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Viewers will pay if Fox TV gets affiliates to give up more revenue

The fight could mean more local blackouts if Fox decides to play hardball. It could mean less public-interest programming on your local station and higher cable and satellite bills.

March 01, 2011|Michael Hiltzik

The squabbling between television networks and cable companies over broadcast fees had a brief heyday as a source of suspenseful entertainment for the viewing public. Will ABC cut off the Oscars for Cablevision subscribers as the first spiked heel hits the red carpet? Will Fox black out the Super Bowl for Time Warner customers? Tune in and find out!

The warring parties typically pull back from the brink before pulling the plug — but not always. And for most pay-TV customers, the thrill of being pigeons caught in a video industry crossfire disappeared faster than Charlie Sheen's reputation for self-denial.

But now the networks are sticking their hands deeper into another pocket — that of their own broadcast affiliates.

What's at issue are the "retransmission fees" that cable and satellite companies pay local broadcasters for the right to carry the latters' signals on their systems. The fees generally come to 10 to 20 cents per pay-TV subscriber per month, industry executives say.

In other words, if you're a local TV station and your local cable company has 1 million subscribers, it will pay you $100,000 to $200,000 a month to feed your broadcast to its customers.

All four major networks have been hungering for a piece of the local affiliates' action, arguing that much of what the affiliates are feeding the pay-TV systems is network content.

But local stations say Fox has taken a far more aggressive stance toward its 186 independently owned affiliates than the other networks have.

CBS, for instance, has reportedly asked for half the local affiliates' take from cable and satellite. Fox wants a flat rate — starting at 25 cents per subscriber per month in the first year of a four-year deal it is pressing its affiliates to accept, and rising to 50 cents in the fourth. That's for stations in the top 125 TV markets; the rate is less for smaller operations.

That makes a direct comparison difficult, but affiliate owners say that demand is so stiff that the toll could amount to more than some stations actually collect from pay TV. And Fox is threatening to drop affiliates that don't pay up.

To put it more precisely, Fox told the affiliates it would "pursue different distribution channels to receive fair value for our programming" in cases where it doesn't get what it asks.

"We don't want that to sound like a threat, but it's a fact," Fox's affiliate boss, Michael C. Hopkins, told them in a Feb. 4 letter. (Actually, it sounds like a threat, not a fact.)

What's more, the network has the upper hand — local stations need Fox's top-rated programs, such as "Glee" and "American Idol," more than the network needs any individual station or group.

The conflict between Fox and the stations involves broadcast content, not cable channels like Fox News, which are subject to separate network deals with cable and satellite providers. Nor does it involve Fox's wholly owned affiliates, including KTTV-TV Channel 11 in Los Angeles. (Fox also owns KCOP-TV Channel 13, but it carries non-network programming and is not involved in the dispute.)

But the stakes are still high for you, the television viewer.

The fight could mean more local blackouts if Fox decides to play hardball with its own affiliates. It could mean less public-interest programming on your local station, if it compensates for its higher network fees by cheaping out on news. It could mean higher cable and satellite bills, because the local affiliates will have to negotiate more aggressively with pay-TV providers to try to recoup their higher expenses. Who pays if your local station charges your cable provider more for its signal? You do.

It's certainly a reminder of how dumb it was for the Federal Communications Commission to wave through NBC's merger with the cable company Comcast in January. Fox has almost all the leverage in its dealings with its affiliates, even without owning a cable operation. The merged Comcast-NBC will be even more powerful than that.

"Their current ask is not anything I've found that an affiliate would consider acceptable," Perry Sook, chief executive of Irving, Texas-based Nexstar Broadcasting, says of the Fox proposal.

Sook, whose company counts eight Fox affiliates among the 34 stations it owns, told me he's especially irked that the network is trying to grab revenues that the affiliates obtained through their own hard negotiations.

Hopkins' letter was designed to answer an earlier letter to the affiliates from Brian Brady, CEO of Michigan-based Northwest Broadcasting and the head of the Fox Affiliate Board. His Jan. 28 letter accused Fox of playing "divide and conquer" — refusing to sit down with the board but trying to negotiate with each affiliate company. This strategy bore fruit in January, when Fox cut a special deal with Maryland-based Sinclair Broadcast Group, which with 20 Fox stations is its largest affiliate group.

"Fox believes that no station or group alone can withstand their assault," Brady wrote.

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