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.
Padden’s Reversal On Network-Affil Relations
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.
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?
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.