Oprah struggles to build her network

Last summer, Oprah Winfrey sat down with executives at the Los Angeles headquarters of her start-up cable network to tackle its growing problems, from cost overruns to a scarcity of viewers and disappointed advertisers. Over her 39-year career, Ms. Winfrey was used to winning. "The Oprah Winfrey Show" had as many as 12.5 million viewers. "O, The Oprah Magazine," had more than two million subscribers. And her Internet site, Oprah.com, draws more than three million unique visitors a month. Her success began with the syndication debut of "The Oprah Winfrey Show" in 1986. "The very first day I went on air I beat Phil Donahue," Ms. Winfrey said in an interview with The Wall Street Journal. "Not only the very first day, but I beat him every day until he quit." What OWN: Oprah Winfrey Network needed to succeed, the executives concluded last summer, was more Oprah. David Zaslav, CEO of Discovery Communications Inc., which co-owns the network, had the solution: "I said to her, 'You should be CEO,' and she said, 'You're right, I should be CEO, this is my business, this is my legacy, this is my fight, this is my journey.' " Since it launched in January 2011, the Oprah Winfrey Network has been an unexpectedly difficult journey for its namesake. By the end of last year, Discovery had spent $312 million on the channel—nearly twice its initial start-up budget. The company had initially forecast profitability in 2011, but losses are now expected to continue at least through 2012, according to Discovery. In its first few months on the air, an average of 154,000 people were watching at any given moment during the day, according to Nielsen ratings, about the same viewership as the Discovery Health Network it replaced. After taking over as chief executive last summer, Ms. Winfrey has gone on the offensive—launching her new talk show, "Oprah's Next Chapter," as well as meeting with advertisers, developing programs, hiring senior executives and making layoffs. "Birthing is messy," she said after an appearance at Radio City Music Hall in Manhattan, where she told several thousand clamoring fans to "live your life with an open heart." In a separate interview, she said, "Understanding how massive this is has been humbling to me." Lately, there has been happy news. Next year, cable and satellite operators will start paying tens of millions of dollars in fees to carry the network. In the meantime, the audience has climbed to a total average viewership of 326,000 at prime time, up 6% from a year earlier, thanks in part to Ms. Winfrey's new talk show. Even so, the network still ranks below Bravo—another network aimed at women—which drew an average of 961,000 viewers in prime time over the same period. Going forward, it is unclear exactly how much time Discovery will give the venture. Discovery, whose biggest shareholders include media mogul John Malone and the Newhouse family, has deeper pockets than most. But some in the cable industry point out the network's programming remains weak. Some analysts are skeptical the Oprah Winfrey Network will ever turn the corner. "She remains one of the most well-known TV personalities in the world," said Richard Greenfield, a media analyst at BTIG LLC. "But we are increasingly concerned with how that translates into a 24-7 cable network." Ms. Winfrey, 58 years old, is characteristically upbeat. "You know with all the challenges and being in the middle of what I call 'the climb,' how amazing that I get to have a network and use this platform to open the space in people's hearts. Who gets to do this? That's my favorite new mantra." In some ways, the network strife has cast Ms. Winfrey into a drama not unlike the subjects of her talk show, with a story line of adversity, revelation, and now, a hoped-for turnaround. When Mr. Zaslav went to her with the idea of creating a network in the spring of 2007, Ms. Winfrey was attracting some 7.6 million viewers a day on her afternoon talk show and earning a reported $275 million a year. Her endorsement of Barack Obama that year was one of the most gossiped about media events of the presidential campaign. Mr. Zaslav was seeking to reinvent the little-watched Discovery Health Network and eventually draw more advertising dollars and subscriber fees. Ms. Winfrey had been pondering her own channel for years. In 1998, she had invested in Geraldine Laybourne's Oxygen Network. It didn't catch on and was later sold to NBCUniversal. Ms. Winfrey said she wouldn't try again without creative control—which Discovery offered. The idea was attractive for Ms. Winfrey in other ways. She received half the network in exchange for her brand, website and video library. While her reputation was on the line, she had no financial exposure and accepts no salary. In their first meeting in Chicago, where Ms. Winfrey lived at the time, Mr. Zaslav said he imagined a channel built around the "personal growth" philosophy of "O, The Oprah Magazine." He said the two of them, "connected from the start." In 2008, a deal was struck and a launch date set for June 2009. "People expected Oprah to walk on water," said Ms. Laybourne. But it took almost two more years for the channel to air. Part of the problem was that Ms. Winfrey wanted entirely original shows, instead of drawing from reruns available at the Discovery Health library. Ms. Winfrey also hadn't committed to ending her syndicated talk show, which occupied much of her time. That created tension with Mr. Zaslav, who worried advertisers wouldn't respond to both an Oprah network and her popular show. He began pressing her in 2009 to retire "The Oprah Winfrey Show." "We need my full attention and her full attention to make this work," Mr. Zaslav said. The network's launch was rescheduled for January 2011 and Ms. Winfrey would pull the plug on her syndicated show the following May. But without Ms. Winfrey's consistent presence in the office and on the air, the first season's programs lacked the "Oprah-DNA," as OWN executives sometimes described it. Some shows were seen as too earnest, others too dark. One program, "Kidnapped by the Kids," had workaholic parents taken hostage by their children. After the dismal ratings surfaced, Ms. Winfrey said she had an "Aha! moment," and realized "I should have finished my show first." By the time her show ended in May, Discovery had spent its $189 million initial start-up investment. Meanwhile, several advertisers scaled back their spending, according to people familiar with the matter. Procter & Gamble Co., PG +0.14% its biggest sponsor, cut its three-year, $100 million contract with the Oprah Winfrey Network by about half, these people said. Kohl's Corp., KSS +0.56% too, reduced its ad commitments, according to a person familiar with the matter. A spokeswoman for P&G said the company doesn't comment on media partners or its plans. A spokeswoman for Kohl's declined to comment. In July, Ms. Winfrey brought Erik Logan and Sheri Salata from her production studio in Chicago and made them co-presidents. While the executives didn't have cable experience, Ms. Winfrey believed they could translate her sensibility to the network. The network had a "brand problem," said Ms. Salata when she arrived last summer. "People tuning in didn't see Oprah or Oprah-like content." Ms. Winfrey held an unusual town hall meeting at the Los Angeles headquarters after she took over as chief executive last summer. She told a group of around 90 staffers she was going to be at the network a lot more. Her talk turned confessional, as she acknowledged the struggle. Around the office, she spoke of being on "a mission." The shift sparked the departure in the fall of Discovery's chief operating officer, Peter Liguori, who had stepped in as the Oprah Winfrey Network's interim chief executive after the first CEO, Christina Norman, left in the spring. Ms. Winfrey asked friends for network TV advice, including Saturday Night Live creator Lorne Michaels, who told her she needed to learn to swear. IAC Chairman Barry Diller said he told her, "Don't complain, don't explain, do the work, and it will work out." The past few months have been a campaign to convince Oprah's fans they could find her on the network. Ms. Winfrey recorded voice-over promotions, and a Thursday night movie was added, introduced by Ms. Winfrey, who occasionally sat on a couch eating popcorn with truffle salt. The spiritual-seeking series, "Oprah's Lifeclass" and "Super Soul Sunday," were added to the lineup. Ms. Winfrey called and visited advertisers. In September, she went to P&G headquarters in Cincinnati, where she gave a "very humble speech" about the network's long road, comparing it to a "purpose-driven journey," according to a person there. Instead of running a network, "I could have bought a boat," Ms. Winfrey said, according to the person. At another meeting, over shots of tequila at the swanky Mandarin Oriental in New York, she discussed her network's "journey" with marketing executives from other big advertisers, according to another person. "Obviously rating expectations fell well short of what they estimated," said Andrew Donchin, director of media investments at Carat North America, an ad buying agency owned by Aegis Group PLC. "In many ways they can't be blamed for this, as practically everything Oprah had touched turned into gold." Still, Mr. Donchin said, he wasn't "ready to bet against her." Ms. Winfrey, who produced her daytime show in Chicago, now spends a lot of time at the network's Los Angeles headquarters. And when she isn't there, she is traveling for "Oprah's Next Chapter," the new talk show. She doesn't sleep much more than five hours a night. "I woke up this weekend in Maya Angelou's guest bedroom and couldn't figure out where I was," she said. As chief executive, she has had to make tough decisions. In one of the network's lowest moments in March, she canceled "The Rosie Show," the daily talk show hosted by Rosie O'Donnell that launched in October but never found an audience. Ms. O'Donnell told viewers, "I thought it would be easy for me, but it wasn't." A few days later, the Oprah Winfrey Network cut 30 jobs to reduce costs and speed up profitability. "That was painful," Ms. Winfrey said. Ms. Winfrey said she missed the early days of her daytime TV talk show in the 1980s. "My show was built around me and five producers," she said. "I'd go out and get the lunch for us—Taco Bell or Burger King. I prided myself on leanness." "The opposite was done here," she added. Recently the business has been showing signs of "light," said Ms. Winfrey. New channels often have to wait several years before cable operators pay them. But next year, her network's subscriber fees will grow in some cases from a couple of cents to as high as 20 cents per subscriber, raising network revenues to $150 million from $20 million, according to a person close to the venture. Meanwhile, "Oprah's Next Chapter" has boosted ratings: Her interview with Whitney Houston's daughter drew 3.5 million viewers. For its target demographic of women ages 25 to 54, the daily audience has jumped 17% in the second quarter, according to the network. Some of the programs are also starting to catch on, from the reality series "Welcome to Sweetie Pie's" to the newsmagazine "Our America with Lisa Ling." New shows this summer include "Lovetown, U.S.A.," a reality show where two matchmakers go to Kingsland, Ga., trying help couples "find true love in their own backyard." Ms. Winfrey said it might take until late 2013 before the network "finds a vein. I'm in the middle of this journey." "Take this down," she said, standing up from a director's chair in a dressing room at Radio City Music Hall. "I don't feel deterred or defeated by the fact that we are not where we wish we'd be or thought we'd be at this point." She paused, then added "I'm energized by it."