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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