JESSELL AT LARGE

Must We Feud Over Network Rep Rule Again?

To the dismay of their affiliates, CBS, Disney and Fox included in their "regulatory underbrush" wish list a request that the FCC do away with the 59-year-old network rep rule. Bad move. FCC Chairman Pai has presented broadcasting with a rare opportunity to get rid of some truly useless rules and to streamline others. The networks and the affiliates need to avoid mucking things up with an internecine fight.

When FCC Chairman Ajit Pai announced at the NAB Show last April a plan to eliminate outdated and counterproductive media rules, I feared he was opening a can of worms.

My chief concern was that out of the proceeding would crawl a major new push by cable and satellite to meddle with retransmission consent and the two rules that buttress it, syndicated exclusivity and network nonduplication.

For the most part, that hasn’t happened. The chief cable trade associations — NCTA and the American Cable Association — steered clear of retrans in submitting their deregulatory wish lists, although the NTCA-The Rural Broadband Association and Verizon couldn’t resist bringing it up.

Most who replied to Pai’s initiative understood his intention to go after “regulatory underbrush” that mostly adds to media companies’ administrative payroll and legal bills rather than the trees that constitute agency policy.

But one worm has wiggled out to remind me that the networks and affiliates still don’t entirely trust one another.

Last month, CBS, Disney, Fox and Univision included in their wish lists a request to do away with the 59-year-old network rep rule, which bars the networks from repping their affiliates in the spot market.

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The four networks said they understood that the rule was originally intended to limit their influence over affiliates and foster competition, but that it no longer reflects “marketplace realities.”

“[T]he rule imposes a categorical ban on a network’s representation of any of its affiliated stations — even those that may desire to receive the additional revenue and other financial and operational benefits that could result from such representation.”

The big networks usually work in lockstep on these kinds of regulatory matters. But NBC is sitting this one out. I’m guessing it’s because the rep rule means even less to NBC given the complexity of the regulatory issues it must deal with in light of its Comcast ownership.

This particular worm did not go unnoticed by the affiliates boards of ABC, CBS and Fox and their hyper-vigilant lawyers Mark Prak (ABC) and John Feore (CBS and Fox).

The “prohibition remains an important structural barrier to networks using economic leverage to eliminate competition from affiliates in the national spot market,” they told the FCC. “To eliminate it would be to undercut one of the economic pillars of localism.”

In opposing the networks’ move, the affiliates are also carrying water for Katz Television and Cox Reps, the two independent rep firms that are already facing some significant challenges, including declining interest in spot by cost-conscious media buyers and clients who are constantly trying to trim their commissions.

The last thing they need is the networks cutting into their business in any way.

The FCC staff twice proposed eliminating the rep rule — once in 1980 and then again in 1995. In the face of strong opposition from the affiliates, the proposals were shelved and eventually withered away.

Having been taught in biology class that spontaneous generation doesn’t naturally occur, I presume that the networks were behind the previous efforts as they are the current one.

I’m don’t know why the networks brought up the rep rule in this context. It might be that they have designs on the spot market and want to do it in league with their affiliates. Or, it could simply be that the rule sticks in their craws and they don’t want to miss any opportunity to be rid of it.

I sought some explanation from them. CBS said it had no comment beyond its FCC filing. I’m still waiting on Fox and ABC at deadline.

I appreciate the affiliates’ concern. They don’t want to turn over their national inventory to the networks, which would have every incentive to favor their own time over the affiliates’ every time they are in front of a media buyer.

They also don’t want to give the networks another way to grind them at affiliation renewal time. They’re having a hard-enough time resisting the networks’ ever-increasing demands for reverse comp.

At the same time, I’m not a big fan of using government regulations to manage competition and, when it comes to national advertising, the networks and their affiliates are competitors. The FCC should stay out of the competitive fray whenever possible.

Yes, there are good arguments on both sides, but this is not the time for them.

Chairman Pai has presented broadcasting with a rare opportunity to get rid of some truly useless rules and to streamline others. The networks and the affiliates need to avoid mucking things up with an internecine fight.

Since it was the networks that unleashed this worm, it’s up to them to put it back in the can. As the underbrush proceeding progresses, let’s hear no more about the network rep rule.

Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or here. You can read earlier columns here.


Comments (8)

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Dan Levitt says:

August 18, 2017 at 3:04 pm

Absolute power corrupts absolutely, if it ain’t broke don’t fix it. It’s not explained very well here if the “Affiliates” mean AL Affiliates OR just the O&O’s which are much fewer. Why would independent station groups want the networks to have further control? Once you have control over the spot market you have virtual control – BAD IDEA. It’s bad enough the independent station groups are limited now to using 1 of only 3 or so rep firms out there. The programmatic is very confusing to the buy side and CoxReps seems to ” serve” 2 masters – 1 master on the Sell side and the other on the Buy side, not sure if that’s exactly ethical, it should be one or the other. The cost of a spot can only go up if CoxReps is on both sides of the spectrum, never would a rep firm bid down. the FCC needs to take a closer look at the rep firms, somethings not right – which I guess is why the DOJ is looking into the Ad Agency bidding practices to begin with.

    Erin Koller says:

    August 19, 2017 at 9:24 am

    To answer your first question: The “affiliates” referred to are stations NOT owned by the four networks, but stations in contractual agreement to carry that company’s network- ABC, CBS, Fox, or NBC. Eliminating the network rep rule would grant tremendous power to the networks as they could now use the affiliation as a bargaining chip to force representation. The reason there are only 2 independent rep firms is a result of industry consolidation on the ownership side which left fewer owners controlling more television stations. This left companies like Cox and Katz no choice-they had to take representation of these consolidated owned groups or lose out. Had Cox not bought HRP and MMT, in the mid 1990’s those companies would have gone out of business, had they not been absorbed. They simply could not compete. Other small owner groups like Adam Young could not sustain themselves with a national sales force and compete in the market – particularly when their San Francisco affiliate KRON had its NBC affiliation taken away by that network. So they agreed to be represented by Cox rather than operate as an independent O and O, which, without scale in major , top ten markets is extremely difficult. When I started in the rep business over 30 years ago there were I believe 10 “soliciting” rep firms plus the 3 ( at the time no Fox) Owned and Operated in house national sales reps. In light of the Sinclair acquisition of Tribune , which will give that company enormous power and control , eliminating the network rep rule would result in another major consolidation of power and be devastating to the rep business. This would give the networks tremendous leverage over their affiliates. What no one is paying enough attention to is the fact that this FCC has re-instated the UHF discount- a rule that was properly eliminated and deemed no longer necessary since access to those frequencies is no longer limited in this age of cable, satellite and digital penetration . The notion that a UHF station is at a disadvantage when the combined OTA, cable and satellite penetration approach levels over 90% in virtually every local market is absurd.

Brian Bussey says:

August 18, 2017 at 4:04 pm

The gossip on the street is that fox net demands 1/2 the retrains money for 2 hours of prime and some sports?.
How is that possible. ? The broadcast networks are trying to bypass the affiliates using the web and should be trying to figure out what ATSC 3.0 is going to do to this industry.

Erin Koller says:

August 19, 2017 at 9:28 am

To answer your first question: The “affiliates” referred to are stations NOT owned by the four networks, but stations in contractual agreement to carry that company’s network- ABC, CBS, Fox, or NBC. Eliminating the network rep rule would grant tremendous power to the networks as they could now use the affiliation as a bargaining chip to force representation. The reason there are only 2 independent rep firms is a result of industry consolidation on the ownership side which left fewer owners controlling more television stations. This left companies like Cox and Katz no choice-they had to take representation of these consolidated owned groups or lose out. Had Cox not bought HRP and MMT, in the mid 1990’s those companies would have gone out of business, had they not been absorbed. They simply could not compete. Other small owner groups like Adam Young could not sustain themselves with a national sales force and compete in the market – particularly when their San Francisco affiliate KRON had its NBC affiliation taken away by that network. So they agreed to be represented by Cox rather than operate as an independent O and O, which, without scale in major , top ten markets is extremely difficult. When I started in the rep business over 30 years ago there were I believe 10 “soliciting” rep firms plus the 3 ( at the time no Fox) Owned and Operated in house national sales reps. In light of the Sinclair acquisition of Tribune , which will give that company enormous power and control , eliminating the network rep rule would result in another major consolidation of power and be devastating to the rep business. This would give the networks tremendous leverage over their affiliates. What no one is paying enough attention to is the fact that this FCC has re-instated the UHF discount- a rule that was properly eliminated and deemed no longer necessary since access to those frequencies is no longer limited in this age of cable, satellite and digital penetration . The notion that a UHF station is at a disadvantage when the combined OTA, cable and satellite penetration approach levels over 90% in virtually every local market is absurd.

Sandy Hinkle says:

August 19, 2017 at 10:36 am

Doesn’t mean ACA isn’t committed to ending retrans, network non-dupe and syndex to create a competitive marketplace, but you have to start somewhere. The fight continues.

Dan Levitt says:

August 19, 2017 at 2:00 pm

Thanks for the clarification, though nobody held a gun to stations to use Katz or coxReps, aside from those 2 REP Firms there are also In-House sales Staff reps in virtually every Major station group such as Tribune and Sinclair IN ADDITION to their contracts with those firms that provide Repping.

Dan Levitt says:

August 19, 2017 at 2:11 pm

The great thing about Rep firms is that the Rep Firms can do all that tricky 3rd party marketing without sponsor identification so the stations aren’t liable for FCC Payola violations – IF they don’t get caught. But FCC doesn’t enforce that anyway, so there’s low risk of getting fined

Dan Levitt says:

August 19, 2017 at 2:31 pm

Which I presume would be a good reason for the Shakeup at CoxReps right now. Perhaps luck has ran out


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