Network-Affiliate Frenemies Go Nose to Nose

With Fox partner stations not feeling much Glee, all eyes are on the network-affiliate battles for retrans cash

The saber-rattling between Fox and its affiliates board that played out in the media last month is more of a fullblown sword fight in parts of the country these days. With the network demanding a hefty chunk of partner stations’ retransmission consent cash as part of its new affiliation agreements, several station groups are currently facing deadlines to sign on Fox’s dotted line—or consider life as an independent or a station affiliated with a lesser network. Fox has told the affiliates that the terms of the new agreements, including these healthy “program fees,” are non-negotiable.

Some station groups, however, beg to differ. “People can ask for whatever they want to ask, but their ask is nothing I can see any affiliate agreeing to,” says Perry Sook, chairman/president/ CEO of Nexstar Broadcasting, which has 15 Fox affiliates. “But it’s their prerogative to ask what they want.”

As the network affiliate boards prepare to meet in Las Vegas next month, nothing short of a complete overhaul of the age-old network-affiliate relationship is taking place each day. While Fox has had the most public affiliate squabbles by a mile, the issue is hardly limited to that network.

The retransmission consent windfall was life support for numerous station groups in the recent recession, but the partner networks want a big-time taste of the cash. Precisely what percentage of a station’s value to viewers comes from network fare, and what comes from local news and syndicated shows, is up for debate. And with an estimated $1.2 billion worth of retrans in play for 2011, according to a report from Veronis Suhler Stevenson, that debate is raging between networks and their partner stations across America.

Sook, for one, says he’s continuing to negotiate with Fox over terms of Nexstar’s affiliation agreements, the bulk of which expired in June. Fox smash American Idol winds down each season with two combatants fighting hard for the prize, and a clear-cut winner still standing when it’s over. Who emerges victorious from the hard-fought Fox-Nexstar duel will be much harder to determine.

Measuring a Network’s Value

Whether they call it retrans, program fees, reverse compensation or even reverse retrans, networks believe their contribution to a station’s value has long been underestimated. “We think it’s very important we get paid for reverse compensation, and we will,” CBS Corp. President/ CEO Leslie Moonves told B&C. “Obviously the network deserves to get paid from the affiliate body. The reason the affiliates are getting compensation is primarily because of primetime and football. That should be part of the equation.”

While CBS, NBC and ABC have been able to keep their negotiations with affiliates private, that has not been the case with Fox. Sharply worded missives between Brian Brady, Fox affiliate board chairman, and Mike Hopkins, Fox president of affiliate sales and marketing, in which Brady charged Fox with “striking fear in the hearts of affiliates” and Hopkins spoke of “pursuing different distribution channels” for affiliates that failed to meet Fox’s proposal, got very public after they leaked to the media last month. (Those distribution channels might include Fox going straight to cable, or affiliating with another station in a market, Hopkins told B&C, and are last resorts). The two parties failed to reach a blanket agreement for affiliates, meaning Fox is negotiating with station group partners individually.

Brady, whose own Northwest Broadcasting has been tangled in a retrans stalemate with DirecTV since New Year’s Day, did not comment.

Fox is, by all accounts, being very aggressive on retrans demands. On a News Corp. earnings call last month, Chase Carey, president/ COO, said affiliate fees are worth hundreds of millions of dollars to Fox. “In many ways, I think a broadcast network should look like a cable network and it should have two real meaningful streams of revenue, subscription and advertising,” he said, “as we look for this to be a significant part of the revenue for that broadcast business.”

Lacking in ‘Glee’

The network offering Idol, Glee and, this fall, The X-Factor, is demanding 25 cents per subscriber from affiliates in markets 1-125 in the first year of the deal, according to affiliates, climbing to 35, 42 and 50 cents in subsequent years. Fox affiliates in smaller markets follow a relatively less expensive rate card. For many on the local level, the rates vastly exceed both what they are receiving from subscription TV operators in their markets now, and what they can expect to get in the next several years.

Multiple executives on the affiliate side did not want to be quoted, fearing that would hinder discussions with Fox. But their anxiety is running high. “After 25 years of partnering, it’s what have you done for me today,” says one GM at a smaller Fox affiliate. “They’re looking for money that doesn’t exist. We’re getting pennies from the cable companies, and they want between 4 and 10 times as much—overnight.”

The grumbling may be gamesmanship to a degree, but some affiliates are talking about full-on doomsday if they follow the prescribed rate card. “They’re asking for more, with a faster ramp-up—that’s the source of agita for the Fox [affiliates] camp,” says one owner of multiple Fox affiliates. “I think it will be very dif! cult for some af! liates to absorb this.”

In a statement, Fox called its negotiations with affiliates “a private business matter. As such, these discussions are confidential.”

One Fox insider said the network was off to a strong start in getting station groups on board with the new affiliate terms.

Many on the affiliate side agree that some retrans-sharing with the networks is smart business in order to prevent big-draw programming from shifting to cable, such as the BCS college football series’ move to ESPN. Some Fox affiliates privately say the network’s demands will jump-start their own underdeveloped retrans strategies.

“I understand what Chase Carey is trying to accomplish, and I can’t say I disagree with what he’s trying to do,” says one owner and prominent figure among the Fox af! liates who asked not to be named. “If you don’t set the bar high, no one is ever going to meet it.”

Devil in the Details

While Fox appears particularly aggressive in its demands, and its talk of cutting ties with affiliates certainly jangled nerves at the local level, what the network is pushing for from affiliates may not be all that different from the other networks. Similar to Fox, ABC, CBS and NBC are working out retrans deals with individual station groups, as opposed to the blanket approach.

Some ABC affiliates have chafed at the program fees imposed on them by Disney, but relations between the stations and the network have been positive. “We’ve worked through those issues and we’re working on other things now,” says ABC affiliates board chairman Bill Hoffman, citing, among other projects, the Inventory Exchange System that sees ABC and its affiliates buy and sell extra spots from each other.

Over at CBS, Moonves was typically bullish on what he terms “reverse comp” while addressing investors in late February, saying 25 cents per sub will kick $225 million to CBS’ coffers in two or three years’ time. “Some of the negotiations have been tough, but we’re getting the numbers that we want,” Moonves said.

Wayne Daugherty, CBS affiliates board chairman, says the net is playing hardball, but he suggests it’s more of a dialogue with CBS than might be happening elsewhere. “It’s my perception that all the networks are being aggressive,” Daugherty says. “They all approach it slightly differently, but with the same end result—money going the other way that’s significant for us.”

NBC has been particularly quiet on the retrans front, but that was expected during the long merger process between NBC Universal and Comcast. Brian Lawlor, NBC affiliates board chairman, says the various station groups, including the Scripps batch he oversees, are quietly getting their deals done with the network. “NBC is looking at a dual revenue stream,” Lawlor says, “and they’re looking to affiliates to contribute to the investment in programming.”

As far as meeting topics are concerned, the cost of being an af! liate should be hotter than the midday Vegas sun when the affiliate boards meet there April 10-12. No one contacted for this story wants to see the network-affiliate model blown up, but few disagree that there’s a dramatic shift in the partnership afoot. Everyone in both local and national TV is watching Fox’s battles to see exactly how much cash the affiliates are willing, and able, to cough up, and what the reverse comp benchmark becomes.

“I think all the networks are going to be aggressive as we all figure out what the balance is,” says Paul Karpowicz, Meredith Local Media president. “Everybody is watching [Fox] carefully to see how it plays out.”

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