WB, Trib Alliance Is Smart Business

The network and the station group need each other, but they negotiate tough

When The WB began in 1995, it was the brainchild of Jamie Kellner. One of the Fox network's original architects and one of Hollywood's shrewdest strategists, Kellner has the knack for discovering an unserved audience niche and making millions by programming to it.

But when Kellner hatched the killer ap called The WB, first he had to play matchmaker.

Tribune had a powerful group of stations—particularly WGN Chicago, WPIX New York and KTLA Los Angeles—and they were all operating as independents in an age when independent TV stations were rapidly disappearing.

Meanwhile, Warner Bros. had a prolific and lucrative television studio but no station group to call its own.

Voila! A marriage was born.

Of course, it wasn't as easy as that. Kellner had to persuade Tribune to invest in the new network, which it did, taking a 22.5% stake. He also had to get the broadcaster to pay
Warner Bros. for the right to air the fledgling WB.

That task was made even harder because, at the same time, Paramount was starting UPN with the well-known Star Tre
franchise as bait and offering to pay its stations in the traditional compensation model.

The WB, on the other hand, was starting with a blank slate.

As always, Kellner was confident he would succeed. He knew Fox was broadening its target demographic to adults 18-49, leaving the younger crowd underserved. He knew his new network would increase the value of Tribune's stations because, while he was at Fox, Kellner had watched those once-tiny affiliates get rich. And he knew advertisers were looking to target younger demos and would pay premiums to do so.

"Jamie made a lot of people very wealthy," says The WB Chairman Garth Ancier, who has worked with Kellner since the Fox days.

So this time, Kellner crafted a new model now known as "reverse compensation," something the other networks have since pushed on their own affiliate groups. Under it, Tribune pays Warner Bros. for The WB's programming, as all of The WB's affiliates do. As an investor, Tribune shares in the profits, if there are any.

The WB was profitable in 2002 and 2003, but Warner Bros. must first recoup years of losses before Tribune sees any money.

Also built into the compensation package is a formula that grants The WB a small percentage of stations' profits. That equation considers the difference between what the stations were earning before they were WB affiliates and what they earn now.

"Some percentage of the profit increase goes back to the network because we caused that increase," Ancier says.

Overall, the Tribune-WB marriage has worked well through the years, though it's not without its snags.

Last June, Tribune reupped with The WB for one more year, amidst rumors that Tribune was balking at the compensation amount Warner Bros. was requesting, among other issues. According to reports, Time Warner invests some $500 million annually into The WB, and it makes sense that it would want the network's major investor, Tribune, to share in the costs.

A request for more investment might have been an easier pill to swallow after the network's stellar 2002-03 season, when the network became profitable for the first time. The WB caught a wave of younger and family viewers with shows like Buffy the Vampire Slayer, Felicity
and Gilmore Girls. But it was not able to maintain that state last season, and its ratings plunged with shows that missed the mark, including a new version of Tarzan.

During negotiations, the debate between the two becomes chicken-and-egg, with each side trying to assert that it is the more important part of the equation.

But ultimately, it has always been one of those clichéd win-win relationships. The WB needs Tribune if it wants to continue as a locally delivered broadcast network, and Tribune needs The WB if it doesn't want to end up programming all 26 of its stations on its own—an expensive proposition. They're both looking at the big picture.

The one-year renewal is "smart on their part and on our part," Ancier says. "We are looking at a broadcasting business that is changing year by year. We are trying to make a long-term deal, and that will depend on the long-term state of the broadcast business."

"We are having very productive discussions about our affiliate-agreement renewal," says Pat Mullen, president of Tribune Broadcasting. "We have a great partnership with The WB. We both have a firm commitment to the long term."