Getting Tough: Sign of Things to Come?
CBS lawsuit over failure to pay bills may be precursor as stations struggle
By Paige Albiniak -- Broadcasting & Cable, 6/22/2009 2:00:00 AM
[This story was corrected on June 26, 2009]
In what could be the first of more such lawsuits to come in the syndication world, CBS Television Distribution last week filed suit against Global Broadcasting, owner of WLNE Providence, alleging that it failed to pay license fees on CTD-distributed shows Dr. Phil, Inside Edition, Rachael Ray, The Insider and Entertainment Tonight.
The suit comes at a time when TV station groups are facing some of the biggest financial challenges of the industry's 70-plus-year history. Several station groups and their parent companies—including Tribune, Ion, Young, Equity and Pappas—have declared Chapter 11 bankruptcy protection and are now reorganizing their debt, selling off assets or going out of business entirely. Granite filed for Chapter 11 bankruptcy protection in 2006, and emerged from bankruptcy in 2007.
That's enough to get syndicators wondering if stations are going to be able to make good on shows they've been sold for years out. One syndication executive says that over the past year he's become more debt collector than salesman.
“It's funny, in the past your biggest concern was always getting your stuff sold for the best deal,” he says. “But these days you have to be almost equally worried about getting paid for the deals you've already booked if more places go bankrupt.”
CTD's complaint against Global—purchased by Kevin O'Brien and Robinson Ewert, Meredith's former president and senior VP of sales, in September 2007—centers on two issues.
The suit contends that the station owes CTD nearly $5 million in license fees for the five shows, the contracts for two of which—Rachael Ray and The Insider—have already expired without being fully paid. Past-due fees amount to nearly $2.2 million, while fees for contracts still in progress amount to almost $2.8 million.
In addition, on June 5 WLNE General Manager Stephen Doerr said the station would stop airing the three shows whose contracts had not expired—ET, Inside Edition and Dr. Phil—as of June 28. That would deprive CTD of barter advertising revenue, according to CTD's complaint filed on June 16 in Los Angeles County Superior Court. CTD is suing for a minimum of $5 million in damages, although it also says it should be paid interest, attorneys' fees and reparation of barter revenues should WLNE pull the shows.
O'Brien, reached by phone, said: “I have not seen the filing and until I see the filing, I don't have any comment.” Calls to WLNE went unreturned. A spokesman for CTD said the complaint spoke for itself.
Sources close to the situation, however, say that CTD's move is a shot across the bow for any other stations that may be considering not paying their bills.
Several syndication executives say they are constantly working with stations right now over how best to settle their debts. Most stations are making some good-faith effort to pay their bills, even if they aren't able to pay in full or are paying slowly, the executives said. Global, however, had ceased paying altogether, said one source.
Though CTD ultimately made the decision to sue, syndicators generally have not embraced that strategy.
“This is a whole new way of doing business. In the past, television stations were like dealing with banks—they were solid as a rock. But with this economic downturn, that's no longer the case,” says one executive. “Now, it's incumbent on us to be creative and help these TV stations get healthy because that's our business.”
Adds Chuck Larsen, president of October Moon Strategies, “Lawsuits are of little help if the stations don't have the money. It's normally not a good idea to put your clients out of business. Studios understand the financial issues stations are facing, and are trying to work with stations as much as they can.”
Overall, 5% of commercial stations are in bankruptcy, according to John Feore, a communications attorney at the law firm of Dow Lohnes, during a panel at the National Association of Broadcasters convention in April.
E-mail comments to email@example.com
This dispute will likely lead to one major change in the way television program syndication is handled:
This may well be the end of the era where stations pay cash for syndicated programming.
I'm beginning to think that from in the future, all TV program syndication will be "pure" barter, where the station gets the show free, but the producer or syndicator sells commercial time in the show that every subscribing station must air during the show.
This way, stations don't pay out huge amounts of money for syndicated fare and thus, a situation like the dispute between WLNE and CBS Television Distribution is avoided.
Otherwise, disputes like the one between WLNE and CBSTD will continue to arise.
Joseph Gallant - 6/22/2009 3:07:49 PM EDT
One thing the article failed to mentin is bankruptcy leads to more. Suppose three stations in one market all compete and are roughly the same. They all have a million dollars in debt. If two are having issues and go bankrupt and re-organize their debt so they pay it off pennies on the dollar. Now the third station who didn't declare bankruptcy is at a disadvantage. The two bankrupt station now have lots of free money to buy things, pay staff, so the third station follows suit to be able to compete. I'll admit I oversimplified this for an example but you see how it works.
Eric Post - 6/22/2009 11:41:00 AM EDT
Daniel Belgrave - 6/22/2009 5:59:51 AM EDT
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