Network-Affilliate Relations Going To Get Bumpy Soon? (Jan 2002)

The new economy for broadcasters in the 21st century have been especially tough on the broadcast television industry.

While viewers have flocked to cable and DVDs for visual entertainment, the broadcast television networks and affilliates are reeling from lower advertising revenue due to fewer people watching each of the individual networks. Less viewers mean that advertisers can pay less for their spots.

Back in the early days, through the 80's, the networks not only paid their affilliates to carry their network programming (time-buy), but there were only three minutes of commercials per half hour. Now in the new television economy, the affilliates are ponying up the rights fees to carry their network's programming, and the ad spot minutes are double that of what they were three decades ago.

Back in 1999, KGTV in San Diego balked at Disney, parent of ABC-TV, in paying a rights fee to carry their network's programming; the other affilliates also objected to paying for programming they once got for free. It makes sense to protest since I have to ask what's in it for the stations such as a share in advertising revenues? The affilliates responded by dropping Politically Incorrect, Mickey Mouse Works, Port Charles, and other low-rated ABC programming, choosing to carry the bare minimum of programming. While the affilliates later brought back the programming, the root of the problem is money itself.

Money, rather an obscene amount of it, was paid out to the overbloated sports organizations such as the NFL, who demanded exhorborant rights fees from the networks to carry their football telecasts. The higher fees mean that the networks have to make that money up by either adding commercial time (one affilliate added 30 seconds of ad time illegally by computer-compressing the NFL telecast so that more time could be added for commercials), which there is a limited amount of time. Longer TV timeouts are out; games are long enough as it is. Adding longer pre-game and post-game shows helped get some people watching the tube before the games began, meaning, more people also saw the ads that helped take a bite out of the high cost of broadcasting the NFL games.

The dreaded option is, of course, the right of the network to demand more fees from their affilliates to carry their network programming, which in turn, is used to help pay for the NFL rights fees. In this time of declining revenues, many television stations are facing a hardship in making ends meet, while trying to maintain their commitment to serving the public interest such as broadcasting news and public service programming.

In the case of Disney, for instance, having cable outlets to repurpose (let's call it rerunning) their network programing on soon after they aired on their affilliates sounds good to the viewer who missed the broadcast airing of the show for one reason or another and want another chance to catch it again, but to the broadcast affilliates, its viewers that they will be losing so that people won't have to tape "Friends" and watch "Whose Line Is It Anyway" if they can watch "Friends" live and "Whose Line" on ABC Family in another time period, opposite whatever the affilliates are showing at the time. It makes sense for ABC and ABC Family to schedule programming that appeals to different audiences so that they do not compete against each other, but something has got to be in it for their affilliates in the form of monetary compensation for lost ad revenue on the local spots, right? You have ABC Family airing skating while ABC-TV aired NFL Football; in that case, it wasn't originally planned to be that way, but since the football season was bumped back a week, the skating show was bumped to cable, while being rerun on the ABC-TV stations the next day in case those who wanted to watch football also wanted to see the skating show, but for those who already watched the skating show on cable and don't need to see it again on the broadcast network, its viewers lost to their affilliates.

Rerunning network programming is a delicate issue between the networks, who want to maximize viewers by circumvent the outdated way of getting their shows more exposure, and the stations who claim that they have a right to the ad revenues of the programming they really are renting. In this new televison economy, as the viewers leave broadcast televison for other forms of entertainment, it's time for the stations to sink or swim in lower ad revenues, consolidation, combining staffs of two competeting stations, and at the same time trying to serve the public interest.

The cable networks such as HBO and CNN put out multiple versions of their channels on the cable systems, yet there is one version of each of the broadcast stations, except for KGTV which technically has two, with the second channel broadcasting local news and sometimes ABC News on cable 15. It's a matter of time before the other network affilliates make a demand on the cable systems to give them a second or third channel for them to program news and other entertainment; rerunning network programming by the affilliates could be a reality as they would not only be in control of when the shows aired, but their viewers would also see the local ads that helps the stations' bottom line.

It's not just ABC that's having a network-affilliate relationship that could get rocky soon. Other networks relations with their stations could also be in for some tough times.

At Fox, the network's 21/2-year-old inventory-buyback plan, in which affiliates buy back commercial minutes from the network, is up for renewal in June.

The network has approached several Fox affiliate groups about extending it, but the affiliates' board of governors has told network executives that the plan wasúfrom their standpointúa failure. The affiliates don't want any part of "Son of Buyback," as some of them refer to any possible extension.

At ABC, the third year of its deal by which affiliates help pay for the network's NFL rights just expired.

Also, ABC has let it be known it intends to "repurpose" programs much more in the future than in the pastúthat's why it bought the Fox Family Channelú which could make for a tougher renegotiation of the pact.

Affiliates also worry that the network will try to impose greater fees on them to help pay for the new (and yet-to-be-finalized) deal with the NBA.

Then there's the NASA (Network Affiliated Stations Alliance) grievance petition filed last March, in which the entire affiliate bodies of ABC, CBS and NBC leveled charges of strong-arm practices and rule violations vis-a-vis affiliation contracts.

Alan Frank, president of the Post-Newsweek Stations and an architect of the complaint document, which was considered virtually a declaration of war in some quarters, says he hears that the FCC is in the process of addressing the petition. Network sources counter that their attorneys believe nothing will come of it.

Fox affiliate board chairman Cullie Tarleton, who is retiring from Bahakel Communications (and the affiliate board) at the end of the month, says he wrote a letter to News Corp. President Peter Chernin several weeks ago, indicating that Fox affiliates had no interest in extending the buyback plan. Under that plan, which took effect in mid 1999, the affiliates started paying a combined $60 million annually for prime time spots they had previously received without charge.

"It really has been a financial hardship for the stations," Tarleton says. "When you couple it with the lousy economy out there, the broadcasting recession and the network's performance over the life of the buyback, you had a triple whammy. And, for a lot of stations, it really was the difference between positive and negative cash flow."

Tarleton does credit Fox with giving some relief, to the tune of $5 million a year, mostly to medium-size- and smaller-market affiliates. But that didn't mitigate most of the pain inflicted, he says.

The Fox board will meet with network executives next week at the NATPE convention, and no doubt the subject will come up. "If the network tries to impose another buyback, it will meet huge resistance," says Tarleton, who is still awaiting a reply from Chernin. " I know if it were put to a vote among the current board, it would be defeated handily."

Bruce Baker, executive vice president, Cox Broadcasting and chairman of the ABC affiliate board of governors, said talks between the board and ABC on a new NFL-exclusivity pact have been ongoing, with further meetings set up for the end of January.

Under the just-expired agreement, ABC affiliates paid $45 million annually and gave back 10 Saturday-morning 30-second spots, in exchange for eight new prime time spots and various levels of program exclusivity, depending on genre and daypart. Baker says it's not clear yet whether ABC wants to increase the cash component of the deal.

Talks could get stressful if the network wants to expand its repurposing rights, says Baker. The network now has the right to repurpose up to 25% of its prime time slate at will. "But the truth of the matter," he says, "is they haven't got close to using the full repurposing that exists in the current agreement."

As to the NBA deal, Baker says it would be an unwelcome surprise if the network asked the affiliates to help pay for it, "because, so far, I don't know of a single affiliate that they consulted regarding going after the NBA."

Meanwhile, CBS and its affiliates agreed late last year to extend their NFL-exclusivity deal for a couple more years. The new agreement is said to include minor modifications in the exclusivity provisions, but the affiliates approved it "without any contention at all," says one affiliate board member.

NBC has no blanket exclusivity deal with its affiliates, preferring to deal with the issue in individual affiliate renewal talks. Network sources say it has signed up about 85% of its affiliates to long-term renewal agreements in the last couple of years.

The most recent deal came last week with Post-Newsweek Stations' WDIV(TV) Detroit and KPRC-TV Houston. As evidenced by his role in the NASA complaint, Frank has been a frequent thorn in NBC's side on a number of affiliate issues.

But that didn't prevent Frank and the network from reaching a new long-term affiliate deal, which has elements both sides like. Neither Frank nor network executives would comment on the terms, but sources familiar with them say Post- Newsweek gets $9 million a year for 10 years. That's a nice chunk of change but 55% less than what the group had been getting under the old agreement and similar to other agreements the network has struck with its big affiliate groups.