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Windows Shut on Stations

Local broadcasters weigh impact of networks' on-demand deals 11/11/2005 07:00:00 PM Eastern

When NBC and CBS cut their landmark deals last week to deliver on-demand programming, local broadcasters across the country collectively shuddered. For the first time, marquee shows such as Law & Order: Special Victims Unit and CSI will be available in reruns hours after the broadcast premieres. It is a station manager’s nightmare.

For years, TV stations have leveraged their exclusive first window for network programming to attract viewers and advertisers and provide a promotional platform for local news. Even when programs went into cable and broadcast syndication, there was usually at least a week between plays. But now, with windows collapsing to mere hours, on-demand deals threaten to erode their audience.

“There isn’t 'Must See TV’ on Thursdays anymore. Now it could be Friday, Saturday or Monday at 2 a.m.,” says Paul Karpowicz, president of Meredith Broadcasting. “There is something special about a schedule that is exclusive and unique. We don’t know what will happen when you take that away and the content is everywhere.”

The new deals are truly groundbreaking. NBC will provide selected programming, commercial-free, to DirecTV’s new DVR Plus service hours after shows are broadcast. Meanwhile, CBS formed a pact with Comcast Cable to make several of its hits, including CSI and Survivor, available on-demand in 16 Comcast markets where Viacom owns a CBS station, including Philadelphia, San Francisco and Chicago. The CBS shows will run commercials. In both cases, shows will cost 99¢ and can be watched for 24 hours.

The deals follow ABC’s agreement last month with Apple to sell episodes of Lost and Desperate Housewives on iTunes.

Most affiliates did not have advance warning of the NBC and CBS deals. “We are disappointed that the stations weren’t brought into this,” says Alan Frank, president/CEO of  Post-Newsweek stations and new NAB TV Board chairman. “We understand the business is changing, but we are the networks’ business partners.”

At a time when viewers are distracted by the Internet and commercial-skipping digital video recorders (DVRs), TV stations, networks and other media companies are hunting for alternative ways to deliver content and find new revenue. For example, Google and Yahoo! are streaming TV shows on the Web.

Cable operators, led by Comcast, have been trumpeting their video-on-demand (VOD) services, a feature DBS companies technologically cannot provide. Although VOD menus to date have been clogged with B-list fare, the services are slowly catching on. Last season, Comcast’s NFL highlight service was used more than 8 million times, and its PBS Kids Sprout fare was ordered 4.4 million times in one month, according to a report by Sanford C. Bernstein & Co.

PRIME ASSETS FOR SALE

The network deals may be small in scope—so far, a limited slice of Americans have the necessary equipment—but they are important first steps. After years of shying away from new platforms, broadcast networks are showing a willingness to experiment. And, to affiliates’ chagrin, they are starting off with prime assets.

“It’s not like this is a side experiment with lesser programming. This is the most valuable real estate,” says one station executive. “What is more important to an ABC affiliate than Desperate Housewives, or CSI to a CBS station?”

Stations executives say they have to wait until the technology is more widely used to assess the damage. But last week’s developments served as reminders that they, too, must innovate. “In the future, being a distribution system will be less important for local broadcasters than being content providers over multiple platforms,” says Liberty Corp. President/COO Jim Keelor.

To that end, many stations are beefing up their Web sites and focusing intently on local news. “It is incumbent on us to respond with what we do best,” says Chris Sehring, VP/general manager for Clear Channel-owned CBS affiliate WKRC Cincinnati, “and for stations, that is localism.”

Many stations are launching secondary digital channels, and in several markets, stations have cut local VOD deals with cable operators to replay news and sports.

At NBC, ABC and Fox affiliates, executives say they are bracing for more on-demand deals. CBS will no doubt want to cut more-extensive pacts but is restricted by its affiliate agreements, which call for stations to help pay for the network NFL deal in exchange for CBS’ not immediately repurposing prime time programs. CBS affiliate managers expect that the network will look to renegotiate.

Looking ahead, station owners say they would like a cut of revenue or perhaps other financial relief, such as network compensation or reduced contributions for sports. So far, however, no one has offered a model.

“We don’t have a problem working with the networks to find ways to help them make money,” says Frank. “It just would have been nice to be consulted rather than them taking the tack of operating unilaterally.”

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