Fox On Retrans: Ditching Affils ‘Last Resort’

As it demonstrated in two markets last month, Fox is willing to dump affiliates that refuse to meet its rigid demands for programming fees, but only as a “last resort,” said Fox network distribution chief Mike Hopkins at an SNL Kagan conference in New York Wednesday morning.

“We really don’t want to change affiliations,” he said in a one-one interview with SNL Kagan Robin Flynn. “That’s always been the last resort.

“We hope that we can get through the process and get deals done with everybody we have today.”

In a move widely seen as a warning to all recalcitrant affiliates, Fox decided not to renew longtime affiliates in Evansville, Ind. (Nexstar Broadcasting), and Boise, Idaho, (Block Communications) last month after the parties hit an impasse on Fox retrans sharing demands. Instead, Fox awarded the affiliations to other stations in the market.

Hopkins said that Boise and Evansville are exception to the rule. Most renewals are done without much fuss, he said. “We have been quietly signing deals every week for the past two months.”

Rather than asking affiliate for a percentage of the retrans revenue they receive from cable and satellite operators, Fox is asking for flat per-sub, per-month programming fees from affiliates.

Fox’s non-negotiable terms for affiliation include 25 cents per month per cable or satellite subscriber in markets 125 and up, ratcheting up to 50 cents in the fourth year of the contract. Deals in smaller markets start at 18 cents.

Hopkins said Fox demands on its affiliates stem from the realization that the “value equation” between network and affiliate had shifted and the network had wound up on the short end.

Fox was supplying high-quality programming and losing money, he said. “Why is the broadcast network airing first runs of The Simpsons and getting less than what we are getting for selling the reruns?”

Hopkins said that Fox had considered going for a percentage of its retrans revenue as other networks have, but concluded that it was “cleaner” to simply set a fee schedule and stick to it.

Hopkins said it would be hard to manage percentage deals since many of its affiliates have affiliations with other networks. In such cases, he asked, how do you assign value to any one network?

“We just thought that at the end of the day that opened up an opportunity for a lot of mischief.”

Hopkins reaffirmed Fox’s commitment to broadcasting. “We like the model of national and local. We think it works well.”

As a broadcast network, Fox gets an extra 20% more household coverage — 10% from over-the-air reception and 10% from carriage on broadcast-only lifeline cable tiers. “Before you start the day, you’ve got a 20% advantage on your cable rivals,” he said.

Fox has no intention of converting to a cable network, except possibly in some small market without a full complement for TV stations, he said.

Fox has been “aggressively seeking cash” from cable and satellite operators for the past year-and-a-half, and has managed to secure retrans payments, Hopkins said.

Hopkins didn’t say how much those payments are, but he allowed that they were less than “full value” for the network. “I think we are on track to getting full value. I wouldn’t say we are getting it today.”

Hopkins said that Fox is only halfway through “the deal cycle” on retrans with cable and satellite, which means more negotiations and possibly more disruption in service in which Fox stations are dropped from cable or satellite.

Such disruptions have occurred three times, Hopkins said. Will there be more? “I hope not, but you never know,” he said.

Like other broadcasters, Hopkins said, Fox is concerned about allowing cable operators to import distant network affiliates into a market since it undermines local affiliates in their retrans negotiations.

“It’s devastating…. It’s definitely important … to have real exclusivity in the marketplace,” he said.

Hopkins showed no interest in representing its affiliates in retrans negotiation with cable operators as NBC recently announced it will be doing. However, he said, “I think it makes it easier when the No. 1 cable MSO is doing it.” Comcast, the No. 1 cable operator, acquired control of NBC in January.

Hopkins predicted that there will be “a lot of pushback” from other cable operators on NBC’s plan. “But when Comcast is doing it, it almost seems like the Good Housekeeping Seal of Approval. So, we will see.”

Hopkins also said that Fox is looking to pull back on the free availability of its primetime programming online so that it can offer the programming to multichannel operators for VOD services.

“We’ve got to figure out how to harness that demand and put it into retransmission consent deals,” he said. “And that’s what we are going to try to do.”

Removing Fox programming from free online site will also discourage “cord cutting” by cable and satellite subscribers, he said. “Ultimately, that’s better for the overall ecosystem.”