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D2 Offers A1 Opportunity For Big Four Nets

In dozens of markets, ABC, CBS, Fox and NBC are found on the digital subchannels of full-power stations. The Big Four-D2 affiliations 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.

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.

BRAND CONNECTIONS

“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.”


Comments (14)

Leave a Reply

Barb Palser says:

April 20, 2011 at 9:20 am

Only problem is you cant do HD on a primary and a .2 at the same time….

    gilbert williams says:

    April 20, 2011 at 9:42 am

    There are several stations around the country that are doing HD on primary and secondary at the same time. Most of them are combining a 1080i and a 720p. I know of some running a 1080i, 720p and 480i all at the same time.

    Tanya Pavluchuk says:

    April 20, 2011 at 10:26 am

    Yuk! Not enough bits to effectively stream two HD signals and maintain HD picture quality. 8 or 9 Mbps per video stream makes for good SD…..not HD.

    Kathryn Miller says:

    April 20, 2011 at 11:50 am

    How is that much of a concern where the alternative is not having that network’s service. You can do 2 720s in 19.39, and last time I checked, that was HDTV. You just can’t do two HDTVs of football at the same time, nor two HDTVs in 1080i or 1080p. Small beer.

    Tanya Pavluchuk says:

    April 20, 2011 at 3:40 pm

    Then I guess the perfect fix is to watch smaller screens and no sports. Or just drink more beer and you won’t care what the picture looks like.

    Kathryn Miller says:

    April 20, 2011 at 3:51 pm

    in a business sense, it’s more like “your network will receive better distribution and higher quality if it’s on my stations’ -1.” That’s what is at stake here. If another station can make more use of the network on a -2, then the arguments get narrowed beyond bits.

Catherine Hahn says:

April 20, 2011 at 9:52 am

I liken this strategy to an ad agency threatening to take broadcast $$ and move it to cable if they don’t get the CPP they want. This tactic is flawed, as you are taking their product and moving it to an inferior distribution platform (no HD) for the sake of a negotiation. Does anyone know if FOX has really moved to D-2 as a result of a failed negotiation, or is it just false bravado?

Wagner Pereira says:

April 20, 2011 at 10:25 am

“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.”<<<<<< Over the past 2 years, Disney HAS in fact approached several of the larger group owners about a switch of ABC programming to their D2 , taking it away from well established long term affilliate's main channel in some markets that really are not all that small, most likely wanting to send the same message that Fox is sending, just a little more publicly. Thus far as far as I know, no one has taken them up on the offer, not wanting to open up a new can of worms in the Industry.

    Wagner Pereira says:

    April 20, 2011 at 10:28 am

    This system, as others have noted, needs serious upgrade as post was truncated, and had information about the quoted item that was not disclosed in the original post.

Tracye McCarthy says:

April 20, 2011 at 10:35 am

There’s a new network for the D2 that is just launching out of Michigan. It’s called The eScapes Network. Pretty cool. HD video with a music bed. Very relaxing and unlike anything else I’ve seen out there. It’s on Galaxy 16.

michelle maranges says:

April 20, 2011 at 10:45 am

You can broadcast a FOX and an ABC, both in HD at the same time. Both come in at 720p and it looks perfectly fine to everyone breathing, except of course a handful of engineering gestapo, where anything short of purity is a crime.

    Kathryn Miller says:

    April 20, 2011 at 11:53 am

    It’s not so much the engineering gestapo at work, but the “1080 is the only HDTV” fetish crowd. 720 has advantages (no interlaced permitted) and 1080 has “bigger numbers.”

E B says:

April 20, 2011 at 12:20 pm

And what is the cable or satellite penetration in those small markets? Are the D-2s carried on pay TV? Isn’t that relevant to this discussion?

    Kathryn Miller says:

    April 20, 2011 at 3:53 pm

    must carry works in all markets, and retrans consent works in many. Having 2 or more networks on your stick tends to make “negotiating” with cable firms more than a bit easier over having 1 network.


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