D2 Offers A1 Opportunity For Big Four Nets

A Fox in the digital henhouse?

Maybe. The Fox network has been taking a hard line with its affiliates on retrans sharing. If an affiliate does not meet its demands for a large portion of the fees it receives from satellite and cable operators, Fox has indicated it will yank its affiliation and hand it off to another station in the market that would carry it on a subchannel, or D2 as it has come to be called.

Just how serious the threat is remains to be seen. But this is clear: Fox has ample experience with D2 affiliates.

In fact, the network now has 35 of them, far more than any of the other Big Four networks, according to research firm BIA/Kelsey, which tracks such things. Second place belongs to ABC, with 20, while NBC ranks third with seven; and CBS six.

As the numbers tell, Big Four D2 affiliations are now a fixture in TV broadcasting. They work for the networks and they work for the stations, which might otherwise fill subchannels with second-tier broadcast networks like CW or MNT or one of the myriad start-up networks like ThisTV, LATV, RTN or TheCoolNetwork.

The networks have turned to D2 affiliations not to gain leverage in whatever dispute might arise with its main channel affiliates, although that may be a happy consequence for the networks, but simply to find outlets on strong stations in so-called short markets where there are not enough full-power stations to go around.

“It certainly is a good deal for the station group owner to have two [major network] channels working off almost the same signal,” says John Trinder, COO of Virginia Beach, Va.-based Max Media. Max Media’s 10-station portfolio includes four Fox D2 affiliations and one CBS.

“In the beginning, the potential was maybe you’d get a CW or an independent channel, but in the back of your mind you always figured someone would come up with programming that would be more valuable,” says Trinder. “The economics with a major network are healthier.”

And with ad dollars following ratings, “we’ve seen many months where the secondary channel has out-billed the primary channel,” says Trinder.

Noting that subchannels require little additional expense to establish and maintain, Michael Steinberg, a researcher at Katz Television, says the secondary-channel-beats-primary-channel scenario isn’t unique to Max Media.

“Some generate some huge numbers,” he says. “The CBS affiliate WBOC in Salisbury, Md., has Fox on a subchannel that does very well.”

Although D2 Big Four network affiliations are primarily a small-market phenomenon, there are positive economics at work for the network, says Mark Fratrik, vice president of BIA/Kelsey.

“In many of those cases, the network was on local cable systems with a distant signal,” he says. “Now they’re affiliated with a local station and that might strengthen the affiliation and might strengthen the attractiveness of network distribution.”

Fox declined to comment for this story. ABC and NBC did not return calls seeking comment. CBS had not responded by deadline.

“The average share for subchannels tends to go up as the size of the market goes down,” says John Sanders of Bond & Pecaro, a broadcast research and investment firm. “The highest audience measurements generated on D2s come with a [major] network on that channel.

“If you can have a revenue stream that brings in a 3% to 7% increment over the base and you can expense it at a reasonable margin, I think there may a there there,” Sanders adds.

Among station groups, Gray Television leads the pack with 40 D2 affiliations, but only five are with the Big Four. It has four with Fox and one with ABC.

Robert Prather, president-COO of Gray, says all the D2s are winners. “We’re doing real well with them,” he says. “They’ve been profitable for the last several years. They’re growing faster than regular channels.”

Other station groups with significant Big Four D2 affiliates: Barrington with six — three ABCs, two NBCs and one CBS;  News Press & Gazette with four — three Foxes and one ABC; West Virginia Media Holdings with three — two Foxes, one ABC; Entravision, with two — both Foxes; Quincy Newspapers with two — one ABC and one Fox; and Saga with two — one NBC and one Fox.

West Virginia Media Holdings exemplifies the small-market nature of the Big Four D2 affiliations.

WVNS Bluefield-Beckley-Oak Hill, W.Va. (DMA 155), has CBS as its primary channel affiliate with Fox on a D2. Similarly, WTRF Wheeling, W.Va.-Steubenville, Ohio (DMA 159), has CBS on its main channel and Fox on a D2, while WBOY Clarksburg-Weston, W.Va. (DMA 168), has NBC on its primary and ABC on a D2.

The Fox connection came easily, says Bray Cary, president/CEO of the station group. “I know these guys from prior lives when I was involved with college sports and NASCAR,” he recalls. “We were exploring the possible purchase of a TV station from Fox, which we didn’t do. But we talked to them about the fact that there was no Fox affiliate in the Beckley-Bluefield and Wheeling markets.

“We have wonderful success with it financially and otherwise. Fox is happy, we just renewed the affiliation agreement, and it appears to be a win-win for everybody.”

But just because it’s a D2, that doesn’t mean the stations are immune from the friction of retrans sharing negotiations.

“Now that networks have changed economic models on sharing retrans revenues with affiliates, that makes these negotiations as difficult,” says Cary. “You have obligations to networks that you might not have thought you would have a few years back. It doesn’t take a genius to recognize there’s a different economic model…. If we’re getting less [retrans revenue] for the digital channel than for the primary channel, the economics won’t work.”

Big Four networks seeking alternatives to the main channel of full-power stations are not limited to subchannels. They can also go with low-power stations.

One example is KQFX-LP, the Fox affiliate in Columbia, Mo. “We had the Super Bowl on Fox and it had a 42 rating and 78 share,” says Gene Steinberg, general manager of KQFX and its companion full-power ABC affiliate KMIZ. “We wondered whether the low-power status would have a major effect. No one called about not being able to get the signal.”

For viewers, Steinberg says, the type of station is immaterial. “At the end of the day, people watch shows; they don’t watch stations,” he says. “It’s all about the programming.”