Careful What You WISH For - Broadcasting & Cable

Careful What You WISH For

Upgrading a station’s network affiliation at another broadcaster’s expense is an enticing proposition, but many believe it ultimately does more harm than good
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It was an otherwise sleepy Monday morning in August, much of the industry brass sitting on a beach somewhere. But CBS and Tribune were working, issuing a stunning announcement that blew up any thoughts of a quiet week: CBS was shifting its affiliation in Indianapolis to Tribune’s WTTV, leaving LIN Media’s WISH—a CBS affiliate for 58 years— without a dance partner.

The statement from CBS, which was looking to put a scare into affiliates and ink some fast and favorable affiliation deals, asserted the eminence of its content in a station’s program mix. It also seemed to take a backhand swipe at LIN for not recognizing that value. “There’s nothing more valuable to a local station than programming from the No. 1 television network,” said Ray Hopkins, president, television networks distribution, who added that CBS was “very pleased that Tribune recognized the full value” that the network brings to its affiliates.

So if there’s a ground zero for the mano-amano between networks and affiliates that’s been escalating these past few years, it’s smack in the middle of Indiana. Twenty years after Fox bought a stake in New World Communications and turned the local broadcast map into a nationwide game of Stratego, the shake-up in Indianapolis raised an intriguing moral dilemma: What are the ethics, if indeed there are any, surrounding the poaching of an affiliation from a rival? Are station operators, increasingly manhandled by the networks, obligated to stand together, or is that a notion from a different era entirely?

Every broadcaster has an opinion on the subject, and most come with more gray area than black and white. “Affiliation switches are rare these days; they used to happen much more frequently,” said Alan Frank, who retired as the Post-Newsweek Stations (now Graham Media Group) president and CEO last year. “But any good business executive has to be aware that there could be alternatives in negotiations—on both sides.”

The debate occurs with networks clearly holding the upper hand as the fight with the locals for retransmission cash goes on. What went down in Indianapolis only served to remind stations that forging ahead without network entertainment, sports and news is a mighty tough proposition. “It’s shaping up to be more winners and losers than I might have expected,” said David Bank, managing director, global media equity research, RBC Capital Markets. “The networks are able to play the affiliates off each other a little more than I thought, and it’s hard to see how the network loses in that paradigm.”

Whole ‘New World’

That infamous New World deal, involving the likes of WAGA Atlanta, KDFW Dallas and WBRC Birmingham, among many others, turned a bunch of blue chip stations into a Fox-faithful, and sent the dispossessed scrambling for new network partners. Even two decades removed, that cataclysmic time in local television still pops up regularly in conversations with veteran broadcasters.

Yet affiliation switches since then have been, as Frank notes, uncommon. KRON San Francisco famously lost its NBC affiliation in 2002, and its reincarnation as a MyNetwork- TV station forced parent Young Broadcasting into bankruptcy. In 2008, XETV, a Fox affiliate since the network’s launch in 1986, became a CW outlet after Tribune’s KSWB upgraded from a CW to a Fox. In 2011, Fox— laying down some tough new rules for affiliates— parted ways with a half-dozen stations, including WTVW Evansville, KTRV Boise and WFXW Terre Haute. Fox also acquired a station in Charlotte last year, leaving WCCB to convert to The CW.

No one is suggesting that Indianapolis marks the start of a radical affiliation shift. But stations are slated to get $9.3 billion in retransmission cash in 2020, says SNL Kagan, and the networks will stop at almost nothing to increase their take. “The networks are the ones that pay for the content that drives retrans money in the first place,” said Rich Greenfield, analyst at BTIG. With four or five news stations in a given market, he adds, local broadcasters “don’t create a lot of content that consumers really care about.”

So concerned were Fox affiliates about their partner network exerting its might that 60 station owners and executives flew to Dallas in July for a hastily assembled meeting regarding what Jeff Rosser, affiliates board chairman, called “new demands being made by Fox” of its affiliates in an internal memo.

Perhaps the most impactful speaker that day, say multiple attendees, was Peter Liguori, president and CEO of Tribune. Liguori, former entertainment chairman at Fox, had some heady insider information on the economics of network programming, which even seasoned local broadcasters found eye-opening, and urged the station folks in the room to be united when negotiating with the network. “It was, We’ve got to stand together, and not let Fox run over us,” said one attendee who requested anonymity.

That’s why many were shocked when, less than a month later, Tribune and CBS had a deal in Indianapolis that left LIN Media without a network partner. A Tribune spokesperson says Liguori’s diatribe in Dallas was primarily about TV Everywhere and that he stressed that each broadcaster must do what’s in the best interests of shareholders. Either way, a committee comprised of Liguori, LIN Media president/CEO Vincent Sadusky and other group chiefs tasked with representing the affiliates to Fox lost a key figure following the news in Indy, with Sadusky removing himself from the team. Tribune Broadcasting president Larry Wert, a respected local broadcast veteran, has had some serious fallout to dodge, say multiple insiders.

Tribune did not comment for this story; CBS and LIN Media also declined to comment.

The Art of Just Saying No

Some local broadcast executives argue that grabbing another station’s affiliation is, ultimately, bad for the business. Robert Prather, president/CEO of Heartland Media, mentions being approached by Fox a few years ago, the network gauging his interest in affiliating in Rockford, Ill. Prather’s first call was to Perry Sook, president and CEO of Nexstar, which owns Fox affiliate WQRF in DMA No. 136. When Sook said he had no plans to split with Fox, Prather told the network he wasn’t about to poach Nexstar’s affiliation. (A Fox spokesperson said that “any conversations that may have occurred years ago are hardly relevant to the current state of our business with any affiliate,” and said it was “grateful to have a strong and mutually beneficial partnership” with Nexstar.)

Prather, former Gray Television president and COO, would like to see the station groups work toward their common good more. “We’re just cutting our own throats,” he said. “We’re playing right into the networks’ divide-andconquer strategy; we do it all the time.”

Sook knows well the sting of being on the losing end of an affiliation switch. In 2011, Nexstar’s KSFX Springfield (Mo.), WTVW and WFFT Fort Wayne, among others, went independent following clashes with Fox. Like Prather, Sook says he’s been approached about sticking a network affiliation on a dot-two channel, at another station’s expense, but responded that “we are absolutely not in that business.” (Sook noted that he would be interested only if Nexstar had been stripped of an affiliation in that market.)

As long as local TV operators are willing to engage in such discussions, said Sook, the networks can and will play them off each other: “These swaps are like MMA cage matches. One of us knocks the other out, so they win. But the real winner is the promoter. In this case, that’s the network.”

“These things are only a credible threat because they’re a viable alternative,” Sook added. “If they’re not a viable alternative, they’ll no longer be a credible threat.”

Others take a more balanced view of the conundrum. Paul Karpowicz, president of Meredith Local Media, “totally agrees” with Sook’s philosophy, but cites the fi duciary responsibility of a public company to its shareholders. That means, at the minimum, considering the option. “With the pressure of quarterly reports, are you willing to pass up the opportunity to improve the station?” he said.

An honor system among local broadcasters is a quaint notion, suggests Bank, especially with broadcasting in general under great pressure to monetize content amidst slipping ratings. “You can’t really expect a rational economic player to go to market and not seek the maximum amount he can get for his programming,” said Bank. “That’s why standing up and saying, we need to have solidarity, is a little bit of hope as strategy.”

Going Indie In Indy

Time will tell if Tribune ends up winning in Indianapolis. The company’s stock took a dive following news of the switch; it opened at close to $82 per share that eventful morning, and closed at $75.20 a day later. Wall Street had its typical reaction to chaos, and believed that Tribune overpaid to secure the CBS affiliation. “They may win in Indianapolis, but are vulnerable in other markets,” Bank said. “Tribune risked winning the battle but losing the war.”

Liguori addressed the pact at an investor conference in September, saying terms were comparable to what Tribune is paying other networks for their programming. “Our deal with CBS is basically industry standard on the internals,” he said. “It’s a good deal for us, it’s a great deal for shareholder value, and we’re quite pleased with it.”

But it will take a mighty marketing effort to keep CBS viewership where it currently is after the switch happens in January. WISH, meanwhile, will learn about life without NFL football, NCIS or CBS Evening News. The station is adding 20 hours of news a week, including a 90-minute late block. It will be independent, with WTTV to run The CW on its dot-two. LIN was forced to rework the terms of its planned merger with Media General after the Indianapolis snafu, slicing $110 million off the deal’s original price.

The winner in Indy is obvious. “CBS signed up Tribune at the rate [the network] wanted, LIN had to get its deals done and everybody else was scared to death,” said one group chief. “The next day, everyone else was calling [CBS] affiliate relations, seeing if they could come to New York and get their deals done.”

The winners on the local level, meanwhile, may just be the stations in a disrupted market that stay true to their affiliations. “Switch is complicated for viewers,” said Bank. “Continuity is über-important.”

No one is predicting a replay of 1994’s tumult, but every new affiliation grab takes away a bit of the stigma. A former FCC chairman once remarked to Prather how different factions of local broadcasters—large market groups, small market groups, O&Os—would greet their key lawmakers separately, while the cable industry marched in lockstep, and largely had its way on the Hill.

“The industry has proven in the past that it’s not really together in a lot of aspects, and it’s hurt us bad over the years,” Prather said. “I really believe we’re our own worst enemy on this stuff.”

It was an otherwise sleepy Monday morning in August, much of the industry brass sitting on a beach somewhere. But CBS and Tribune were working, issuing a stunning announcement that blew up any thoughts of a quiet week: CBS was shifting its affiliation in Indianapolis to Tribune’s WTTV, leaving LIN Media’s WISH—a CBS affiliate for 58 years— without a dance partner.

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