Nets, Affils, NFL And The Ownership Cap

Last week, at one of those investors conferences at which CBS CEO Les Moonves likes to perform, he said he would “buy TV stations all over the country” if not for the FCC cap that limits station groups to reaching no more than 39% of TV homes.

At first, I thought, well, that’s positive — a powerful endorsement of local TV broadcasting from one of Wall Street’s most respected media executives.

But then I got to thinking. The last thing that many station groups need is CBS coming after their best CBS affiliates. The endorsement suddenly seemed like a threat.

For years, affiliates have feared that the networks would force them to sell out and the fear has not always been unfounded. It happens from time to time, most famously in San Francisco.

The fear caused a deep rift in the industry a decade ago when the networks worked in Washington to raise the ownership cap and found the affiliates working against them in Congress.

I should note here that CBS and most other groups are in actuality well under the 39% cap, thanks to a provision that allows the groups to discount by half the coverage of their UHF stations in calculating their aggregate coverage.

But the FCC a year ago proposed abolishing the so-called UHF discount. Even though the agency  has yet to act on the proposal, it is unlikely to approve any deals in which a group seeks to use the discount to exceed 39%. So, in effect, 39% sans discount stands as the upper limit.

I’m not sure that Moonves truly covets more stations. The fact is, CBS has a little room under the cap and could pick up another station in, say, San Diego or Nashville. His comment may have been simply meant to underscore his confidence in broadcasting.

But Fox sure wants more.

As we reported earlier this week, it has given Tribune until Jan. 17 to get out of town — Seattle, that is.

Fox badly wants an O&O in Seattle so it has offered to swap its MNT affiliate in Chicago, WPWR, for Tribune’s Fox affiliate there, KCPQ.

From the outside, it’s hard to assess the offer. Tribune gets a second station in the third-largest market to go along with its flagship CW affiliate WGN. But it’s tough enough these days running one Little Two network affiliate in a market, let alone two.

According to BIA/Kesley, KCPQ produced nearly $40 million in revenue in 2013, nearly a third more than WPWR. But then again, KCPQ has to pay hefty reverse comp for its network programming. WPWR would not.

Tribune apparently isn’t all that enamored with the offer. After the story was leaked to the New York Post on Tuesday, Tribune rushed out a statement confirming that it had been put on notice by Fox.

But in trying to be reassuring, Tribune betrayed a certain panic. “[W]e are continuing to engage in discussions with Fox and moreover have prepared for all operational and economic possibilities for our Seattle Fox station.”

Tribune will eventually capitulate, maybe getting a little cash or a player to be named later, in addition to WPWR. It has to. It surely doesn’t want is to end up with an independent in Seattle. Boy, that would stink.

Just ask LIN’s Vince Sadusky. He just lost the CBS affiliation in Indianapolis in a dispute with that network over reverse comp. Unable to convince LIN it was serious about its big reverse comp demands, CBS switched the affiliation to … hold on, let me check this, yes … Tribune. Nice symmetry to this story, isn’t there?

What’s motivating Fox is NFL football. It is paying $1.1 billion a year for the rights to the National Football Conference games each Sunday and it has recognized somewhat belatedly that that best way to maximize those rights is to own a station in each market with an NFC team.

As any affiliate lucky enough to be the local broadcaster of the hometown pro football team will tell you, it makes you the official TV home of the Saints, the Chiefs, the Bills or what have you.

That status provides ample opportunities for ancillary programming and football- related sales promotions. And the games, of course, are a tremendous bargaining chip in retrans negotiations. No cable or satellite provider can live without the home team.

With their increasing demands for reverse comp, the networks are getting bigger and bigger shares of the affiliates’ retrans take. Some say it may go to 65% or 75%. That’s huge. But if they own the station, they get 100%.

Fox launched its strategy to accumulate as many NFC markets as it could in early 2013 when it yanked its affiliation from Bahakel’s WCCB Charlotte, N.C., and bought Capitol Broadcasting’s WJZY to be its new O&O. Charlotte is home to the NFC’s Carolina Panthers.

Earlier this year,  in a far more amicable move, Fox swapped stations in Memphis and Boston for Cox’s Fox affiliate in San Francisco, KTVU, and companion duopoly station there. San Francisco is the home of the NFC’s 49ers.

Since then, everybody have been waiting for Fox to land an O&O in Seattle with or without the cooperation of its incumbent affiliate.

With the calendar now marking KCPQ’s final days as a Fox affiliate, the wait will soon be over.

Once it gets Seattle, Fox will be right up against the 39% cap. CBS is right there, too.

If not for the 39% cap, I suspect that Fox  would buy or swap its way into more NFC markets where it doesn’t already have an O&O. I know from talking to him that Fox Television Stations chief Jack Abernethy is absolutely bullish on the strategy.

Those remaining markets include New Orleans (Saints), Milwaukee (Packers) and St. Louis (Rams). Interestingly, Tribune is also the owner of the Fox affiliate in Milwaukee and St. Louis.

If not for the cap, CBS might adopt the Fox strategy and go after affiliates in AFC markets since CBS has the rights to the Sunday AFC games. There are a bunch of them — KHOU Houston (Texans), WOIO Cleveland (Browns), KFMB San Diego (Chargers), WTVF Nashville (Titans), KCTV Kansas City (Chiefs), WKRC Cincinnati (Bengals), WJAX Jacksonville (Jaguars) and WIVB Buffalo (Bills).

But these affiliates have no immediate cause for concern. FCC Chairman Tom Wheeler leads a Democratic majority generally opposed to media consolidation. If it does anything, it will be to eliminate the UHF discount as it proposed to do last year and keep Fox, CBS and other behemoths like Sinclair bottled up for a good long while. Sinclair is also bumping against the cap.

Wheeler and company are under little pressure to do otherwise. As far as I can tell, only Fox, CBS and Sinclair have asked the FCC for relief under the cap. Moonves personally appealed to Wheeler when they met in Wheeler’s office last May.

The NAB, caught between the interests of the affiliates and the networks, has essentially decided to sit this one out. In its comments on the FCC’s UHF discount proceeding, it said it had no position on whether the agency should “eliminate, retain or modify” the cap.

This is one of those instances where owners and managers of network affiliates who normally decry regulation with gusto are happy for the protection of the federal government.

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