Fox, Affils Exchange Fire Over Retrans

The network sent a letter to the individual affiliates saying it has made no progress negotiating a retrans sharing deal with the affiliate board. So now it wants to negotiate with the stations individually, adding that if a station doesn't agree with its demands for a cut of their retrans dollars "Fox will have to pursue different distribution channels to receive fair value for our programming and continue to serve our viewers.” Affiliate board Chairman Brian Brady counters that Fox has failed to negotiate in good faith and is engaged in a “divide-and-conquer” strategy.

A nine-month effort by the Fox affiliate board to reach a blanket agreement with the network on the sharing of the affiliates’ retransmission consent revenue has broken down with the network vowing that it will now deal only with individual stations or groups.

The breakdown is documented in two acrimonious letters to the affiliates obtained by TVNewsCheck — one from the affiliate board chairman and the other, in response, from the new Fox executive responsible for affiliate relations.

In his sharply worded letter to affiliates dated last Friday (Feb. 4), Mike Hopkins, president of sales and affiliate marketing for the Fox Networks, says Fox has tried to reach a blanket agreement with the board, but has made no progress.

“From our perspective, the [negotiating] committee has been largely non-responsive to our views and unwilling to negotiate in good faith,” Hopkins says.

“Rather than continue to waste time on fruitless arguments, we feel it is time to move on and negotiate an equitable and practical [retrans sharing] agreement with each of you.”

Hopkins, who took on ultimate responsibility for affiliate relations following the resignation of Tony Vinciquerra as CEO of the Fox Networks Group last month, says that Fox realizes that some affiliates may not meet its demands for a cut of their retrans dollars. “If that should be the case, Fox will have to pursue different distribution channels to receive fair value for our programming and continue to serve our viewers.”

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“We don’t want that to sound like a threat, but it is a fact,” he says.

Negotiations over sharing of the retransmission consent revenue that affiliates receive from cable and satellite operators have become increasingly contentious. In short, the networks want more than the affiliates are willing to give.

Affiliates collect so-called retrans fees on the basis of so much per cable or satellite subscriber, per month. The average station received about 26 cents per sub per month in 2009, according to SNL Kagan Associates.

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According to one broadcast source, Fox is now seeking four-year affiliate renewals, in which the fees that the affiliates pay the network would escalate from 25 cents in year one to 50 cents in year four.

The Hopkins letter and its tone were apparently triggered by a letter from Fox Affiliate Board Chairman Brian Brady to the affiliates a week earlier. In it, Brady says that Fox has failed to negotiate in good faith and is engaged in a “divide-and-conquer” strategy. He cites Sinclair’s recent short-term affiliate renewal agreement with Fox. “This … agreement unfortunately has given Fox the impetus to try to do it again.”

Brady also charges that Fox’s demands are excessive, amounting to more than what most affiliates are currently getting from their cable and satellite operators.

Such demands are based on the notion that affiliates can obtain the same retrans fees from operators that the Fox O&Os can, he says. “This is just not true.” Because of its cable and sports networks, Fox has much greater leverage in dealing with cable and satellite operators than its affiliates do, he says.

“Furthermore, Fox has already emasculated its affiliates by agreeing to permit [Time Warner Cable] to receive the Fox network feed when an affiliate is forced to shut down its feed in the context of a retransmission fight.”

Fox is forcing affiliates to go to war with operators after removing “the single largest arrow in our quiver,” he claims.

To have its way, Brady says, Fox may threaten to find alternative affiliates. “They appear to have no regard for the value your station brings to the network or for the fact the affiliates have been a part of making the network successful. They are prepared to destroy someone’s business to make their point and to strike fear in the hearts of their affiliates.”

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Brady tries to rally the affiliates in his letter. “We must demand that Fox come back to the negotiating table and negotiate a fair and equitable deal which will strengthen, not weaken, the network/affiliate relationship. If this does not work then we will have to reach out to the media, governmental and political allies and others to force the issue.

“This is a fight for survival; we can either stand and fight together or we may die apart.”

Firing back in his letter, Hopkins says that Fox found Brady’s letter “offensive.”

But despite Brady’s “unfortunate rhetoric, this is not a case of ‘divide and conquer,’” he says. “Our position would be the same whether dealing with a single station or the entire affiliate body.

“This is about recognizing fair value for the long-time No. 1 network. We didn’t achieve that success by following others, and we cannot continue to lose hundreds of millions of dollars with a flawed, out-of-date network model. We need to find a way to receive fair value for every home that receives Fox.”

Reached last evening by phone, Brady declined any comment other than to say that he remains hopeful that Fox and its affiliates can “reach a reasonable solution that works for everybody.”

Fox spokesman Scott Grogin would not elaborate on Hopkins’ letter. “Fox negotiations with our affiliates are a private business matter and as such those discussions are confidential.”

To read the entire Hopkins letter, click here.

To read the entire Brady letter, click here.


Comments (9)

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Manuel Morales says:

February 9, 2011 at 9:15 am

The biggest problem here is the deal between FOX and TW. Brian is spot on in his analysis. How are affiliates supposed to reach a deal with TW that will net them any retrans fees (or even break even) if TW has the option of importing a FOX signal for up to a year? It’s not going to stop at TW or FOX either. I suspect we see this language in retrans agreements between large cable operators and networks going forward. Very scary thought.

Denise Vickers says:

February 9, 2011 at 9:25 am

Remember years ago when there was network compensation? Then there was reverse network compensation. Now the networks want a cut at the individual station’s retrans fees. Another scary thought.

Lady Success says:

February 9, 2011 at 10:30 am

Let’s face it. The networks don’t need affiliates to get their product to the public. You think Fox is being scary?…wait ’til Comcast starts negotiating with NBC affiliates!

matt fess says:

February 9, 2011 at 11:12 am

Myke25 is dead wrong. Look at Oprah’s cable channel without affiliates. In a year, OWN will be a very low rated cable channel. Make no mistake about it. For the next many years, any HIT will need to be supported by affiliates. Nothing will be developed that will rise to Hit status without affiliates support. To think otherwise is arrogance.

Brad Dann says:

February 9, 2011 at 11:43 am

OK, so The Closer, Nip Tuck, Monk, etc are not HITS? With 90% of the homes wired or satellite and those providers pay per sub license fees for programming, you better have something unique other than your network if you expect to survive and prosper in the long run. Unfortunately, a lot of FOX affiliates have not done that. FOX can’t take the NFL to cable, but they can go to a different station or digital signal in the market, think some other broadcaster would be willing to pay for that? Brian’s group is a prime example, bidders would be lined up to get the Seahawks as the primary game each week. You may think that’s unfair and not nice, but it’s reality.

Manuel Morales says:

February 9, 2011 at 12:49 pm

Many are missing the point here- it’s not that FOX or other networks are asking for money, it’s that they aren’t doing anything to help the affiliates get more money (and in the case with FOX’s deal with TW they are hurting the Affils ability to get retrans money). FOX is saying “In year 4 of our new affiliation agreement pay us $.50 per sub in your market”. That would be ok if they were helping the affiliates get the $1+ they deserve but the’re not.

Jill Colvin & Catherine Lucey says:

February 9, 2011 at 3:55 pm

Federalguy doesn’t understand that a hit on cable may be a 1.5 HHrating while a hit on Broadcast TV requires a 6 HH rating minimum to be called a hit..That is a big financial difference for the shows.The CW tried to take it’s network straight to cable in the 100+ markets and it failed to ever get close to a broadcast audience, even with some decent shows. FOX has always acted like the bully on the block and without the NFL they are a three night network at best. The minute Sinclair caved in, the rest of the affiliates were doomed.

matt fess says:

February 9, 2011 at 4:01 pm

Great point, and no The Closer, Nip Tuck and Monk are not and never where hits. They were hits on cable but never competed against broadcast prime shows. They consistently ranked on cable in the bottom 90 of 100 overall shows. Hits are HOUSE, 24, American Idol, Glee, Cops, The Simpson’s, America’s Most Wanted, and even shows that are not “Hits” like Lie to Me, Fringe, and Family Guy dramaticall out rate every one of the cable shows listed above. Do you think that Simon Cowell’s X Factor would have a chance succeeding on cable over having the broadcasters launch it, support it and promote it? Not a chance.

Brad Dann says:

February 9, 2011 at 4:21 pm

The Networks that Closer, Nip Tuck and Monk ran/run on are all more profitable than any broadcast network and Closer regularly beat Broadcast shows in Total viewers. My Dad once told me (spent his whole career running and owning stations) that “Ted Turner will never make any money”. You guys also have your heads buried in the same sand!


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