TVNEWSCHECK FOCUS ON BUSINESS

Fox Has Suitors Despite Hard Line On Retrans

While the network is making news over its “take-it-or-leave-it” stance in renewal talks demanding a cut of its affiliates’ retransmission consent revenue, there’s no shortage of stations ready, willing and anxious to get on board.

Fox Television’s tough stance with its affiliates may be making other broadcasters nervous, but it’s not stopping them from courting the network – it may even be encouraging them.

In the wake of a couple of recent affiliation meltdowns, station groups have approached Fox about signing on with the network if it can’t come to terms with its current affiliate, sources told TVNewsCheck.

“There are a number of different affiliate groups calling Fox, saying we’d love to have you,” said a station group head who requested anonymity.

Last month, Fox walked away from Nexstar’s WTVW Evansville, Ind. (DMA 103) and Block Communications’ KTRV Boise, Idaho (DMA 113), after the parties were unable to come to terms on how to split the retransmission consent revenue stations receive from cable and satellite operators.

In Evansville, Communications Corp. of America’s CBS affiliate WEVV will become also the new Fox affiliate by putting the network on a subchannel that it will share with MNT.

In Boise, Journal Broadcast’s KNIN will be the new home of Fox. To make room, KNIN will bump CW from its main channel to a subchannel.

BRAND CONNECTIONS

Allan Block, managing partner of Block Communications, said he harbors no ill will toward the network, but questions the move in Boise. “I continue to have high regard for Fox,” he said. “It’s not a matter of animosity. I think it was the wrong decision, a misunderstanding. I hope to continue doing business with them.”

Block Communications’ five-station group includes another Fox affiliate, WDRB in Louisville, Ky. (DMA 50), as well as the MNT affiliate in Louisville, WYMO. MNT is also owned by Fox.

Block declined to comment on the situation in Louisville.

Perry Sook, CEO of Nexstar, and Fox declined to comment for this story. However, at an SNL Kagan conference in New York Wednesday morning, Sook and Fox affiliate relations chief Mike Hopkins touched on the overall situation in separate sessions.

Hopkins said Fox is prepared to drop more affiliates that don’t meet its demands, but added that the network is reluctant to do so. “We really don’t want to change affiliations. That’s always been the last resort.”

In contrast to Boise and Evansville, most renewals are done without much fuss, he said. “We have been quietly signing deals every week for the past two months.”

Although Sook did not comment directly on Fox’s retrans sharing tactics, he did suggest that the affiliates bring more value to the networks than they are getting credit for.

Sook pointed out that the broadcast networks’ upfront ad sales this year are expected to come in around $9.2 billion. Yet, the networks’ own TV stations account for only between 25% and 39% of their coverage, he said. That means “somewhere between 61% and 75% of that network upfront money is going to buy time on our television stations.

“I think it is a symbiotic relationship. They need us. They need our distribution to sell their network advertising.”

Sook cited NBC’s retrans arrangement with its affiliates as a model for all the networks. Under that arrangement, NBC is holding the proxies for the affiliates and negotiating with cable and satellite operators on their behalf.

“I think the NBC … approach, while short on details at this point, in theory, is the way this needs to go. Retrans needs to become a rational market where it’s one negotiation, one check, and then we discuss how that gets … split up internally….”

During the session, Sook said he has a “contingency plan” for Evansville, but declined to say what it was. Afterward, he told a TVNewsCheck reporter that he had lined up a replacement network for WTVW as of July 1. However, Sook said he would not reveal the new network for another week or so.

It’s the smell of somebody else’s blood in the water that’s provoking interest in stealing Fox affiliations, one source said. “No broadcaster on the face of the earth would turn down the chance to go from CW to Fox,” said a consultant. “They’re all sharks. Nexstar would do it, too. If I had CW and could have Fox, I would do it in a heartbeat.”

Robert Prather, president-COO of Gray Television, said he’d definitely consider affiliating with Fox — under the right circumstances.

“If I was taking away an affiliation from somebody I knew in the industry, I wouldn’t do that,” he said. “I like Fox. I’d love to have it as a digital channel everywhere. But I like the strong local news franchise. … The drawback for me is they really haven’t had a strong news franchise in the past and we emphasize local news.”

Gray has one Fox primary-channel affiliation on its low-power WAHU in Charlottesville, Va. (DMA 183) and several D2 Fox affiliates.

Fox’s leverage in affiliate relations comes largely via its popular primetime programming and sports. The network leads in the key 18-49 demographic, and its American Idol, House and Glee consistently record top ratings.

“Money always gravitates toward the guy with the most leverage,” said a top executive at a station group. “If it turns out it’s a network and not an affiliate, that’s the way it goes. At this point, it looks like it’s going toward the nets. I don’t know whether it will change. Everybody will make the best deal they can for themselves. That’s what we do in the free market.”

While it may be a free market, Fox appears to be dictating all the key terms in its current round of affiliation talks.

The head of one station group that recently re-upped its agreements with Fox said talks leading to the new, four-year contract weren’t a negotiation, they were the station group receiving marching orders.

“They weren’t willing to change a ‘t’ or an ‘i’ or a dot or anything,” the executive said. “They weren’t willing to move on anything. … Fox is not going to help you one wit in terms of negotiating retrans. If you pull the network from the cable guys, Fox will provide their programming from another source.”

The tension between Fox and its affiliates came to light early this year in the form of dueling letters from Brian Brady, chairman of the affiliates board, and Mike Hopkins, the network’s recently named president of sales and affiliate marketing.

After nine months of unproductive talks aimed at reaching a blanket agreement with affiliates, Brady in late January wrote affiliates that Fox’s demands were excessive, it was failing to negotiate in good faith and was employing a divide-and-conquer tactic.

Hopkins, in his letter, responded that in light of the failure to reach a blanket agreement, the network would pursue different distribution channels if current affiliates wouldn’t agree to the network’s terms.

Sources who spoke to TVNewsCheck cited Sinclair’s decision to negotiate an interim two-year contract for its 19 Fox affiliates, effectively sidestepping the affiliate board, and Brady’s rhetoric as key reasons for the tension between Fox and affiliates.

Whatever power the affiliate board might have had in negotiating with the network, “they lost it when Sinclair said we’re going to look out for ourselves and the hell with the rest of you,” one station group head said. Then, “Brian Brady totally overplayed his hand, pissed Fox off and Fox put the whole array of affiliates in the penalty box.”

“It’s the broadcasters eating their young,” the executive said. “We’re the dumbest industry in history.”

Fox’s non-negotiable terms for affiliation include 25 cents per month per cable or satellite subscriber in markets 125 and up, ratcheting up to 50 cents in the fourth year of the contract. Deals in smaller markets are start at 18 cents. Contracts are for four years. Sinclair’s two-year deal is the rare exception.

“Everybody is working on contracts,” one executive said. “Some have contracts that go way out. New contracts will be retroactive to Jan. 1, 2011, just like the contracts we just did. They’re going to get everybody. If there were some folks that were just hanging, delaying in hopes this would go away, hoping somebody would break the back of Fox, they saw what Fox just did with Allan Block and Perry Sook.”

Sinclair’s size won’t buy it preferential treatment when its contract expires, the executive speculated. “In Baltimore, Sinclair has the Fox affiliate but Fox has a MyNetwork station across the street,” the executive noted. “I assure you, when the contract comes up for renewal in two years, Fox is going to say, you sign it exactly as it is or we’ll start taking your stations one at a time, starting in Baltimore on your home turf.”

Despite Fox’s take-no-prisoners approach to affiliate relations, “They’re good partners if you’re totally aligned with them,” the executive said. “But if you get crossways with Fox, you better have a bigger hammer or you’re going to get smashed.”

Some contend Fox risks hurting itself with its hard line in the negotiations.

“Every time Fox does something like that, it hurts them a little more,” said an industry consultant who asked to remain nameless. “Every time they do one of these, there’s a chink in their armor. They have to be careful, which is why I don’t think they’ll do this in a major market. If they do one or two more, it’s not that important. That’s the way Fox does business.”

Some may be testing Fox’s armor even now. Another industry source said he’s hearing from the other networks that Fox affiliates are calling them about switching affiliation.

“Excluding sports, CBS, NBC and ABC provide the local station with 88-89 hours a week of programming,” the source said. “Fox provides them with 18.5 hours a week. A station manager would look at this as a vendor relationship and ask why would I pay more for less.”

That source and others who spoke to TVNewsCheck point to NBC’s recent proposal to affiliates as a potential model.

“NBC did what the Fox guys should have done with Fox affiliates — represent the affiliates collectively in retrans negotiations,” said a source whose station group includes several Fox and other major network affiliates. “They should negotiate as a group on a national basis against the big cable and satellite operators. That’s the only way you have leverage and can move the needle [on retrans compensation] up to a big number.”


Comments (5)

Leave a Reply

len Kubas says:

June 1, 2011 at 4:21 pm

Suitors, mostly, that will try to cram two HDTV signals into a single transport stream, regardless of the technical quality.

Don Richards says:

June 1, 2011 at 5:48 pm

The current retrans issue is the first step toward the ultimate elimination of Fox affiliates. What do you think will happen with the current contract (which, by its conclusion, will be tagging affiliates for $.50 per month/per sub) expires in four years. Do you think Fox will reduce their franchise fee? Do you think they’ll say, “OK, $.50 is all we want…let’s renew!”? Fox will demand (they never “ask”) more. And their argument will be that they need more money to invest in high profile sports and other programming. In most worlds, he who pays gets a say on what’s going on. In this case, Fox will demand an amount of compensation that will make their $.50 look like “chump change.” And when the day arrives that the few remaining broadcasters with backbones decide to pass, Fox will shrug and light up a cable network so fast your head will spin (keeping all of the inventory and charging the cable operators a fee much closer to ESPN fees). We are simply putting off the inevitable…Fox is destined to be the first broadcast network to ditch its affiliates and go pure cable.

Owen Simon says:

June 1, 2011 at 6:23 pm

Good luck to the affiliates with paying the vig to FOX!

Teri Green says:

June 1, 2011 at 7:45 pm

As the article pointed out, FOX would never do this in a major market. It’s easy to walk over the little guys where you could lose 100% of your audience and it wouldn’t even make a dent in the total audience nationwide. Till FOX does this in a top 20 market no one need be concerned

    len Kubas says:

    June 1, 2011 at 11:54 pm

    the accumulative effect might hit them; only time will tell.


More News