Tales of the city
By Dan Trigoboff -- Broadcasting & Cable, 4/15/2001 8:00:00 PM
San Francisco sportscaster Gary Radnich was at the NBA All-Star Game in Oakland last year when he learned his TV station would be losing its NBC affiliation. "The owner of the Golden State Warriors tapped me on the shoulder," he recalls, "and told me I was screwed."
Warriors owner Chris Cohan told Radnich he had just talked to NBC President Robert Wright and "they were going to make the announcement tomorrow," the popular KRON-TV sports anchor remembers. "I think he was enjoying himself because, for years, I'd said the Warriors stink. Now KRON-TV would be going from ER as a lead-in to Gilligan's Island."
Within days, Radnich's disbelief echoed throughout the industry with word that Granite Broadcasting's KNTV(TV) San Jose, Calif., would replace Young Broadcasting-owned KRON-TV as the NBC affiliate beginning in 2002 and that Granite, in an eye-popping reverse-compensation deal, would pay NBC $362 million over a decade for the privilege. Historically, of course, networks paid affiliates.
For Young to have lost the NBC affiliation, many thought, was clearly punitive. The network wanted to buy KRON-TV for its own and essentially had told Young to clear out or face the consequences.
The bonds between networks and affiliates may have been strained in recent years, but they weren't broken. Changes in the San Francisco market may test the strength of historic and strong local presence vs. new affiliation with a major network.
The affiliation switch was just the biggest in a series of shocks in a $600 million-plus TV market, the nation's fifth-largest, where change now is measured on the Richter scale. Nature, it seems, demands a shakeup in San Francisco every now and then.
"I'd say it's one of the most volatile, most exciting markets in the country," notes Bob Franklin, general manager at KNTV. "This market's been doing the same things the same way for 50 years. Now it's going to change."
Many of local TV's familiar faces are gone or at least removed from familiar places. Longtime KGO-TV head Jim Topping retired, replaced by longtime WLS-TV Chicago General Manager Joe Ahern. Amy McCombs, longtime head of KRON-TV, left after the Young takeover, as did News Director and former Chronicle Editor Dan Rosenheim, who moved to KPIX-TV. Rich Cerussi, sales maven at KRON-TV, hopped to KNTV. Longtime KTVU(TV) News Director Fred Zehnder retired to run a couple of newspapers. KPIX-TV news anchor Dave McElhatton retired late last year.
And now veteran KTVU General Manager Kevin O'Brien says he'll leave at the end of the year. He intends to continue in television, he says, and does not preclude another job in the Bay Area.
That fog rolling up the hills is no less clear than what will happen next in the San Francisco television market. At the very least, the Bay Area may now help settle a perennial chicken-and-egg-question: Which means more: a longstanding and strong local presence or a strong network affiliation?
Will Granite's KNTV use NBC's mix of Today, Tonight, soaps, sports, and prime time and its overhauled local news to launch itself as a major player in a major market? Will it offer sufficient over-the-air and cable carriage to reach and ultimately get its San Jose signal broadly enough into the 11-county San Francisco market to afford its payments to NBC and generate sufficient cash flow?
And can Young's KRON-TV's double runs of Judge Judy, Sally Jessy, Judge Joe Brown, Inside Edition and Entertainment Tonight, combined with Frasier reruns and a proven news product, keep the station riding high? Will the added inventory that would have gone to a network make up for potential ratings drops from the loss of first-run ER and Friends?
KRON-TV sold prime time at $22,000 per spot in 2000 as an NBC affiliate (with Olympics and political spending helping greatly) and special events for three or four times that, according to members of San Francisco's sales and ad community. Even with more available spots as an independent, can the station keep pace with its past?
Young Broadcasting's Chairman Vincent Young says the new KRON-TV will do just fine. Responding to a series of e-mail questions, he notes, "KRON may very well be a precursor to the future of local television. Not for every station, but in special situations like this where there is a real need to fill.
"It will be hyper-local in its orientation and will in essence be affiliated with the San Francisco market."
But competitors aren't so sure about KRON-TV or the emergence of KNTV. "Our market share will increase," says O'Brien. His Fox affiliate KTVU shares with KRON-TV the top-station distinction, based largely on its extremely successful 10 o'clock news. "History has proven that stations that don't move around prosper. KNTV will be a weak station," and KRON-TV will lose a lot of air, as well, he predicts happily. "The last thing we want to do is make a change. The idea is to let them change and confuse everybody."
Says Dave Metz, director of programming for ABC-owned KGO-TV, there is "something to be said for being an island of stability in a sea of change."
With KRON-TV, he adds, "an awful lot of people are still speculating about what their product is going to be. But it would be hard to look at them and say it will be as strong a station without the NBC affiliation. We're looking at KNTV as a very strong competitor-to-be, but they have some miles to go."
At the Young station, some staff members remain disappointed that they've lost the clout of being an NBC affiliate or the potential of being an NBC-owned station. "People who have been around for a while like working for a network," says one station insider. "But some of the younger people feel this might open up opportunities to prove themselves in local news."
Even to KRON-TV staff members who spent a year hoping for NBC to ride in like a white knight to "save" the station from independence, the network lost some luster when it began its own layoffs. "That was a big wakeup call," says a station insider.
Change in ownership and job insecurity are hardly unique to KRON-TV, some staffers point out. While there have been job losses—including some announced a year ago through an infamous "list" of nonunion employees, prepared by Young in advance of the deal's closing—Young has been respectful, insiders say, of the station's culture, as well as of staff anxiety.
The Bay Area TV market has been reeling since 1998 when, after years of infighting, the descendants of the founding deYoung family put Chronicle Publishing's substantial media holdings on the block, including longtime NBC affiliate KRON-TV, typically the market leader from sign-on to sign-off.
Among bidders was NBC itself. A letter from NBC's Wright to banker Donaldson, Lufkin & Jenrette—a letter called "thuggish" by Chronicle TV writer John Carman —warned prospective competitors that successful bidders could face more hurdles than Skeets Nehemiah before he joined the San Francisco 49ers.
Even so, Young Broadcasting stepped up, shocking the industry with its record $823 million bid (which became $737 million at close, due to changes in stock in the deal).
The next tremor came during affiliate negotiations, when Wright proved true to his word. NBC offered an affiliation deal that reversed the standard compensation networks pay stations and instead sought $10 million from KRON-TV. It also wanted KRON-TV to limit its preemption of network programs for local specials. Young and NBC could not reach agreement.
So Granite came in with a unique deal and profoundly changed television inside —and possibly outside—the San Francisco market. The Granite deal has already reverberated, broadcasters say, in negotiations between networks and station groups across the country.
NBC drove a hard bargain with Granite—one cited before the FCC as oppressive by the coalition of network affiliates last month.
But both NBC Television President Randy Falco and Granite Chairman Don Cornwell say on the record that their partnership gives the network the benefits of ownership without the heavy price tag that went with KRON-TV. Despite the plans for heavy promotion and re-branding by Granite and NBC, the network expects a drop at the time of the switch but says the payment from Granite should plug the gap. "That was part of the calculation," says Falco.
Still, there seems to be more, or less, than meets the eye about these station swaps. Indeed, some analysts and broadcasters maintain that Young is looking to sell, and, they assert, NBC continues to covet ownership in the Bay Area.
Young, too, gives some hints that the situation isn't quite settled. At least twice at an analysts conference in February, Young said, "when KRON becomes an independent" and stopped to amend "when" to "if."
This could mean that this market could continue to provide more twists and turns than a car chase down Lombard Street.
With the right regulatory changes in ownership caps or media crossownership, some suggest, KGO-TV owner ABC or KPIX-TV owner CBS could buy an independent KRON-TV. Or Tribune, which is not currently in the DMA, could rush in. Or Hearst Corp., which owned The San Francisco Examiner for a century and just bought the Chronicle. Never underestimate the number of deep pockets looking to buy stations in major markets, says one media analyst.
CBS, however, is more likely to work out a swap for KBHK-TV, the Chris-Craft station scheduled to be purchased by News Corp. (Fox), in exchange for a station owned by CBS' owner Viacom—like WDCA-TV Washington. Such a deal would give CBS a duopoly in San Francisco and Fox, which owns WTTG-TV, one in Washington.
Granite already has a duopoly in the market, with KNTV, now in San Jose, and KBWB(TV) in San Francisco. Cox has one with KTVU Oakland and KICU-TV San Jose. And Pappas Telecasting, which is expected to bring a third Spanish-language station into the market when it simulcasts TV Azteca following a likely spring launch, owns stations KFWU(TV) Fort Bragg and KTNC-TV Concord, both in the San Francisco DMA.
"Obviously," says BIA Financial Network Vice President Mark Fratrik, "there are changes in the competitive balance, changes that make the market more unstable. All the other existing television stations are going to have to think about how they compete against a new NBC affiliate and a new, strong independent. KRON has a well-known brand name in the San Francisco market, and it should be an effective independent competitor."
Bill Carroll, vice president and director of programming for Katz Television Group, acknowledges KRON-TV's considerable position at the moment but adds that "people watch programs, they don't watch stations. It's probably not an ideal time to launch an independent."
The new KRON-TV clearly plans to capitalize on the strengths of the old station, particularly in its news presence. KRON-TV's majority-owned cable station BayTV, which recently laid off staffers, has consolidated its news operation with the television station. KRON-TV now calls itself "The 24 Hours News Station," and Young promises stronger news, weather and traffic.
Although the station says it will not offer a schedule until later this year, it has dropped significant hints and discussed its offerings with members of the area's advertising community. From that, it looks like KRON-TV will keep its late news, expand morning news and add a prime time hour, although not at 10 p.m., when it would compete against KTVU. Weekends are expected to offer heavy doses of syndication, according to local sources.
Bay Area advertising professionals expect KRON-TV to remain strong in late news, mornings, early evening news and access.
During prime time, the station will benefit, Young says, from the additional 12 minutes of prime time inventory that would have gone to a net. Its first year as an independent will also be a political year, therefore a good one for local advertising on a strong news station.
KRON-TV General Manager Paul "Dino" Dinovitz says that, "in some slots, rates will drop," obviously including NBC-dominated time periods like Thursday nights at 10, "and in some," he predicts, "we'll see an increase." Upbeat and unabashedly optimistic, he asserts that, "overall, we should generate significantly more revenue."
His boss is even more emphatic. "Actually, other than prime time and late night, the programming will change very little," Young says. "Our audience will not decline, in the sense that we will still be serving all of the market that we do now. Other than in the highest-rated NBC prime programming, we do not think that our individual program ratings will be much affected."
And he says getting back the advertising slots NBC now controls "will go a long way in replacing" what the station gives up in lower ad rates.
Wall Street has not favored either Young's or Granite's moves. Young has said that the possibility of running KRON-TV as an independent was always factored into the sale. But several analysts and broadcasters contend that the station was overpriced even as an affiliate and the deal got worse when KRON-TV became an independent with an advertising market going south.
They note that other independents—including Young's own KCAL, which has boosted cash flow considerably—profit from sports, which KRON-TV won't have. And, analysts say, Young paid less than half for KCAL in a market twice the size.
Young did get an immediate return from KRON-TV. The station brought in more than $90 million in cash flow for 2000, a record-smashing year, and could break $80 million this year. Perhaps it's a comment on KRON-TV's historic success that executives at both Granite and Young are targeting its pre-2000 cash flow of $50 million to $60 million as goals for 2002.
Young says he's "more than pleased" with the station's "incredible performance in our first year of ownership. KRON increased its financial performance by approximately 70% last year, adjusting the results for a full calendar year of our ownership. Our forecasts for the future are realistic and were fully formed before we even bid on the station."
Still, others say major-market stations tend to hold their value because they are in limited supply. They argue, too, that the bidding on KRON-TV was, in fact, chilled by NBC's actions. That suggests Young did not overpay—and that, while it could be a difficult year and a half for Young, the value of its properties could well increase in the expected deregulatory environment.
"I do not believe Vincent Young was blindsided," an analyst says. "Vincent had deep discussions with NBC about what the relationship would be if Young owned KRON."
For Granite, with its upcoming NBC affiliation and financial commitments, analysts believe that much of the challenge was to get through this money-losing year and a half between affiliations. That pressure was alleviated by a new financing deal with Goldman Sachs and a new level of cooperation with NBC—including deferral of more than $30 million of its payment from Jan. 1 next year to a few years down the road.
Since the NBC deal, KNTV has moved from Monterey-Salinas DMA No. 119 to San Francisco-Oakland-San Jose DMA No. 5, recognized by both Nielsen Media Research and the FCC. Franklin also notes a new cable deal that carries the station through most of the area and an improved signal.
While doubters remain, Franklin is undisturbed. "By December, we will reach 1.7 million homes. Eighty-five percent of the population [in the DMA] is south of the Golden Gate Bridge. If television were invented today, would you build a station in a city that, since 1950, had its number of homes go down, like San Francisco? Or would you build it in a city down in the South Bay, where there are six times the number of homes?
"The ADI is not just San Francisco. It's an 11-county ADI. And I'm situated in the most populous area of the Bay Area."
Every station in the market, says NBC TV President Randy Falco, "has its own set of signal issues." How KNTV stacks up, he says, "depends on whether you think San Francisco is more important than San Jose. I wouldn't want to give up any of it. ... We're in the best place—geographically and demographically—in the DMA."
Viewers will judge that, beginning next year, when KNTV becomes a new affiliate featuring a blockbuster premiere: the Winter Olympics. Granite's Cornwell says, Granite will reap "the benefits of having a very large audience in a very large market. That usually translates into very large revenue."
Likewise, Vincent Young remains optimistic about KRON-TV. "We have reason to believe we have done a very good thing for the company," he says. "The rubber will meet the road, and everybody will figure out whether we're smart or not."
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Bold = Duopoly ownership
*KNTV becomes the NBC affiliate, and KRON becomes an independent in 2002.
**KTNC becomes affiliated with the new Spanish-language Azteca network later this year.
Information provided by BIA Financial Network
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