Fox Right, Wrong In Affiliates Retrans Fight

In an exchange of heated letters last February between Fox and its affiliates over retrans sharing, the network took offense at the affiliates’ characterizing Fox’s tactics as “divide and conquer.”

Nonetheless, I can report to you today that Fox is dividing and, in most likelihood, conquering.

Having refused to negotiate sharing with affiliates as a whole, it has been negotiating with station groups individually as their affiliations come up for renewal and it has been threatening to yank affiliations if a group failed to meet its demands for what it likes to call “programming fees.”

On Wednesday, Fox made good on those threats for the first and probably not the last time. Fox announced that Nexstar’s WTVW is out as its affiliate in Evansville, Ind. In is Communications Corp. of America’s WEVV, which will carry the Fox banner and programming on a subchannel. WEVV carries CBS on its primary channel.

In Boise, Idaho, Fox said it is replacing Block’s 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, we’re told. In creates a nice full-power duopoly for Journal, which also owns ABC affiliate KIVI.

These are clearly warning shots, meant to be heard not only by Nexstar and Block, but by all affiliates who believe that the network is bluffing when it says it will dump affiliates who don’t pay up.

Call the tactics what you will, I call them short-sighted. Everybody suffers in a civil war, and this will be no exception.

Nexstar and Block are clearly losers. Without the affiliation and all that entails, the value of WTVW and KTRV will plummet. Balance sheets and corporate P&Ls will be damaged.

But Fox is a loser, too. WTVW and KTRV are news-producing stations, which means they maintain high profiles in their markets. Their replacements, WEVV and KNIN, are not. WEVV is putting Fox on a subchannel, which a lot of viewers will have a hard time finding. And its promotional efforts will be split between Fox and CBS.

Evansville and Boise are small enough (555,000 TV homes combined) that any loss in viewership in those markets will have no material impact on Fox’s business. Of course, if Fox continues to make switches to inferior stations and subchannels, the tiny losses will accumulate and eventually cause some real pain.

It’s also bad PR. With Fox scheduled to unveil its fall schedule in New York next week, this should be a time of celebration. Instead, it’s a time of fear and loathing. Fox can only hope that the bad vibes do not infect its effort to sell the new schedule to advertisers in coming weeks.

Although I’ve been critical of Fox’s tactics, I agree fundamentally with what it is trying to achieve. If the Big Four are going to survive and prosper over the next five or 10 years, they are going to have to keep pushing up the revenue they derive from retrans, directly through O&Os and indirectly through their affiliates.

They need that money to pay for the best primetime dramas and sitcom and compete against cable networks like ESPN and Turner for sports rights. They can’t afford to lose any more big events.

Without a kick in the pants from the networks, the affiliates will not be as aggressive as they need to be in negotiating with cable and satellite for retrans. It’s too easy to settle for 25 cents per sub per month, when what each affiliate should be getting is something closer to a dollar.

But a kick is the pants in one thing. Slitting the throat of affiliates, as one industry executive put it yesterday, is another.

Fox has been demanding that affiliates in the top 125 markets pay 25 cents in year one of a new affiliation agreement, escalating to 50 cents in year four, take it or leave it. From all I’ve heard, it is not backing off those demands.

The demands are too onerous. In some cases, 25 cents is more than the stations are now getting.

If Fox is determined to negotiate with each station group individually, it should treat them as individuals, tailoring their demands to reflect each group financial situation. Insisting that each coughs up the same fee as if every business were the same makes no sense.

It’s disappointing that Fox was able to readily find broadcasters willing to undercut others as alternative affiliates. Steve Pruett, who heads CCA, is a member of the Fox affiliate board and he was thought to be a solid member of the Fox resistance movement.

It would have been nice to see some unity among broadcasters. But too many persist on seeing each other as the competitive threat, even though it has been other media — cable, satellite and now broadband — that have been eroding their audiences and margins.

And this is business, after all. A few weeks ago, we did a story on how some groups have profited greatly by carrying Big Four networks, particularly Fox, on subchannels in short markets. Even with the programming fees, Fox is a lucrative network partner.

Since we’re now in an everyman-for-himself scramble, I would advise Perry Sook at Nexstar to do everything he can to wrest the CBS affiliation away from CCA in Evansville. Likewise, Allan Block or Bill Lamb at Block should be targeting Journals’ ABC affiliation in Boise.

My hope is that the warning shots will do what they were suppose to do: put every affiliate on notice that Fox is serious about establishing a healthy second revenue stream from every TV market and it has to squeeze cable and satellite operators just as hard as it can for every last retrans penny.

At the same time, I would also hope that Fox would recognize that every affiliate is different and that every rate card ever made was meant to be negotiated.

One Fox affiliate we talked to who wasn’t in active negotiations with the network believes it will eventually come around and ease up a bit.

“After they get over the chest pounding,” he said, “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.”

Harry A. Jessell is editor of TVNewsCheck. He can be reached at 973-701-1067 or mailto:[email protected]. You can read his other columns here.