JESSELL AT LARGE

Fox’s Hulu Deal Sets Disturbing Precedent

Fox has created a national feed of Fox programming that Hulu is substituting for Fox affiliates until they settle their differences. Fox apparently wants to make sure that it sets the lowest possible benchmarks for compensating affiliates, even though they contribute much with their local news and popular syndicated shows. Fox should be encouraging affiliates' enthusiastic participation with compensation equal to their true value.

Fox deserves another entry in the annals of broadcasting. This year, it became the first network to bypass its affiliates via an alternate distribution system.

According to the Wall Street Journal, Fox has created a national feed of Fox programming that Hulu is now substituting for local Fox affiliates until Fox and its affiliates settle their differences over divvying up the carriage fees Hulu pays.

For years, I have suspected that one of the networks would trigger the bypass option. They have been using the threat for years. I recall that NBC Chairman Bob Wright floated the idea at a nadir in affiliate relations in the early 2000s.

And I am not surprised that it was Fox that was first to pull the trigger.

From the moment the networks first set eyes on their affiliates’ pot of retrans gold, Fox has been most aggressive in trying to dip into it. (CBS has been a close second.)

Hulu represents a new distribution channel — the virtual MVPD, the broadband equivalent of cable and satellite. The vMVPDs want the local stations, be they O&Os or affiliates, and they are willing to pay for them.

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But Fox apparently wants to make sure as it steps into this new world that it sets the lowest possible benchmarks for compensating affiliates, even though they bring much to the Fox channel with their local news and popular syndicated shows.

I’ve heard second-hand that Fox was offering some affiliates as little as 50 cents per Hulu sub, far less than they are getting in net retrans (retrans minus reverse comp).

I went to S&P Global’s annual Radio & TV Finance Summit in New York yesterday, and expected to hear come blowback from representatives of the two big Fox affiliate groups — Sinclair and Nexstar.

I was disappointed.

Instead of protests, Nexstar’s Tim Busch and Sinclair’s Steve Pruett gave little speeches about the how vital and mutually beneficial the network-affiliate relationship has been over the years.

The implication was: relax, the terms of vMVPDs distribution will sort themselves out and network and affiliates will continue to prosper together.

Busch said there will always be “bumps along the road as any relationship … but there is no better model in terms of distribution.”

He said: “They want to see us win; they want to see us succeed. “Otherwise, their model becomes flawed.”

There was more of the same from Pruett. “Don’t confuse negotiation over value with an attitude problem,” he said.

The networks can’t get along without the affiliates, he said. “It’s easily demonstrated. There is a massive difference in monetization, ratings and everything else when you have a stronger local content base.”

I can only speculate as to why the two didn’t scold Fox for its strong-arm tactics. Perhaps it’s because, as larger affiliates, they know they will ultimately get the same kind of money (or close to it) as they get from net retrans. In other works, they know that they are not among the 50-centers.

Another possibility is that they are among those who don’t see vMVPDs as that big a deal. Perhaps this is a fuss over a few millions cord-cutters and cord-nevers and won’t ever have a material impact on the networks or the affiliates.

Kevin Latek of Gray Television, who appeared yesterday on the same panel as Busch and Pruett, is in this camp.

The thousands of hours that broadcasters have spent over the last 15 months trying to come up with vMVPD distribution deals have been mostly a waste of time, he said. “There are not that many people out there who are going to switch to an over-the-top provider.”

Yet another panelist, Michael Nathanson, a securities analyst who covers Fox and the other big multimedia companies, suggested that Fox should be excused for bypassing its affiliates.

“It’s a sign that Fox really wants to get this launched ahead of the fall season and they’re really frustrated that they can’t market nationally a product they believe in that they put a lot of their energy behind.”

I get the frustration, but the Fox affiliates would eagerly climb aboard if they thought that Fox’s proposed splits were fair. They obviously do not.

CBS has been steadily adding affiliates into its OTT service, CBS All Access, because the promised share of the subscriber revenue was right. According to S&P Global, 153 affiliates are now participating.

Unlike Latek and others, I think the vMVPD platform is an important new platform, providing an alternative that is not only cheaper than cable and satellite, but also optimized for smartphones and tablets.

Over the next five or 10 years, there could be a huge migration from the thick bundles of the conventional MVPDs to skinny bundles of the vMVPDs.

Today, the vMVPD market is crowded and getting more crowded. Everybody wants in — Sony, DirecTV, Dish, YouTube, Apple and others.

Fox and its partners (Hulu is co-owned by Disney, Comcast and Time Warner) have a chance to quickly grab share and insure Hulu is one of the survivors in the eventual shakeout by getting to market as quickly as they can with the best possible service.

The best possible service includes real stations in every market with the local news, sports, traffic and weather.

As Busch pointed out, nothing beats that. When it comes to local service, he said, “We can out-Google Google and out-Yahoo Yahoo.”

Rather than bypassing affiliates with an inferior product, Fox should be encouraging their enthusiastic participation with a piece of the action commensurate with their true value.

Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or here. You can read earlier columns here.


Comments (10)

Leave a Reply

Wagner Pereira says:

June 16, 2017 at 4:19 pm

I am honestly surprised that YOU are surprised! After Fox signed an agreement with a major MVPD last year that allowed a distant signal to be substituted during an Affiliate Retransmission Dispute, who would expect less?

bill scaffide says:

June 16, 2017 at 4:51 pm

The networks changed their definition of “retrans share” to a programming fee over the past couple of cycles. The fee to the networks has already been paid. A new source of revenue from a different flavor of a MVPD shouldn’t open the door to the networks to take more of the bottom line. When cable or satellite subs cut the cord and move to OTT, the stations will lose the revenue but the programming fee will not drop. The networks saw this coming, which precipitated the change in reverse comp definition.

Kaylor Blakley says:

June 16, 2017 at 4:55 pm

Yes, this is a plug but we at Spincast (http://spincasttv.com/) are creating an ad supported OTT Network for every single local broadcaster globally, to air their locally produced content globally, that shouldn’t interfere with their current affiliated traditional Network! It’s a win-win-win for everyone! Send me an email and I’ll reply with details. Your total cost for the entire process to inquire is…. nothing.

Cheryl Thorne says:

June 16, 2017 at 6:39 pm

Fox does not care about their affiliates.Neither do the other nets..Affiliates are a convenient necessity .Rupert Murdoch is the orginal “win/ lose” executive..And yo are surprised. ?? Where exactly have you been for the last 20 + years??? There won’t be affiliates in 5 years!!!

    John Livingston says:

    June 16, 2017 at 10:46 pm

    Wrong there will be affililates in 5 to 10 years from now don’t see CBS, Fox, NBC, ABC getting rid of the affililates.

Don Thompson says:

June 16, 2017 at 6:53 pm

Who was it who said cable operators would destroy localism by importing Fox programming from another DMA …….???? Please Follow Me On Twitter: @TedatACA or @AmericanCable

Gregg Palermo says:

June 16, 2017 at 7:12 pm

“Fair” and “true value” are both in the eye of the beholder.

Kristina Veltri says:

June 18, 2017 at 2:18 am

If this was a relaunch of Fox’s ‘cable channel for DMAs not getting a Fox affiliate anytime soon’ Foxnet effort with a complete syndicated schedule pre-digital, that would be one thing. But this airs archive content from their other networks outside of network time that would scream ‘yeah, there’s other stuff on here, go watch something else’. I’m not seeing the issue; viewers will complain to the Fox affiliate to get stuff done so they can watch their shows, and most of it is just non-critical court and talk shows anyways.

kendra campbell says:

June 18, 2017 at 2:32 pm

What value do most Fox affiliates provide outside of Fox prime time? Please don’t respond with “important local news…”

    Keith ONeal says:

    June 21, 2017 at 2:14 pm

    I live in Orlando where the FOX station (WOFL) is a O&O. Some of their syndicated programming like Dr. Phil and The Real totally suck to begin with. I don’t care much for Harry or their test run of Jason. Listening to ESPN 580 (WDBO AM 580 Orllando) is more preferable.


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