, and Raquel Gottsch, 28, who serves as executive vice president for corporate communications.

“It turned out to be a blessing that we didn't get financing from an outsider,” Gottsch said.

Eighty-five percent of the company is owned by Gottsch and his daughters: Raquel, 28, who serves as executive vice president for corporate communications, and Gatsby, 25, executive vice president for finance. The sisters graduated from Elkhorn High School and joined the business after graduating from college, Raquel from Creighton University and Gatsby from the McCombs School of Business at the University of Texas.

Gatsby Gottsch called Rural Media Group “a fantastic place to work even if it wasn't a family business.”

While her father says, “We're still a long ways from where we want to be,” the family business is shaping up to look more like a publicly traded corporation these days.

Its three new board members are: Mike Yanney, 79, former banker and chairman emeritus of Burlington Capital Group; Clayton Yeutter, 82, former director of ConAgra Foods and Caterpillar, former secretary of agriculture under President George H.W. Bush and former president and chief executive officer of the Chicago Mercantile Exchange; and Jim Odle, founder and current manager of Superior Livestock Auction of Fort Worth and Brush, Colo., which broadcasts its auctions on RFD-TV.

The directors said they haven't had to do any major overhaul, but have helped clean up and organize Rural Media Group's balance sheet, “so even bankers like looking at it,” said Yanney, a Kearney, Neb., native who said he first got to know Gottsch when Gottsch installed his satellite dish in the 1980s.

“When you're running a family-owned company and you're trying to take it to a level where you're going to have a few — not very many — but a few outside investors, you've got to really look at it like a public company,” Yanney said.

The men all said they've been impressed by Gottsch's persistence and success.

“It's just the kind of entrepreneurial success story that you see almost uniquely in the United States,” said Yeutter, a Eustis, Neb., native. He first met Gottsch at an event in Washington, D.C., for supporters of Mike Johanns' 2008 Senate bid.

“I had no idea who he was, and this guy walks in looking like a hippie,” with long hair, Yeutter recalled. “I thought, 'Gee, where do we get this character who came in from San Francisco supporting Mike Johanns?' And it turned out he was a Cornhusker.”

Yeutter enjoyed learning about the business over dinner that night and remembered it last year when Yanney called to see about putting together a board. Yeutter said he is happy to be part of “stage two” of the company's growth.

“Most people in the media don't understand rural America very well,” he said. “For somebody to come along and do it as a money-making venture in the private sector, that was high-risk.”

Contact the writer:

402-444-1336, barbara.soderlin@owh.com

Correction: A previous version of this story incorrectly stated how many homes Gottsch expects RFD-TV and FamilyNet to reach.

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