Hearst-Argyle Television's NBC compensation payments will phase out over the next five years under the terms of a 10-year affiliation deal that ends in 2010.
That's according to sources familiar with the agreement. Neither NBC nor Hearst-Argyle officials would discuss the financial terms of the deal.
Analysts estimate that NBC currently pays the Hearst-Argyle stations approximately $14 million a year in compensation. Sources say those payments will be decreased gradually each year until, by the midpoint in the new contract, they will be reduced to zero.
The reduced payments are part of NBC's initiative to eliminate an estimated $200 million in compensation costs to stations. NBC is asking for reverse compensation in some cases but not from Hearst-Argyle, confirmed the station group's president, David Barrett.
NBC did ask Young Broadcasting to pay $10 million a year for KRON-TV San Francisco earlier this year. When Young balked, the network struck a deal with Granite, which agreed to pay more than three times that much to have KNTV(TV) become the NBC San Francisco affiliate starting in 2002.
Earlier this year, NBC and Gannett struck a new six-year affiliate deal that cuts Gannett's compensation by about two-thirds to roughly $10 million a year. With 13 mostly larger-market stations, Gannett is NBC's largest non-owned affiliate group.
CBS and ABC have similar comp costs and the same goal of eliminating those costs in the next few years. The networks argue that such payments make no sense in an era when they spend many billions developing programs to supply to stations.
Barrett said the deal brings "acceptable fair value" to the station group. "We have acknowledged that we're conscious of the fact that the business is changing, and we're part of that forward-thinking change. But also important to us was the value of our distribution platform. We arrived at a deal where the monetary terms and the non-monetary terms work for us."
The two companies will focus on a joint sales agreement for co-located Paxson and Hearst-Argyle stations and will explore possible program-development, digital and syndication opportunities.