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Copyright 2001 The New York Times Company  
The New York Times

April 23, 2001, Monday, Late Edition - Final
Correction Appended

SECTION: Section C; Page 1; Column 2; Business/Financial Desk 

LENGTH: 1912 words

HEADLINE: A Struggle For Control;
Local TV Fears the Networks' Power


Even at the beginning of broadcasting, in the 1920's, when pioneers like William S. Paley built CBS out of an assemblage of local radio stations, the relationship between networks and their local affiliates contained too many conflicts to ever be called a beautiful friendship.

Still, mutual interest and lucrative profits have kept networks and stations in league for the better part of a century. But now, in the television industry, regulatory changes, increased competition, technological advances and consolidation of power by the networks and big station owners, have gradually pushed networks and their affiliates all the way to opposite corners of the ring.

For the moment at least, both sides have their dukes up. And the odds at ringside favor the heavyweights, the networks, mainly because of the deregulatory zeal of the Republican administration in Washington, which the networks hope will end federal rules that prevent any network from owning stations whose total audience exceeds 35 percent of the country's population. Just last week, the Republican-led Federal Communications Commission gave the major networks a separate victory, repealing a rule that had prevented ABC, CBS, Fox and NBC from owning smaller networks. The immediate victor was CBS's owner, Viacom, which will be allowed to retain its stake in the UPN network.

The network-affiliated stations -- except those the networks already own, of course -- argue that increased power by the networks would mean even fewer locally generated programs, besides news, for viewers in the typical American city. They also see their profits being eroded by reductions in the commercial time the networks leave available to them to sell local advertising.

And the networks are rapidly ending the compensation fees they have traditionally paid to the stations that carry their programming.

"What the networks have said in a very high-handed way is, 'We're going to do it our way,' " said Alan Frank, the president of Post-Newsweek Stations, which owns six network-affiliated stations around the country. Mr. Frank is also chairman of the National Affiliated Stations Alliance, a group representing more than 600 stations that filed a petition with the F.C.C., accusing the networks of a litany of sins.

The networks argue that there have been fewer and fewer local programs and that viewers much prefer to watch what the networks have to offer anyway. The networks, also noting the continued loss of their audience to cable TV, say they need to accrue more control to be able to afford the high-quality shows the viewing public expects of them.

"We need a rational business model," said Alex Wallau, the president of ABC. We don't want to squeeze the affiliates to death. We just want to be able to breathe."

Running TV stations is by far the most profitable segment of the broadcasting industry. Many stations attain profit margins of 50 percent, while the network business, with all its programming costs, runs much leaner. And yet the affiliates point out that the networks are parts of their much larger parent conglomerates, which generate profits in many other ways, including the ability to create and own hit shows that can make hundreds of millions of dollars in syndication.

Tensions between the networks and the stations that carry their programming are hardly new. For years both sides have had sometimes fractious negotiations over issues like how much the networks would pay affiliates to carry their programs; how many pre-emptions of network programs the local stations would be allowed to make, and what rights of exclusivity over programs the affiliates would retain. But the stations' petition with the F.C.C. last month was the closest thing yet to an open declaration of war.

The filing accused the networks of intimidating stations to keep them from pre-empting network programming to run local or syndicated shows on which the stations can sell all of the advertising. They accused the networks of dictating to station owners whom their stations can be sold to. And in the case of the Fox network, the stations said Fox had forced them to cede control of the addition channels they will gain as they change their broadcast signal from analog to digital.

The list included so many accusations of rules violations, abuses of power and extortionate negotiating tactics that one public-rights advocate, Jeff Chester, executive director of the Center for Media Education, said the charges "read more like a request for a RICO indictment," a joking reference to the Racketeer Influenced and Corrupt Organizations Act.

The networks responded with a vociferous denial of the charges, calling them unfounded and irresponsible. CBS said it would no longer even talk to its affiliate advisory board because the station owners had not warned the network the petition was coming. CBS subsequently resigned from the National Association of Broadcasters over the trade group's support for retaining the 35 percent coverage cap on station ownership. CBS will not be the only one sitting it out when the broadcasting industry meets in Las Vegas this week for the N.A.B. convention: Fox and NBC earlier resigned over the ownership-cap dispute.

So far ABC has opted to stay in the N.A.B., although the network's main Washington lobbyist, Preston Padden, emphasized that ABC would work "to push the radicals out" of the trade association.

The networks contend that the stations' protest is being driven by station groups with their own self-interest, primarily groups controlled by newspaper companies, like Post-Newsweek, which is owned by the Washington Post Company, Gannett, Hearst, Scripps-Howard and The New York Times Company.

"It's a lobbying ploy to create a delaying mechanism by making a lot of noise," said Bob Wright, NBC's president. Like many other network executives, he says the stations are trying to delay the growing move toward ending the longstanding practice of networks' paying affiliates to carry their programming. As for the affiliates' efforts to retain the 35 percent coverage cap, he said those arguments contradicted the newspaper companies' own lobbying to end a separate regulation -- the one that has long prevented newspapers from owning a paper and a TV station in the same city.

Mr. Frank, of the Post-Newsweek station group responded by saying that the newspaper cross-ownership change was supported by stations with and without newpaper ties.

As for the compensation issue, another station group head, who insisted on anonymity, said: "The networks are poisoning the relationship over this. They just want to run up the score."

"Comp," as compensation is known, is considered a noxious anachronism by every network, but a birthright by every station. The issue of whether the networks should continue paying stations to run their programs has been at the center of what Mr. Chester, the public-interest advocate, refers to as "the roiling tumult in the broadcasting industry" for more than 15 years.

Initial efforts to cut back compensation were undone in 1994 when Rupert Murdoch's News Corporation, looking to upgrade Fox, raided a group of affiliates mainly aligned with CBS. That set off a frenzy of escalated comp payments to keep other stations from defecting, costing ABC, CBS, and NBC each from $150 million to $200 million every year since.

"In 1994 we had to pay a lot more money for comp," said Randy Falco, the president of the NBC network. "Nobody was talking about these issues then," he said of the stations. "They all took the money and went out the door giggling."

The networks have been moving to scale back compensation ever since. But the most significant event, network and station executives say, took place last year in San Francisco. NBC, outbid in its effort to acquire KRON, the NBC affiliate there, shunned the winning buyer, Young Broadcasting, and picked a station in San Jose to become the network's new Bay Area affiliate. The switch will take effect next year.

Granite Broadcasting, owner of the San Jose station, KNTV, viewed the NBC affiliation as so valuable that it stood the customary comp arrangement on its head -- agreeing to pay NBC $380 million over 10 years. "They came in and made an offer," Mr. Falco said. "What should I have done? Told them to go away?"

That was the most prominent example yet of "reverse comp," but it has not been the only one. Networks will not talk about their own deals with specific stations. But one industry executive, without identifying the companies, said at least two other major networks had stations paying reverse comp -- one of them with more than 20 stations paying fees.

"The reason why everyone is so mad," Mr. Falco said, "is that Granite monetized the value of an NBC affiliation."

From the stations' side, the NBC San Francisco-San Jose deal smacked of the kind of cut-throat negotiating they say the networks now routinely do. "San Francisco is an example of how far the networks can go," Mr. Frank said. "This is what the networks are doing with the 35 percent ownership cap. What will they do if that gets raised?"

The networks are confident that the momentum will continue in their favor. They point to two recent court decisions, one rejecting a 30 percent national population cap on ownership of cable systems and the other granting Viacom, parent of both CBS and UPN, a waiver to continue holding stations that put it over the 35 percent limit. And they are especially optimistic about support from the new F.C.C. chairman, Michael Powell, who has been outspoken about ending what he calls outdated regulations on the media industry.

"I don't think the N.A.S.A. filing is going anywhere," Mr. Wright said, referring to the F.C.C. petition by the national affiliates' group. He said the personal nature of some of the charges made the filers "sound like they're from the flat-earth society."

Mr. Frank, meanwhile, said he hoped Mr. Powell would back enforcement of justifiable regulations. In any case, he said, petitioning the F.C.C. was worthwhile because "at least we'll know what the rules are."

Christopher Dixon, a media analyst with UBS Warburg, called the rules limiting networks' station ownership "totally antiquated in a world of 200 metered cable channels." He said the networks had to find economies of scale through ownership consolidation to compete with cable companies," which have two revenue streams -- subscription fees and advertising.

"The economy has swung to the cable business," Mr. Dixon said. "The networks have to improve their economy through consolidation."

But Mr. Chester, of the Center for Media Education, said further consolidation would be cause for alarm. "Something larger is afoot here," he said. "This has long-term consequences for democracy and journalism. One of the major reasons for the original Communications Act was the idea of localism. That very localism is in doubt now. The local stations need some help. The power of the networks has to be restrained."

Despite the emotionally charged issues, neither side is prepared to walk away from the other -- not with so much money still concentrated in the station business.

"We have an interest in each other's economic health," said Mr. Wallau at ABC. "We have owned-and-operated stations and we want to insure that the stations' business remains a good business. We're broadcasters. They're our affiliates. We need each other."

CORRECTION-DATE: April 25, 2001, Wednesday

A chart in Business Day on Monday with an article about the growing conflict between television networks and their affiliated stations misstated the number of stations owned by CBS. It is 16; 35 is the combined total for CBS and affiliates of UPN; both are units of Viacom.

GRAPHIC: Photos: Bob Wright, NBC's president, says stations are lobbying hard to delay a move by the networks to end the practice of paying affiliates to carry network programming. (Allan Barnes for The New York Times); "What the networks have said in a very high-handed way is, 'We're going to do it our way,' " said Alan Frank, the president of the Post-Newsweek TV station group. (United Press International); ABC's main Washington lobbyist, Preston Padden, says the network wants "to push the radicals out" of the National Association of Broadcasters, the trade associations. (ABC)
Chart: "Network Reach"
How the four major TV networks rank by number of stations.
Affiliate stations owened by networks
ABC: 10
NBC: 13
CBS: 35
FOX: 33
Network's total affiliates
ABC: 217
NBC: 217
CBS: 213
FOX: 187
(Sources: Nielson Media Research; Paul Kagan Associates)

LOAD-DATE: April 23, 2001

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