JESSELL AT LARGE

Padden’s Reversal On Network-Affil Relations

Preston Padden was once a network exec whose job was to keep affiliates in line. Today, he’s seeing things differently. The relationship is way out of whack, he says. The networks have too much clout. I tend to agree, but, unlike Padden, I don’t think a solution is to be found in FCC oversight. One alternative may be for small affils to take a page from cable’s book and form a co-op to negotiate collectively with the networks.

For two decades, Preston Padden was a high-ranking executive for Fox and later ABC. In those roles, he often played the heavy in dealing with affiliates.

In 1990, for instance, it was his job to tell the Fox affiliates that  the network was phasing out compensation and that any affiliate who didn’t like it was welcome to rejoin the ranks of the independents.

Now in semi-retirement — he consults for a broadcaster participating in the incentive auction — Padden has had a change of heart.

The relationship between the networks and affiliates is way out of whack, he says. The networks have too much clout. They can squeeze affiliates mercilessly for reverse comp, and can yank affiliations whenever it suits them to install a more compliant or favored affiliate or to take over the market with an O&O.

For Padden, his case in point is Ed Ansin.

Ansin is the well-known owner of WHDH, the NBC affiliate in Boston. But not for long. Last September, with no notice, NBC informed Ansin that it would drop WHDH from its affiliate roll when its current 10-year contract expires at the end of this  year.

BRAND CONNECTIONS

In its place, it would launch an O&O, producing news at its revamped regional cable news channel, NECN, and serving over-the-air viewers via a channel on WNEU, its Boston Telemundo station.

The loss of the affiliation would be a terrible financial blow. With the affiliation, Ansin figures WHDH is worth $500 million. Without it, its value drops to no more than $200 million, the price NBC offered to pay for it.  (NBC opted for WNEU with its vastly inferior OTA coverage of the market only after Ansin rejected the $200 million offer for WHDH.)

Outraged, Ansin sued NBC parent Comcast in federal court in Boston, charging that it had breached an agreement with the NBC affiliates, in which Comcast promised, among other things, to maintain NBC as a top-quality, general entertainment programming service and continue a “cooperative dialogue with its affiliates” to sustain the broadcasting business model.

Comcast had signed the agreement to win the affiliates’ support for its acquisition of General Electric’s controlling interest in NBC, which was pending before the FCC at the time.The FCC incorporated the agreement into its January 2011 order approving the acquisition.

Unfortunately for Ansin, the court dismissed Ansin’s complaint on May 16, saying that the promise of “cooperative dialog” does not apply to or “confer any rights” on individual affiliates. Several other alleged breaches of the network-affiliate agreement were also dismissed with a sentence or two.

A friend of Ansin’s, Padden rose to his defense today in an op-ed piece that ran in The Hill, which covers the doings of Congress.

He blasts NBC’s “low-ball” offer to buy WHDH after devaluing it as a scheme that “would make even the mob blush” and says that Comcast’s promise of “cooperative dialog” with affiliates has been rendered meaningless by “clever legal wordsmithing” and the court’s ruling.

He then calls on the FCC and Congress to investigate, hoping, I suppose, to put pressure on NBC to back off in Boston. But it is not just about Ansin, he says. Larger issues are at sake.

Permitting NBC to brush aside Ansin in Boston invites more of the same behavior in other cities, he says. “That can’t be a sequel the FCC or the commerce committees want to see played out over and over again.”

Ansin’s plight is symptomatic of an “unhealthy imbalance of power” in the network-affiliate relations — one that allows the network to demand “outrageous” increases in reverse comp payments that threaten the financial health of stations.

“TV viewers will be disserved if the networks succeed in driving diversely owned local stations out of business or forcing them to all merge into mega-groups.”

Ansin’s case also brings to the fore the worthlessness of third-party conditions to media mergers. “The slippery, and apparently meaningless, ‘cooperative dialog’ language in the Comcast/NBC conditions raises the question whether conditions ever can be relied upon to protect the public interest,” Padden says. “Perhaps, as former FCC Commissioner Mike Copps has argued for years, problematic mergers like Comcast/NBC simply should be blocked.”

This is certainly a different Preston Padden than the network executive who could be counted on to argue for minimal government involvement in the marketplace and the benefits of Big Media. Quoting Mike Copps just isn’t done among the media smart set.

It’s almost always a mistake to seek help from the government for internecine feuds. Regulators who step in tend not to step out.

And Padden exaggerates when he suggests that Boston is the first of many market takeovers by the networks. NBC moved into Boston because it had in NECN and Comcast cable systems the news production and advertising infrastructure in place.

With a few exceptions, notably Fox’s recent push for O&Os in market where it holds NFL rights for the local team, the other networks have shown little interest in expanding their station groups.

But Padden is correct in underscoring the imbalance in network-affiliate relations and the ineffectiveness of the key conditions imposed by the affiliates on Comcast when it assumed control of NBC. Any affiliate who believes that NBC is obliged to negotiate in good faith on a renewal before pulling the plug is sadly mistaken.

Nexstar and Sinclair and other large groups can take care of themselves, but groups with a handful of stations are under the gun — pay up or be displaced. Ansin has only one other station, WSVN, the Fox affiliate in Miami. If he had 10 other NBC affiliates, then NBC would not be so quick to move in on him.

So, if it’s a bad idea run to the FCC for protection, what can small broadcasters do?

Organize.

The National Cable Television Cooperative comprises small cable operators that collectively negotiate with cable programmers like Viacom and Turner and technology suppliers.

Mark Botti, an antitrust attorney for NCTC, believes that it may be possible to set up a similar co-op in broadcasting as long as the collective market reach is reasonable. NCTC represents around 10 million cable subscribers.

“The antitrust laws are accommodating and supportive of the value that a buying group can bring to small customers,” he says. “It allows them to form these buying groups to gain knowledge and efficiencies in their contracting and that would tend to benefit both the buyers, sellers and consumers.”

Look, broadcasting isn’t cable, and Botti says he would have to study the business more closely before rendering a definitive opinion. But it’s something for small broadcasters to think about.

Ansin has some decisions to make. He told me yesterday that he is weighing a court appeal or formal complaint to the FCC. He said that he visited the FCC a couple of months ago and found some sympathy there. (To read more from Ansin of his battle with NBC, click here.)

And, of course, there is another out for broadcasters who find their stations worth less than they once were: the incentive auction. Ansin isn’t commenting on that route.

As for Padden, once the incentive auction wraps up, he will have time on his hands and, it appears, a new mission.

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


Comments (18)

Leave a Reply

Wagner Pereira says:

June 10, 2016 at 3:57 pm

This has it’s roots over 25 years ago when Group W attempted to sell KRLD-AM in Dallas to Evergreen for roughly $40M. As Cowboy’s owner Jerry Jones pointed out, about $10M of that price was based on cash flow from having the Cowboys Play by Play and Network – and he wanted his $10M or threatened to pull the rights. Group W refused. Jerry Jones pulled the rights. The sale fell through and CBS purchased KRLD-AM for $10M-$12M less than Evergreen offered. As I have said before, I feel sorry for Ed, but there is no argument that a portion of the value of any affiliate is due to the Network Affiliation. I am not sure there is a great answer – but the only way around it is for stations to be less reliant on Network Programming.

David Siegler says:

June 10, 2016 at 3:59 pm

It is truly a sad state of affairs when the networks and their affiliates are in such an adversarial relationship. When I worked in commercial television in the 1980’s and 1990’s I knew that the network compensation model was no longer valid. Local stations had become completely reliant on network and syndicated programming and created very little local content and therefore had little to differentiate themselves from the national network feeds. With cable and now internet delivery commonplace, viewer can access national and syndicated content on their own schedules and from a myriad of different sources. With the advent of retransmission consent in the 1990’s it was the networks and their affiliate partners against the cable operators, another unnecessarily adversarial relationship. Now as the networks and the cable operators blend, the affiliate stations are now being squeezed. In all of this, greed is the driver and public service isn’t even a consideration. And if we are relying on the FCC to step in and protect the public interest, I am sorry to say that their chief role now appears to be generating revenue for the US Treasury and the public interest takes a back seat to profits with them as well.

Brian Bussey says:

June 10, 2016 at 5:38 pm

see Les Moonvade

alicia farmer says:

June 11, 2016 at 8:39 am

It isn’t 1970. It’s just another business.

Don Thompson says:

June 11, 2016 at 7:14 pm

Another fantastic column by TV NewsCheck editor Harry Jessell! My observation is this: Comcast’s offer for WHDH set the market price for the station but TV stations that yield their spectrum to the FCC in the impending reverse auction will not be compensated at the market price, plus LIBOR or something like that. Oh, no — those TV stations will be getting compensated at much higher levels, courtesy once again of the American taxpayer. How did that happen? You got it: @nabtweets and the TV #cashcasters worked their Beltway magic once again. Please follow me on Twitter @TedatACA

    Wagner Pereira says:

    June 12, 2016 at 6:04 pm

    Interesting that Ted Hearn thinks the Opening Bid is the Final Price – especially as multiple rounds have ALREADY happened. He also states its coming from the American Taxpayer – and not the Wireless Companies. Either Ted is A) an idiot or B) just trying to spin. We know which.

    John Bagwell says:

    June 13, 2016 at 9:14 am

    Well, Ted is basically a lobbyist. I wonder how that local choice is going for him?

    Wagner Pereira says:

    June 14, 2016 at 6:35 pm

    Another failure for the “Lobbyist”.

Veronica Serrano Padilla says:

June 13, 2016 at 11:57 am

I even have to question Ted’s “drive by shooting” on this one… the higher the compensation TV stations get in the auction will mean a larger amount of money put into the U.S. Treasury.

John Avellino says:

June 14, 2016 at 11:44 am

Ed Ansin is a complement to capitalism and Preston Padden is a Legend. Way to do whats RIGHT Preston – the Networks are just constantly trying to muscle out the smaller broadcasters….It’s lunacy and it’s Wrong. You can only deal with the Networks if you have a lot of stations in any constructive manner. The Networks are going to continue to Roll this O&O model out as much as they can – just wait and see.

Ellen Samrock says:

June 14, 2016 at 3:44 pm

A co-op is certainly a novel idea. But WHDH needs to move on. NBC may have broken a trust but they apparently have broken no laws nor breached any contracts. There are a lot of really good diginets (and a few great ones) that would love to affiliate with a station like WHDH and would gladly do so on a barter arrangement. WHDH should fill their 6 MHz with as many of the best diginets as they can and program local news across all of them. To me, this seems like a better strategy then trying force NBC back to WHDH (which will go nowhere) or get the FCC involved in what is basically a private business dispute. The only other recourse is to sell to NBC at their offered price. (I’m assuming WHDH is not in the auction or why would any of this matter).

    Wagner Pereira says:

    June 15, 2016 at 2:25 am

    That line of Programming would drop the value of WHDH another $100 Million or so.

Keith ONeal says:

June 15, 2016 at 11:21 pm

I think that WFXT should affiliate with NBC and send the FOX affiliation to WHDH. Everyone would be happy.

    Wagner Pereira says:

    June 24, 2016 at 6:23 pm

    @Flashfool – That is why you should not think. Cox would not be happy and NBC would not be happy. So Everyone WOULD NOT be happy. Just another comment on something you know nothing about.


More News