HEADLINE: A Struggle For Control; Local TV Fears the
Networks' Power
BYLINE: By BILL
CARTER
BODY: 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."
http://www.nytimes.com
CORRECTION-DATE:
April 25, 2001, Wednesday
CORRECTION: 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.
Document 11 of 12. 