Fox, Affils Exchange Fire Over Retrans

A nine-month effort by the Fox affiliate board to reach a blanket agreement with the network on the sharing of the affiliates’ retransmission consent revenue has broken down with the network vowing that it will now deal only with individual stations or groups.

The breakdown is documented in two acrimonious letters to the affiliates obtained by TVNewsCheck — one from the affiliate board chairman and the other, in response, from the new Fox executive responsible for affiliate relations.

In his sharply worded letter to affiliates dated last Friday (Feb. 4), Mike Hopkins, president of sales and affiliate marketing for the Fox Networks, says Fox has tried to reach a blanket agreement with the board, but has made no progress.

“From our perspective, the [negotiating] committee has been largely non-responsive to our views and unwilling to negotiate in good faith,” Hopkins says.

“Rather than continue to waste time on fruitless arguments, we feel it is time to move on and negotiate an equitable and practical [retrans sharing] agreement with each of you.”

Hopkins, who took on ultimate responsibility for affiliate relations following the resignation of Tony Vinciquerra as CEO of the Fox Networks Group last month, says that Fox realizes that some affiliates may not meet its demands for a cut of their retrans dollars. “If that should be the case, Fox will have to pursue different distribution channels to receive fair value for our programming and continue to serve our viewers.”

“We don’t want that to sound like a threat, but it is a fact,” he says.

Negotiations over sharing of the retransmission consent revenue that affiliates receive from cable and satellite operators have become increasingly contentious. In short, the networks want more than the affiliates are willing to give.

Affiliates collect so-called retrans fees on the basis of so much per cable or satellite subscriber, per month. The average station received about 26 cents per sub per month in 2009, according to SNL Kagan Associates.

According to one broadcast source, Fox is now seeking four-year affiliate renewals, in which the fees that the affiliates pay the network would escalate from 25 cents in year one to 50 cents in year four.

The Hopkins letter and its tone were apparently triggered by a letter from Fox Affiliate Board Chairman Brian Brady to the affiliates a week earlier. In it, Brady says that Fox has failed to negotiate in good faith and is engaged in a “divide-and-conquer” strategy. He cites Sinclair’s recent short-term affiliate renewal agreement with Fox. “This … agreement unfortunately has given Fox the impetus to try to do it again.”

Brady also charges that Fox’s demands are excessive, amounting to more than what most affiliates are currently getting from their cable and satellite operators.

Such demands are based on the notion that affiliates can obtain the same retrans fees from operators that the Fox O&Os can, he says. “This is just not true.” Because of its cable and sports networks, Fox has much greater leverage in dealing with cable and satellite operators than its affiliates do, he says.

“Furthermore, Fox has already emasculated its affiliates by agreeing to permit [Time Warner Cable] to receive the Fox network feed when an affiliate is forced to shut down its feed in the context of a retransmission fight.”

Fox is forcing affiliates to go to war with operators after removing “the single largest arrow in our quiver,” he claims.

To have its way, Brady says, Fox may threaten to find alternative affiliates. “They appear to have no regard for the value your station brings to the network or for the fact the affiliates have been a part of making the network successful. They are prepared to destroy someone’s business to make their point and to strike fear in the hearts of their affiliates.”

Brady tries to rally the affiliates in his letter. “We must demand that Fox come back to the negotiating table and negotiate a fair and equitable deal which will strengthen, not weaken, the network/affiliate relationship. If this does not work then we will have to reach out to the media, governmental and political allies and others to force the issue.

“This is a fight for survival; we can either stand and fight together or we may die apart.”

Firing back in his letter, Hopkins says that Fox found Brady’s letter “offensive.”

But despite Brady’s “unfortunate rhetoric, this is not a case of ‘divide and conquer,’” he says. “Our position would be the same whether dealing with a single station or the entire affiliate body.

“This is about recognizing fair value for the long-time No. 1 network. We didn’t achieve that success by following others, and we cannot continue to lose hundreds of millions of dollars with a flawed, out-of-date network model. We need to find a way to receive fair value for every home that receives Fox.”

Reached last evening by phone, Brady declined any comment other than to say that he remains hopeful that Fox and its affiliates can “reach a reasonable solution that works for everybody.”

Fox spokesman Scott Grogin would not elaborate on Hopkins’ letter. “Fox negotiations with our affiliates are a private business matter and as such those discussions are confidential.”

To read the entire Hopkins letter, click here.

To read the entire Brady letter, click here.