Commissioned by the four network affiliate groups, the study says that TV stations could generate new revenue by teaming with cable and satellite operators in offering video-on-demand programming and in better monetizing cable networks with local sales and promotion.
A confidential report prepared by BIA Advisory Services for the CBS, NBC, Fox and ABC affiliate groups suggests that affiliates work with cable and satellite TV operators and programmers in developing new businesses and sources of revenue.
In an economic spin on “the enemy of my enemy is my friend” axiom, the report cites the common threat of the Internet and characterizes cable, telephone and satellite as broadcasters’ natural allies, not enemies.
Through revenue-sharing arrangements with cable and satellite providers, the report says, the affiliates and the broadcast networks could offer “non-linear interactive streams” — that is, video-on-demand programs — with targeted “on-the-fly” advertising and promos.
And, in exchange for local ad inventory, affiliates could supply local programming and other local services for cable networks, including promotion, ad sales, ad trafficking and spot production, the report says. Enhanced by local programming and promotion, the cable ad inventory would be more valuable than it is now.
The report, authored by BIA’s Rick Ducey and titled Survival of Network Affiliated Television Stations, is intended to help frame discussions for full affiliate and affiliate board meetings scheduled for the NAB Show in Las Vegas later this month.
The affiliates meetings, in turn, will help frame upcoming negotiations on new affiliation agreements between the networks and major station groups like Hearst-Argyle Television, Belo Corp., McGraw-Hill, Scripps and Young.
With both affiliates and the network experiencing sharp declines in revenue, negotiations could become contentious. On the table: reverse compensation, the sharing of affiliates’ retransmission consent revenue, the increasing distribution of network programming on the Web, networks’ loss of sports programming and the ability of affiliates to broadcast network programming to mobile devices.
According to the BIA report, new local broadcast-cable initiatives are key to the broadcasters’ ability to boost revenue and stem the loss of “marquee programming” to cable, the report says. “Without marquee programming, broadcast television will follow the path of AM radio….”
The affiliates can also increase revenue and cash flow through retransmission consent, Web sites and mobile broadcasting, the report says. However, it says, those sources alone “will not develop fast enough to fund the preservation of marquee programming.”
The affiliates could also work with their networks in negotiating with cable and satellite operators for retransmission consent fees. “Increased frees could be used to produce or maintain marquee programming for affiliate broadcasting, accelerating profits,” the report says.
According to the BIA report, the affiliates need not worry about the networks’ periodic threats to bypass their affiliates and distribute their programming directly to the cable and satellite operators.
The broadcast affiliate relationship continues to demonstrate its value to the networks, the report says. Ratings for NASCAR auto racing increased substantially when it jumped from cable to Fox, the report says. Conversely, when ESPN won the bidding for Monday Night Football and put it on cable, ratings dropped.
Also providing comfort to the affiliates is the report’s conclusion on TV via the Web.
“Internet delivery of traditional television services is not ready for prime time …” the report says. “However, we expect this situation to change over the next five to 10 years.”
Reaction to the report and its recommendations from the affiliates is mixed.
Michael Fiorile, NBC affiliate board chairman and vice chairman-CEO of The Dispatch Broadcast Group, is less than enthusiastic.
“Partnering with networks on retransmission has long been discussed,” Fiorile said. “There are lots of details to be worked out. Sharing part of that with cable is new to me, something I have little interest in.”
Scott Blumenthal, CBS affiliate board chairman and LIN TV executive vice president, said the report was not intended for public consumption and he hasn’t yet discussed it with his board or the network.
“There’s a question of whether an accurate [industry] evaluation was included in the report,” he said. “It was not intended to be a topic of discussion at this point. The report was just an informative piece. We wanted to get a feel for general consensus. I’m not sure the report did that.”
Fiorile, who characterized network-affiliate relations as “copacetic,” found some of the report’s information intriguing but was otherwise lukewarm.
“Our overall reaction at the affiliate board, we thought it was interesting but not worth spending a lot of time on,” he said. “There is some food for thought. There is the potential for some game-changing business plans included in this, but not because of this report.”
John Tupper, Fox affiliate board chairman and president of Prime Cities Broadcasting, declined to comment. Darrell Brown, head of the ABC affiliate board and president of McGraw-Hill Broadcasting, was unavailable for comment on the report.
But in interviews conducted before TVNewsCheck obtained the report, Brown and Tupper acknowledged that network affiliate relations are in flux.
“We’re at real crossroads to determine the relationship between affiliates and the network,” Brown said. “Anytime you’re negotiating about a future relationship, it’s an inflection point. There are several affiliates that have contracts up for renewal this year. If it’s an inflection point, we will know what it is when these discussions happen.”
Tupper considers affiliates’ inherent localism a distinct advantage for networks.
“The broadcast platform has more to offer any content holder than cable service does,” he said. “There are 210 franchises across country that can provide much greater audiences as compared to what cable services have been able to offer.”
But he doesn’t close the door on affiliates working with cable.
“With cable we could beat the Internet to the punch if we’re providing same functionality and experience that we have right now,” he said. “Local promotions, local content, local community involvement — that’s what it’s going to take to generate more money. If cable lets the Internet take over, cable in the very near future will not be highest speed deliverer of high-speed broadband.”
There’s widespread acknowledgement that networks and affiliates need to co-plan their futures.
“Clearly we’re going to have discussions, looking at possibilities of partnerships, whatever form they might take,” said Blumenthal. “Too long the industry looked at today and tomorrow and hasn’t looked at next year.”
One bright side to current economic climate is that it may be prodding networks and affiliates to think outside the little screen.
“I think in some ways they’re more willing to experiment in these down times, doing things they might not do otherwise,” said Alan Frank, president of Post-Newsweek Stations.