Fox Fee Demand Driving Away Affiliates

Blog ››› ››› JOE STRUPP

Fox Television's demand for affiliates to pay retransmission fees has forced at least one broadcast chain to begin cutting its Fox ties this year.

Nexstar Broadcasting of Texas owns and operates 36 television stations in 16 states. At the beginning of 2011, 15 of the stations were Fox affiliates.

But since May, three of the Nexstar Fox affiliates dropped their Fox affiliation and became independent, with a fourth becoming an ABC affiliate. A Nexstar spokesman said the company would not pay the fees Fox demanded.

"Nexstar and Fox could not come to terms on Nexstar remitting to Fox some portion of the station's retransmission compensation," said Nexstar Spokesman Joe Jaffoni. "Fox believed they were entitled to some portion; that is sort of their mantra."

Local cable and satellite providers pay most affiliates a fee for use of their programming on their pay systems.

Each major broadcast network beginning last year began demanding a portion of those fees from their affiliates, with Fox's fees higher than any others, according to media journalists who said only Fox has lost affiliates because of the new requests.

Fox announced in 2010 it would require affiliate retransmission fees in 2011. The proposed fee schedule sought retransmission fees of 25 cents per subscriber per month in 2011, 35 cents per month in 2012, 42 cents per month in 2013, and 50 cents per month in 2014, according to those involved in the talks.

"It is a very big deal, in this day and age, when you are trying to save money, you are risking losing affiliations," Marc Berman, Adweek's longtime media writer, said about Fox's demand.

He added that Fox can hurt itself, too, if it drives away affiliates: "Particularly the way the prime time climate is now, you can lose audience and that can hurt your stations in the long run. If you are a station with viewers who are used to watching Fox on a certain channel, and you switch, that can be a problem."

The first Nexstar station to drop its Fox affiliation because of the fees was WTVW-TV in Evansville, Ind., which made the move in mid-May to be independent.

Last month, two other Nexstar Fox affiliates -- WFFT in Fort Wayne, Ind., and KSFX-TV in Springfield, Mo. -- made a similar change to become independent.

A fourth Nexstar station, WFXW-TV in Terra Haute, Ind., announced last month it would switch to become an ABC affiliate, Jaffoni said.

In each case, Fox has found another local station to replace the departing affiliate.

Nexstar's relationship with Fox first took a hit in June 2010 when Fox's formal affiliation agreement with all 15 Fox affiliates owned by Nexstar at the time expired, Jaffoni said.

The agreements were never renewed, meaning the affiliates or Fox could dissolve the affiliations at any time.

Asked if he expects new affiliate agreements to be forged with Fox anytime soon, Jaffoni declined comment.

After Fox announced in 2010 plans to require the retransmission fees, it negotiated with the Fox Affiliates Board -- a group of broadcast executives who own Fox-affiliated stations.

But as Bloomberg reported in February, the talks broke down and Fox sought to negotiate with individual stations, effectively cutting the stations' united power:

Fox said it would seek direct talks with station owners after nine months of discussions with the affiliates' board "made no progress."

A Jan. 28, 2011, letter from Fox affiliates board chair Brian Brady -- president and CEO of Northwest Broadcasting in Okemas, Michigan -- to affiliates urged the stations to avoid individual arrangements with Fox and, instead, demand a group agreement that the board had sought:

FOX believes that no station or group alone can withstand their assault. They may try to use theleverage of stripping a station's affiliation and moving it to another broadcaster in order to accomplish their mission. They appear to have no regard for the value your station brings to the Network or for the fact the affiliates have been a part of making the network successful. They are prepared to destroy someone's business to make their point and to strike fear in the hearts of their affiliates. They seem to be prepared to "go to the mat" on this issue and have already identified affiliates to use as an example. I have no doubt that they believe, if they take someone's affiliation away, the rest of us will fall into line.

Michael C. Hopkins, Fox president of affiliate sales and marketing, countered Brady with his own letter to affiliates on Feb. 4, 2011. It stated, in part:

Despite Brian's unfortunate rhetoric, this is not a case of "divide and conquer." Our position would be the same whether dealing with a single station or the entire affiliate body. This is about recognizing fair value for the long-time number one network. We didn't achieve that success by following others, and we cannot continue to lose hundreds of millions of dollars with a flawed, out of date network model. We need to find a way to receive a fair value for every home that receives FOX.

Hopkins and Fox Television did not respond to requests for comment.

Brady says his company has four Fox affiliates and has no choice but to pay the higher fees: "There is no negotiating with Fox, the deal is the deal. The other networks are taken in our markets."

A fifth Fox affiliate that dropped its affiliation this year is KTRV-TV in Boise, Idaho, owned by Block Communications, which announced in May it will go independent Aug. 31.

"It was basically because of the fees," said Ricky Joseph, president and general manager of KTRV-TV. "We were supposed to have an open dialogue of negotiations and find a happy middle ground; their negotiating stance was 'take it or leave it'."

Joseph said KTRV was willing to pay Fox up to 50% of the retransmission fees it received, but the network wanted more.

Brady said the Fox approach is only going to hurt its affiliates: "I think this is going to be a financial burden on stations, a very difficult financial burden. They are really left with either 'sign a deal and the financial burden that comes with it or don't be a Fox affiliate.'"

He and others also point out that Fox has only two hours of programming for affiliates each weekday -- its 8 p.m. to 10 p.m. slots. The other three broadcast networks have up to 10 hours, with three hours in prime time, at least three hours in the morning and other daytime hours, as well as a half-hour network news cast.

But Fox Sports, which includes highly-rated NFL, NASCAR and Major League Baseball events, often provide affiliates with additional weekend and prime-time programming.

Fox has argued that having fewer hours of network programming allows affiliates to keep more revenue from local programs, said one media reporter. But local programs, particularly news, can be costly to produce.

The retransmission fees are in addition to the fees that affiliates already pay the networks to carry their programs.

Fox and cable provider Cablevision of New York had a bitter dispute last fall over retransmission fees that kept Fox programming from three million Cablevision customers for two weeks in October.

Adweek's Berman said CBS, NBC and ABC are not seeking fees as high as Fox from their affiliates or facing similar backlash: "I am not hearing of other networks losing affiliates or getting affiliation changes."

Contacted by Media Matters, John McKay, an NBC vice president of communications, forwarded the network's May 16 statement on the issue, which stated:

The network and affiliates are continuing to work together on innovative ways to align our businesses, and in that spirit we are currently working out the specifics of an agreement to have the network handle retransmission consent negotiations for station groups that opt in.

The successful completion of this arrangement would be a win for the NBC broadcast network and NBC local stations both of whom need to develop additional revenue streams to offset the high cost of producing local and national programming and news. It would be a win for the network affiliate partnership to have the split between partners be amicably negotiated. And it would be a win for both distributors and consumers because it would produce fewer negotiations where conflict can result in programming going off the air.

CBS and ABC officials did not respond to requests for comment.

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