ABC, Affils Set Up Straight Swap Of Ad Time

Last summer, ABC broached the idea of exchanging network advertising inventory with its affiliates so that minutes could be sold either nationally or locally depending on expected demand, thereby maximizing revenue.

After two months of weekly conference calls between network executives and members of the ABC Affiliates Board, the first phase of the inventory exchange was implemented late last year with affiliates buying extra time from the network to accommodate the glut of political advertising, and the following month to meet the holiday retail rush.

Roles reversed in the second phase of the exchange in January. The network bought back time from the affiliates when demand for network time was exceeding that for local.

Encouraged by these early successes, the Affiliates Board last week announced to its members that the exchange was moving into the third phase, in which inventory would be swapped without money changing hands.

Bill Hoffman is chairman of the ABC Affiliates Board and general manager of Cox’s Atlanta ABC affiliate WSB. In this interview conducted yesterday with TVNewsCheck Editor Harry A. Jessell, Hoffman talks about the latest iteration of the inventory exchange and how it is a manifestation of the basic goodwill that now prevails in network-affiliate relations.

An edited transcript:

How does this new variation on the theme, the inventory swap, work?

Well, there’s no money that’s going to be exchanging hands in this one. And I’ll also say that it’s a test. We’re going to put this exchange to a test, and then both sides are going to evaluate it to see if it’s something that we both feel satisfied with and want to replicate. I’ve got to be a little secretive, and hold back the particulars until it’s been completed. Then I will be happy to be a little more forthcoming. There are parts of this that are proprietary, and we just want to see how it shakes out.

Over what time will this test take place?

It’s going to be a test that spans several quarters of business.

And you don’t see money exchanging hands.

No, I don’t. This is just another leg of the stool, if you will. This will be now a third different dimension of how we can work together.

So we might have some exchanges involving money going on simultaneously?

I wouldn’t rule that out.

Can you give me just one example of how the swap would work to the benefit of both parties?

I really can’t, but I can give you a little bit of a narrative. Each business has unique positions. The network and the stations don’t mirror each other as far as demand goes. We don’t have the same time periods that have the same kind of demand, and we don’t have the same kind of weeks in a month that have the same kind of demand. The conversations and discovery on those two aspects have led us to find the sweet spots of what we can give to you, and what you can take from us, and find places that we can monetize in a way that it’s going to benefit all.

How does it differ from the exchanges involving money?

On the exchanges that had money involved, the network needed a dollar amount to make this thing meet their financial model, to make it make sense to us and to them. So every market was given kind of a price. Would you buy the inventory at this amount? And then every individual station had to make a decision based on its own business acumen. Do I want to make a 10%, a 30%, a 60% margin on this? If the network were able to get enough yeses to cover its nut, then it became a go. And if they didn’t, it would become a no-go.

But for the two times that we did it, where we’re buying, it has worked out. And sometimes, when they’ve done the buying, they had a number and they had to get all that they could get for a price, and that met the financial model, too. So it’s self-policing. If not enough stations said, I’m in, that deal comes undone.

Sort of like Groupon.

A little bit.

The logistics of it sound rather complicated. How are you handling the back office?

It’s really not all that complicated. What it has been thus far is that we invoice them and they invoice us. Everybody knows what it’s for. The most important thing is being in tight communication with your controller, just letting him know that this different kind of business transaction is occurring, so he’s ready for it.

Based on your first three tests, are people actually making more money with this? And, if so, how much?

There are probably some places that, if they make 15% or 20% more than what they bought it for, that’s acceptable. And there are other places that would never touch it unless they had a 100% markup or a 50% markup. All I can tell you is that [Cox has] three stations in the mix — Orlando, Charlotte and Atlanta — and they’ve all been very happy with the exchange.

Are the other affiliate groups looking at this? Are they coming to you saying, explain this to me?

No.

Really?

I have to believe they’re thinking about it. I have to believe they’re doing a little digging. But I have not seen anything that makes me believe they are trying to replicate it.

Is the fact that Anne Sweeney [co-chairman, Disney Media Networks and president, Disney/ABC Television Group] now has ultimate responsibility for the network and the stations been helpful in all this?

I think it’s helpful. You only really have to have a conversation with one person rather than a couple of different people. And Anne Sweeney herself puts a very entrepreneurial eye on things. She has an appetite to find win-win space with the affiliates.

While I have you, is there anything else cooking between the networks and affiliates I should know about?

I’ll just give you another example. ESPN Sports Saturday that we’ve run 30 times since last spring is the result of conversations with ESPN and ABC about our desire to have more sports on our air. And that was all entrepreneurial thinking and using one of Disney’s great assets, ESPN, to help the affiliate body. Those are the kind of conversations we’re having.

I supposed that you’ve been following the feud between Fox and its affiliates?

I have been.

As an affiliate board, you’re not engaged in that kind of stuff, right?

Well, we’re always engaged with our network on tough subject matters, especially our financial relationship. It’s not to say we don’t have them. All of us have them. It’s just the way of the world right now. So I have followed the [Fox] correspondence. We have not had conversations like that.

What I meant is, is the ABC board trying to cut a blanket deal on retrans sharing as the Fox board is?

No comment.

NBC and Fox are leading the way on working with affiliates on mobile DTV. But ABC seems to have no interest in it. Is that something you’re pushing them on?

We’re trying to keep them engaged and informed, and I think they’re interested. I think they’re more interested than they have been in the past two years. But I think Anne would be the best person to comment about where they are today in their thinking.

Anything else?

I just want to say that I think this whole thing that we have going with the inventory is a testimony to where the relationship is between Anne Sweeney and her management team, and the ABC board of governors. They’re trying to find places that are win-win, and they’ve been very candid as we allow each other to discover the intricacies of our business in order to find these sweet spots where we can work together.

I’m proud of the dialogue and the trust that’s happened in these conversations because you’re going to have the tough part of the business relationship going on. But you can segment that in a way that you move quickly into another place where you can work together. And that’s what we’re doing. And I think that’s what makes our relationship distinctive.