While the network says recent affiliation changes aren’t ultimatums and that it needs a revenue stream from its stations, others see Fox’s increasingly tough stance as one of “either come to the table and negotiate or we’re going to slit your throats.”
Fox Playing Hardball With Balky Affils
Fox Networks’ new affiliation deals in Evansville, Ind., and Boise, Idaho, reflect the evolving business model for network television, not a warning shot across the bow of recalcitrant affiliates, says a Fox executive.
“It was not to send a message” to other affiliates, said the executive, who spoke on the condition of remaining anonymous. “If we can’t come to an agreement with someone, we have to look at something else. … We needed to look at where we could affiliate and that’s what we did.”
Fox said Wednesday that it was pulling its affiliation from Nexstar Broadcasting’s WTVW Evansville and handing it over to Communications Corp. of America’s WEVV, which will carry Fox on a digital channel along with programming from MNT. WEVV carries CBS on its primary channel.
In Boise, Fox is replacing Block Communications’ KTRV with Journal Broadcast Group’s KNIN, which will carry Fox on its primary channel in place of the CW. The affiliation switch will happen around Sept. 1, said Jim Thomas, a Journal spokesperson.
“Teaming with Fox in Boise will be a tremendous complement to the syndicated programing we have on station,” Thomas said, adding that Journal also owns the ABC affiliate in that market. “The same newsroom will produce news programming for” both stations.
The agreements bring CCA’s Fox affiliations to seven, Journal’s to three.
Executives of Nexstar, CCA and Block could not be reached for comment.
Having watched the retransmission consent payments from cable and satellite operators grow into a substantial new revenue stream for affiliates, the Big Four networks, with Fox in the lead, have been demanding big cuts when affiliation agreements come up for renewal.
Nexstar President and CEO Perry Sook, a leader in negotiating retransmission fees from MPVD providers, and Fox have been in affiliation negotiations for nearly a year. Wednesday, during Nexstar’s first-quarter earnings conference call, Sook acknowledged that there’s been no progress in the negotiations.
That led some observers to see Fox’s announcement of the move in Evansville as making an example of Sook.
“Fox has been looking to sort of flex their muscles, show they mean business and decided they would pick on two groups they haven’t been able to get a deal with yet,” said a broker familiar with the situation.
“My take is the Fox people said we told you we were going to do this and now we’re doing this: Either come to the table and negotiate or we’re going to slit your throats.”
While the Fox executive took exception to that characterization, he acknowledged that network-affiliate relations are strained.
“I would say it’s a challenging time,” he said. “We’ve got affiliates trying to figure out ways to make things work in the future. We want to help them figure that out. … Our goal is to keep affiliates right where they are. We like the affiliate body right now. But we have to acknowledge the financial realities the network is dealing with. We want to balance that out as soon as possible.”
Along with the other Big 4 networks, Fox considers the traditional single-stream, advertising-based network business model no longer tenable and seeks a second stream from affiliates, the executive said.
The strain between Fox and its affiliates came to light earlier this year as Fox affiliate board President Brian Brady and Mike Hopkins, president of affiliate sales and marketing for Fox Networks, drew battle lines in dueling letters to affiliates.
According to sources, Fox was seeking four-year affiliation agreements that included 25 cents on every retrans dollar a station collected in the first year, ratcheting up to 50 cents in the fourth year.
Brady’s letter warned that Fox was attempting a divide-and-conquer strategy by negotiating agreements with stations and groups separately, effectively abandoning board-level talks.
Hopkins, in his response, tacitly acknowledged that, saying that board talks had been unsuccessful and that the network would instead negotiate with stations and groups independently. If those talks failed to yield results, Fox would have no choice to explore other means of distribution, Hopkins’ letter said.
Fox, the No. 1 rated network in the key 18-49 demo, clearly is trying use its leverage to extract more revenue from its affiliates, said a Wall Street source.
“I think [News Corp. COO] Chase Carey is saying it’s our game, you’re along for the ride,” the source said. “Chase is going to take his cues from Rupert and Rupert is not afraid to play hardball with anyone, not the unions in London, not affiliates.
“What that says to me is that as a station owner, you have to take back as much of your dayparts as you can, program your station accordingly and develop alternate revenue streams. You need to find ways to be less dependent on network owners.”
One broadcasting executive said that while Fox may be right about the fading utility of the single-stream revenue model for networks, it may be pushing too hard, too fast.
“After they get over the chest pounding, they’ll get down to the reality that it’s not going to do any good to have bankrupt affiliated stations that aren’t differentiated from youtube channels” the executive said.
The key to successful network-affiliate relations will be blending highly rated network programming with strong local programming, the executive said.
While the executive doubts Fox will attempt to force the issue with affiliates in larger markets, the Fox executive didn’t rule out that possibility.