Local TV

Power Couples, Power Struggles

Networks and affiliated stations are a partnership, of course. But is it an equal one? 9/05/2011 12:01:00 AM Eastern

Burns and Allen. Lucy and Ricky. Felix and Oscar. Networks and
affi liates have been among the most successful, and enduring,
partnerships in television history. They’ve had their share of Odd
–esque spats, all ultimately tempered by mutual respect
and the realization that they are way better off together than apart.

Yet in this scorching summer of broadcast discontent,
with multiple stations cut loose from their affiliated networks,
the dynamics of the cooperative are clearly shifting.
While no one denies that it remains a partnership,
the more pressing debate heading into TV’s fall season is
whether the networks and their affiliated stations are a
50-50 partnership—and if not, who has the upper hand.

With the networks—and brazen Fox, in particular—
calling most of the shots when it comes to splitting up
retransmission cash and deciding when an affiliate relationship
has run its course, the scales appear to be tipping
slightly in favor of the nets, say several industry watchers.

“Affiliates would be satisfied with a 50-50 split right
now, saying their news and syndication and emergency
response drives local viewership. But I don’t believe the
networks agree with that, with primetime and sports
providing more value than the other way around,”
said Larry Patrick, managing partner at brokerage firm
Patrick Communications. “Ideally, the pendulum
would be in the middle. It’s my belief that it’s swung
heavily in the networks’ favor.”

With station groups pushing hard on the cable, satellite
and telco services that carry their signals for retrans
revenue, and networks demanding a big chunk of those
earnings, the debate over which side brings the most value
to viewers—and to the subscription-TV services—is particularly
timely. Such a
debate, to be sure, is subjective,
and fraught with
variables—for instance, which network is being discussed,
how strong a station’s parent company is, the size of the
market and the station’s place in the local pecking order.

B&C polled equal parts network brass, station executives
and industry figures who might be considered neutral,
asking them whether the Big Four networks, or their
partner stations, bring more value to viewers right now;
anonymity was proffered in an effort to generate more
candid discussions. As one would guess, the network
people argued vociferously for their programming, while
the local TV people made a noisy case for local news,
syndication and their community outreach efforts.

It was the less partisan parties—investment bankers,
ad reps, analysts, broadcast watchdogs—who, on
balance, suggested the networks have the upper hand.
While local news, with the exception of the true station
powerhouses, is often seen as a commodity by viewers
in a given market, marquee programming such as American
, Dancing With the Stars and NFL football have
an undeniable air of exclusivity about them that many
feel tips the scales in favor of the networks. That Fox has
readily found new affiliate partners in several markets
this summer indicates, to some, that the networks are
playing offense and forcing the stations to play defense.

“Theoretically, it should be a 50-50 negotiation,” said
Marci Ryvicker, managing director of equity research,
media and cable, at Wells Fargo Securities. “But networks,
with their programming and sports rights, have
a little more leverage.”

Local Is Focal

Stations derive 46.8% of their revenue from local news,
according to a study from RTDNA-Hofstra University,
which also revealed that affiliates air an average of 5 hours
and 36 minutes of their own news a day. With their rapidly
increasing output—and often a half-century of community
goodwill in the bank—stations believe they offer the bulk
of value to viewers. Wall-to-wall coverage during the recent
East Coast earthquake and hurricane served as a reminder
of the role leading stations play in their communities.

“The commitment we have to local news continues to
be what drives the brand of a television station,” Brian
Lawlor, senior VP of Scripps, told B&C. “A news leader
isn’t necessarily associated with the top primetime and
top network news in a market. There are decades of
brand and community commitments that make a station
one of the best, if not the best, in a market. Just
because you’re af! liated with a certain network doesn’t
mean they should be enjoying 50% or 70% of the value
that you created over decades, with or without them.”

Indeed, in those markets where a station’s local news
outperforms even the primetime hits indicates how powerful
the bond between viewers and the local brand can
be. KETV Omaha’s late news beat all prime shows except
Dancing With the Stars in adults 25-54 in the May sweeps.
WCSH Portland’s 6 p.m. news notched a 16 household rating/35 share in May—better than all primetime series.
(American Idol’s Wednesday average was 15.6/26 in
Portland, a little higher than its Thursday ratings.)

At those stations, it’s the local brand, not the network’s,
that stokes tune-in. “The stand-alone strength of a station
tends to drive the balance of value in the partnership,”
Steve Ridge, president of the media
strategy group at Frank N. Magid Associates,
said via email. “The connection with
the community is an underlying foundation
that clearly differentiates what a
local station brings to the table.”

Networks Hold the ‘Idol’

But middling stations that are heavily
reliant on their partner networks
seem to be more the norm than the outliers.
No one from the Big Four networks
would comment on the record, indicating
what a sensitive issue the changing network-affiliate dynamic represents nowadays. The network execs, emboldened
by collecting substantial affiliate fees when they
used to pay out reverse compensation, have been more
candid about the topic while addressing investors.

“If a station is looking at what’s really bringing in the
money, it’s the NFL, it’s American Idol, it’s CSI, it’s the
primetime strength,” Leslie Moonves, CBS president
and CEO, told the Nomura Securities conference in
June. “It’s not the local news or, you know, Regis and
at 9 a.m., that’s bringing in the big bucks.”

Disney chief Robert Iger was more politic in discussing
earnings last month. “While [affiliates] all are
encouraged by the retransmission fees coming and
becoming more and more real,” Iger said, “they also
realize that a lot of the value created comes from the
programming that the network provides them.”

0905 Cover Story PowerStationChartSome are starting to wonder if the network-affiliate
model still delivers on one of its initial purposes. “Networks
used affiliates to sell ads nationally. Now they do
that with cable,” said Kip Cassino, executive VP at ad
research firm Borrell Associates. “If the big reason [to
partner] stops being big, the relationship between the
network and the station is going to change.”

Several sources brought up the case of KRON San
Francisco—and its value as an NBC station until it lost
the affiliation in 2002—as an example of how important
a Big Four affiliation is. (Young Broadcasting bought
KRON for a record $820 million in 2000, but could not
sell the station
at a bargain-basement price after it
lost its affiliation.) “Station groups need to affiliate
with a network,” said Ryvicker. “You
see a
company like Young go bankrupt
when they lose their affiliation.”

A more recent example of what
happens when a station loses an affiliation is Nexstar’s WTVW Evansville
(Ind.), which asserted its independence
on July 1 after a split with
Fox. Five weeks later, Nexstar divested
WTVW for $6.7 million, while acquiring
the market’s ABC affiliate, WEHT, for
$18.5 million. WVTW and WEHT were virtually
tied in 2010 revenue, according to BIA/Kelsey.

Management at WTVW, WFFT Fort Wayne, KTRV
Boise and the former KSFX Spring! eld (Mo.) are learning
about the challenges of making a go of it without
those network studs in prime. (Nexstar’s WFXW Terre
Haute also lost its Fox affiliation, but aligned with ABC
as of Sept. 1. Nexstar did not return numerous calls for
comment.) KSFX, relaunched as KOZL “Ozarks Local,”
debuted My Name Is Earl and Everybody Loves Raymond
in its 8-9 p.m. slot Sept. 1, offering little hope of matching
the ratings, and promotional might, that Glee and
American Idol had produced. KTRV, for its part, is shooting
for 70-75% of the ad rates it used to get in primetime,
on the backs of 30 Rock and Law & Order reruns.

“If you no longer have American Idol and football,”
said Larry Patrick, “almost nothing you put on will deliver
those numbers for you.”

A handful of independents, such as Post-Newsweek’s
WJXT Jacksonville, are successful. But network programming
vet Garth Ancier is fairly perplexed when he
hears talk of stations going at it without a network in
their corner. “It’s very clear the value of a station, particularly
now, really is based on its network affiliation
to a great degree,” Ancier said.”What do you offer that’s
unique to cable operators, or viewers? There’s no question
a strong newscast is an asset and a differentiating
factor in the market. But network programming, and
sports, is where the real value lies.”

Of course, a network with no local broadcast partners
isn’t much of a proposition either. “A network without
strong affiliates is, in my view, dead on arrival,” said Bill
Fine, president and general manager of WCVB Boston,
an ABC affiliate. “They can go with a different platform,
as some have threatened but have never done, as everyone
knows they’ll lose a substantial amount of audience.”

Figuring Out Fox

A station’s leverage is directly correlated to its position
in the market; several sources made the point
that the top two stations in a DMA hold the balance
of power with their network, the rest relegated to a
more subservient position. “A weaker local news station
tends to be at the mercy of the ebb and " ow of network
performance,” said Magid’s Ridge. “Stronger af! liates
are in a position to control their own destiny.”

Then there’s the complicated case of Fox, which provides
its af! liates with far less programming than ABC,
CBS and NBC, yet is, by nearly all accounts, the most aggressive
in its retrans demands. “It is interesting that Fox
is driving the hardest bargain despite providing just two
hours of programming per day, while the Big 3 networks
provide roughly nine hours of programming per day,” read
the Coady Diemar Partners’ “Media Maven” report in June.

Yet several Fox affiliates say less network fare is better,
especially when it includes Idol, the NFL and, if the hype
is to be believed, The X Factor. “More [network] time does
not mean better time when the network’s news brand
sucks,” said one GM. “Fox gives us good sports, and lets
us do [more] syndication and local programming.”

With a hot hand in prime, Fox has continued to cut
ties with laggard affiliates throughout this strange summer,
while ABC, CBS and NBC have thus far not drawn up divorce
papers. If networks indeed have a slight upper hand
right now, industry vets say these things are cyclical, and
what goes around may indeed come around before long.

Despite their differences, leaders on both sides of the
aisle seem to agree that these clashes must be put aside
if broadcast television is to retain its relevancy amidst a
barrage of competition. “At the end of the day, all would
say they’d rather have a healthy partnership with the
network than not,” said Marci Burdick, senior VP of
broadcast at station group Schurz Communications.
“Economically, it’s in both of our interests.”

E-mail comments to mmalone@nbmedia.com
and follow him on Twitter: @StationBiz


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