Conan Wouldn't Be So Funny for Off-Net Sitcoms

News Corp.'s decision involves much more than just its Fox network
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It

will be no laughing matter for syndicators, including
News Corp.-owned Twentieth Television, if Fox decided to target Conan O'Brien
for its late-night lineup.

Whether that will happen is still being decided. The last
public word on the subject came from News Corp. CEO Rupert Murdoch himself, who
told reporters during a February conference call that his top executives were
"giving it a lot of thought and a lot of examination." Since then, News Corp.
has been silent on the issue, but the debate continues internally as to whether
it makes economic sense for the company as a whole, including its network,
stations and studio.

Much has been made about the fact that Fox-owned stations
and affiliates would have to clear an hour in late night to accommodate a new talk
franchise featuring O'Brien. Stations airing off-net sitcoms in late night
typically keep 10 to 11 minutes of inventory per hour. Should the hour revert
to the network, stations will lose about half that inventory, according to
several syndication executives, representing tens of millions of dollars. So, a
deal for O'Brien would have significant complexities as station business models
continue to evolve.

But it's not just the stations that would suffer.
Syndicators, including Twentieth, have a lot to lose should Fox decide to go
with Conan. Twentieth alone has several off-net sitcoms that would be affected:
It just renewed Family Guy for a second cycle; it's launching How I
Met Your Mother
this fall and American Dad in fall 2011; it targeted
the off-FX It's Always Sunny in Philadelphia for late fringe; and
Twentieth has this year's comedy hit, Modern Family, coming down the
pike.

Most
important, off-net sitcoms airing in late fringe would be pushed back an hour
to midnight or later, reducing the size of available audiences to watch
advertisements. "That would be a killer to sitcoms, particularly animated
ones," says one syndication source.

Animated sitcoms such as Family Guy, American
Dad
and Debmar-Mercury's South Park tend to be edgier than typical
sitcoms and thus are standard late-fringe players. Pushing them back an hour
would certainly affect their profitability.

Top multi-camera sitcoms with broad-based humor, such as
Warner Bros.' Two and a Half Men and Big Bang Theory, that are
scheduled to enter the market in the next month or two are less likely to be
affected, according to sources. Those high-rated shows are aimed at access time
slots, where audiences are much bigger.

While
many syndicators pointed at NBC Universal's 30 Rock as the most likely
victim of a Conan pickup, that show has contractually guaranteed time slots in
access and late fringe in all of its markets. If that were not the case, 30
Rock
would be vulnerable because it's sold on an all-barter basis, meaning
its revenue is completely dependent on advertising sales. Shows that are sold
for cash license fees as well as barter advertising time have more of a buffer
should they be moved to less lucrative time slots.

Having to move shows with guaranteed time slots presents
another problem for Fox-moving those shows would open up the stations to
lawsuits. To avoid that, Fox would have to air Conan in different time slots
across the country, depending on each station's existing deals until those
deals expired. Just the notion of pushing shows back an hour has agents and
producers' representatives on edge, and they already have let Fox know that it
could face lawsuits should their clients take a revenue hit, say syndication
sources.

Down the road, the hour of syndication lost by adding
Conan would reduce the late-fringe inventory in any given market by 12%-15%,
according to one syndication executive. "That could mean a bit of downward
pricing in the marketplace," the executive says.

Moreover, if the Fox stations and affiliates are
effectively taken out of the late-fringe sitcom business, Tribune gains a great
deal of negotiating power. Tribune's stations would be the only major
late-fringe sitcom buyer in top markets. That would depress the broadcast
syndication market for off-net sitcoms while sending more shows over to cable,
which has more money than TV stations to spend on off-net properties.

Tribune would also be the only outlet airing late-fringe
sitcoms in some markets while Jay Leno, David Letterman, Conan O'Brien and
Jimmy Kimmel divide the late-night talk audience amongst themselves. It's a
scenario Tribune would love to see come to fruition.

"It's a near-term versus long-term strategy," says Bill
Carroll, VP of programming for Katz Media Group. "In the short term, even under
the best of circumstances, Fox will take a hit if it picks up Conan, but the
question is how much. In the long term, Fox would be building a potential
franchise in a time period that it could program forever. That's why the other
networks are in that game." 

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