NBC, Affils Move Slowly Toward Proxy Deal

After talking for nine months on a plan in which NBC would use its clout and scale to negotiate attractive retrans deals with cable and satellite in exchange for a percentage of the revenue, there is still no agreement. But both sides say they’re confident there will be one. The problem is that there is no one-size fits-all formula.

The NBC affiliates board is set to meet with network officials in New York this week to discuss the proposed proxy agreement under which the network would represent the affiliates in retransmission consent negotiations with cable and satellite operators and claim a hefty share of the proceeds.

After nine months of negotiations, the affiliates had hoped they would be concluding a deal by now, but affiliate sources said that the meeting will more likely involve NBC’s asking for extensions on expiring affiliations so that more deal points can be worked out.

“We’ve all said all along that the devil’s in the details,” said the head of one station group.

“I respect the hell out of what they’re doing,” the group boss said. “I’m not doubtful they’ll get there. I just don’t know when. I support what I know about it, but I have to know details.”

NBC, for its part, said only that it is committed to working out a deal. “The NBC network continues to have productive and positive conversations with our affiliate board on the details of a proxy arrangement,” an NBC spokesman said.

NBC’s proposal, which yielded a generally favorable reception from affiliates when it was first proposed, went something like this:

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NBC would use its clout and scale to negotiate attractive retrans deals with cable and satellite. In return, it would give affiliates the first 25 cents per sub per month it receives, take the next 25 cents for the network, then split anything over and above that 50-50.

Brian Lawlor, senior vice president/television at E.W. Scripps and head of the NBC affiliates board, confirmed that talks are ongoing, but hinted at a bit of frustration at the pace.

“We’re still hard at work on it,” he said. “We’ve been at it for nine months. It’s a pretty elaborate concept. We’ve worked through tons of details and we continue to morph and adjust it to make it work for affiliates.”

The problem is that there is no one-size fits-all formula.

“It won’t work for everybody,” Lawlor acknowledged. “There will be some who do individual deals. There are a lot of unique partnerships. This can’t be everything for everyone. We’re trying to create a model that will address the general market.”

One potential sticking point: By handing over their retrans proxy to the network, station groups are surrendering what could be a significant amount of leverage. Take a group, a third of whose stations are NBC affiliates. If it cuts a proxy deal with NBC, when it enters negotiations with a cable operator such as Time Warner, it has effectively one-third less leverage than it did before granting the proxy.

The situation is magnified for groups with a greater proportion of NBC affiliates, particularly those in larger markets. Conversely, smaller stations groups with a smaller percentage of NBC affiliates concentrated more in smaller markets might like the proxy approach.

Forging consensus at the board level will be the trick.

What’s at stake? Just hundreds of millions of dollars.

NBC lags the other major networks in getting a slice of the retrans pie or so-called reverse compensation from affiliates. According to SNL Kagan, NBC received zero reverse comp in 2010. That’s expected to climb to $21 million this year, with $16 million coming from O&Os and a relatively insignificant $5 million from affiliates.

Compare that to Fox, which has been the most aggressive in its reverse comp demands. According the SNL Kagan research, Fox will collect $296 million in retrans this year, with $257 million coming from O&Os and $39 million from affiliates.

Wells Fargo analyst Marci Ryvicker puts it this way: Under the current proxy proposal, NBC would take in about $34 million in reverse comp from affiliates in 2013, the equivalent of about a penny in earnings per share. By 2022, that climbs sharply to $637 million, or about 14 cents in earnings per share.

Despite the pace of negotiations, there’s still confidence a deal will get done.

“We’ve been at it a long time,” said Lawlor. “Every day we get closer. We’re hopeful that in next couple of weeks we can finalize this and have something to take to affiliates. Neither of us is driven by deadlines. The bottom line is that it’s still fluid.”

Said another affiliate: “NBC is definitely doing some equivocating. But I don’t get a sense they’re wavering on the deal.”


Comments (2)

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Hope Yen and Charles Babington says:

November 28, 2011 at 10:29 am

Are there any affiliates today who are actually receiving comp? I would assume in markets such as Biloxi, Lake Charles or others with one dominant station, that station might be in a position to muscle the network into a better deal.

Martha McIntosh says:

November 29, 2011 at 11:45 am

Folks, be careful what you wish for. Here is a quote from a David Lieberman article at Deadline.com:
It’s a big deal when an analyst as respected as Credit Suisse’s Stefan Anninger slashes his pay TV subscription forecast for 2012 to a 200,000 loss from a 250,000 gain, which is what he did this morning. But the rationale behind his decision is even more noteworthy: He cites a Credit Suisse-commissioned survey that found evidence of a youthful revolt against the pricey video packages. Lots of young adults aren’t cutting the cord; they never subscribe in the first place.”

100% of nothing is nothing. Don’t price yourselves out of the market.


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