TV Network-Affiliate Relations Grow More Fractious
Relationships between TV stations and the networks they're affiliated with have grown increasingly tense in some cases as both sides seek more money for carriage of the local signals by pay-TV companies, some executives said. As local and national TV advertising sales had slumped during the recession, the need for retransmission consent payments appears to be increasing, our survey of industry executives and lawyers found. Efforts by networks including Fox to share in the money that stations get from cable and other pay-TV providers to carry affiliates and to encourage affiliates to get higher fees have heightened tensions, some said.
Sign up for a free preview to unlock the rest of this article
Export Compliance Daily combines U.S. export control news, foreign border import regulation and policy developments into a single daily information service that reliably informs its trade professional readers about important current issues affecting their operations.
Executives seem split on whether both sides have much to gain by working together, with several telling us stations and networks both stand to prosper while others were less optimistic. “It’s important that affiliates work with the network,” said CEO Brian Brady of Northwest Broadcasting, owner of four Fox affiliates and head of the network’s affiliate board. “It’s in the best interests of both parties to have strong businesses. A strong relationship will lead to strong businesses. We both need to have a dual revenue stream” from ads and retransmission payments. “The affiliate bodies need to work with their networks to strengthen the partnership.”
The Fox network’s apparent effort to get $1 per subscriber monthly from pay-TV providers has drawn concern among some affiliates, industry lawyers said. Although affiliates want to get that much money, not all can and in some cases they've had to renegotiate tentative terms to renew carriage deals with pay-TV providers, they said. “If the network can get $1 per sub per month and will split it 50/50 with the affiliates, I would think most affiliates would jump for joy,” said an attorney. But it would be “a fair concern” whether such fees could be garnered by stations with existing long-term carriage agreements, the lawyer added.
Fox and affiliates are “frequently in communication on a number of topics,” a network spokesman said. Spokespeople for the other major networks -- ABC, CBS and NBC -- declined to comment or had no immediate comment. Gordon Smith, in one of his first speeches as NAB president earlier this month, said he hoped both sides would work together. “What I want to do is help resolve this family fight in a way that allows both of them to live,” he said. “They need each other.” An NAB spokesman declined to comment further.
“If the networks can help grow the pie, that’s one thing. Networks aren’t looking to cut the legs out under their own affiliates,” said another industry executive. “If they feel there are a couple additional retrans bucks they can get off the backs of affiliates” that makes business sense, the executive added. FCC deregulation of media ownership, such as letting one company own two top-four affiliates in the same market, would help the business and give affiliates more negotiating power, the person said.
“The relationship with the networks is probably more contentious now” from an affiliate perspective, said President Robert Prather of Gray Television, owner of stations affiliated with all four major networks. “I'm not sure our goals are in the same alignment. I'm not sure if the networks feel they need the affiliates anymore,” he continued. “We need to get along: I think we have a symbiotic relationship that’s important to both of us, but both sides need to feel that way” and it doesn’t always seem as if networks agree, Prather said. On carriage fees, he said, “they have a totally different agenda” and “it’s extremely hard for us to be on the same page, and for us to negotiate together I don’t think will work under any circumstances.”
Meanwhile, cable operators are turning up the rhetoric on programming costs in general -- not just broadcast programming. Time Warner Cable on Thursday began an ad campaign dubbed “Roll Over or Get Tough” to tell customers that every time a program carriage agreement comes up for renewal TWC faces price increases of up to 300 percent. “Sometimes a network will threaten to take your shows away if we don’t roll over,” one ad said. It asked customers to give their input at www.rolloverorgettough.com and “help us decide” how to approach those situations this year. “We're not trying to attack programmers, but we need to find a better way to resolve these issues,” TWC Chairman Glenn Britt said.
Subscription fees have become increasingly important to stations and networks as competition for ad sales has increased, General Counsel Barry Faber of Sinclair said. “We see advertising in so many more places than you used to.” When the economy contracted, that only worsened the situation, he said. Pay-TV networks are broadcasting’s biggest competitors -- not just for ad revenue but also for programming, he said.
Stations aren’t outright opposed to sharing subscription fees with the networks, Faber said. “We recognize that if you want to compete with ESPN or FX or TNT, they have to have sufficient money to make the network work.” But “we're opposed to the money to continue to be allocated as it is by the [pay-TV providers], and then the networks taking a portion,” he said. The money distributors pay to programmers just needs to be more fairly allocated based on the popularity and value of the programming, he said. Cable operators aren’t appropriately valuing broadcasters and pay many times more for cable channels on a ratings-basis than for stations, Brady said.
Stations could have more leverage in retransmission- consent talks with the networks behind them, Frank Kalil, a TV station broker, said. “I think we ought to charge as much as the market would bear. But I think the affiliates, with the efforts of the networks, may be in a better position to get retrans than they are right now.”