WTTV Move Shows CBS Testing The Market

CBS isn’t taking its affiliation switch from LIN Media’s WISH to Tribune Broadcasting’s WTTV lightly, but Ray Hopkins, president of television networks distribution at CBS says the network will continue to entertain outside offers as it continues renewal talks with LIN and other affiliates.

“We always hope to work with the incumbent,” says Hopkins. “But if the incumbent doesn’t meet the value that we perceive it to be, we will certainly test the marketplace.”

That value is expressed these days in the programming payments or reverse comp that most affiliates pay the Big Four networks.

“It came down to the value that Tribune offered in its entirety versus what LIN was offering,” Hopkins says. “Tribune saw an opportunity in Indianapolis to have the No. 1 network. The valuation that Tribune put forth was more in line with what we are seeking.”

The affiliation switch, announced this morning, is effective Jan. 1, 2015. WTTV is currently a CW affiliate. Come Jan. 1, the CW programming will move to a WTTV subchannel. Tribune also owns the market’s Fox affiliate, WXIN. Tribune will begin producing local news on WTTV.

According to BIA/Kelsey, Indianapolis generated $156.1 million in TV revenue in 2013 with 22.1% ($34.5 million) going to WISH and 7.5% ($11.7 million) going to WTTV.

The deal also included Tribune renewing its affiliate deals with CBS in four markets: Memphis, Huntsville, Ala., Ft. Smith, Ark., and Richmond, Va.

In addition, CBS has renewed its affiliation agreement with Dreamcatcher Broadcasting’s WTKR Norfolk, Va., to which Tribune provides operational support under a shared services agreement.

The switch is a blow to LIN Media, which is in the process of  merging with Media General.

LIN has 10 other CBS affiliates: KRQE Albuquerque (DMA 47), WIAT Birmingham, Ala. (44), WIVB Buffalo, N.Y. (52), WANE Ft. Wayne, Ind. (109), WLFI Lafayette, Ind. (189), KIMT Mason City, Iowa (153), KOIN Portland, Ore. (22), WPRI Providence, R.I. (53), WTHI Terre Haute, Ind. (155), WKBN Youngstown, Ohio (113).

CBS is still working on renewals with other LIN Media stations, although Hopkins would not say how many.

“As far as going forward with LIN, they are a large affiliate of ours,” he says. “We expect to further engage with them in renewing in markets where we have markets up for renewal.”

It declined multiple requests for comment today.

David Bank, a securities analyst at RBC Capital Market, said in a note to clients that he was encouraged by the “hard line” that CBS has been taking on reverse comp.

“If CBS is willing to flex its muscles in reverse comp discussions, it’s possible we could see upside to long-term retrans/reverse comp total targets of [approximately $2 billion] by 2020.  

“At the end of the day, in many markets, we think if a local affiliate balks at CBS’s demands, the affiliate must recognize that other stations might step up to take over the affiliation at less attractive terms.”

The Marci Ryvicker analyst team at Wells Fargo said other switches are possible, but not likely. With its Fox affiliate, Tribune already has a strong presence in Indianapolis. “To us, the PR around this deal suggests that this is a signal from CBS to its affiliate body that it wants what it considers to be ‘fair value.'”

That doesn’t mean that CBS wants the lion’s share of affiliates’ retransmission consent revenue, it said. “We think CBS is asking for fair value based upon what it gets in retrans for its own O&Os. CBS is sort of putting a fire under its affiliates to go out and get as much as it can from the MVPDs.

“As our contacts put it, CBS is asking for a specific rate and it’s up to the affiliates to get a higher top line–that is what will decide what ‘portion’ of retrans is ultimately given back to the network.”

SNL Kagan senior research analyst Justin Nielson notes that CBS’s new deal with the NFL for Thursday Night Football may have prompted more aggressive affiliate renewal talks.

“Fox and CBS were the first ones to start extracting [reverse retrans] money, primarily because they are spending a lot of money on sports rights,” says Nielson. “Thursday Night Football is quite costly for CBS. They want to make sure they’re getting compensated for that.

“With all this TV station consolidation, you have larger groups, which are getting more retransmission consent fees that they’re collecting,” he says. “So, they’re getting higher and higher rates from multichannel operators. The networks want a piece of that.”