In Depth

NBC Affiliates Prepare to Swallow Bitter Reverse-Compensation Pill

For television stations affiliated with NBC, it’s not whether they’ll have to pay up to stay in the relationship, it’s how much.

The reverse-compensation shoe has dropped for NBC affiliates and they are unhappily contemplating the pinch.

Before Labor Day, representatives of the affiliates body and the network will begin hashing out parameters of a reverse-compensation plan under which stations will be compelled to pay for programming as they renew their affiliation contracts with the network.

The news, delivered in late May at the NBC affiliates convention in Burbank, did not come as a total surprise to local TV executives, but it was not a happy headline.

One local TV executive judged it the biggest downer of a meeting that was otherwise full of good tidings from the broadcast network. They were reminded that the Beijing Olympics extravaganza is nigh, that they will continue to benefit from the ratings power of “Sunday Night Football” and the top-rated “Today” and “NBC Nightly News,” and that NBC’s new fall lineup—which always raises hope in the hearts of affiliates hungry to bounce back in prime time—will be heavily promoted during the Olympics.

Historically, stations were paid, often handsomely, for carrying networks’ programming. Usually the amount of compensation was based on such factors as how strong the station was in its market and how important that market was to the network.

Things have changed. As major sports contracts come with increasingly higher price tags, the networks have turned to affiliates for financial help, which usually is covered in separate contracts that offer the affiliates something in return, such as programming exclusivity or additional advertising spots for the stations to sell.

The old reverse-comp formulas are likely to help determine how much reverse comp the stations are asked to pay NBC. Strong stations in markets that are important to the network are likely to pay proportionately less than weaker stations in smaller markets.

The new reverse-comp deals won’t always mean cash changes hands. In some cases, a station might turn over negotiations for retransmission-consent payments from local cable operators and let the network keep some or all of what it can get.

Fox Broadcasting began getting reverse compensation from its affiliates nearly a decade ago. The majority of CW affiliates pay reverse comp.

Now that NBC has thrown the reverse-comp gauntlet down, local station executives expect CBS and ABC to move in the same direction. CBS has been gradually cutting back compensation to stations. At a conference in 2007 CBS Corp. CEO Leslie Moonves said that such payments had added up to about $250 million annually only three years earlier. At the time he spoke, such payments were essentially negligible.

It was NBC Universal President and CEO Jeff Zucker who delivered the news during his keynote address that opened the affiliates meeting in May.

Michael Fiorile, the Dispatch Broadcast Group vice chairman and CEO who was installed as chairman of the affiliates advisory board at the meeting, said the affiliate body was not happy with the development. He had an admonition to fellow station executives who strenuously grumbled: “You knew it was coming. Would you prefer he not address it? How would you feel if he spoke and mentioned not a word about it?”

“Whether you like the message or not, you’ve got to appreciate his candor,” Mr. Fiorile said.
Mr. Fiorile’s bottom line was echoed by other affiliates. Mr. Zucker did not venture into the “frank discussion” without the encouragement of affiliate body executives, who said it is important to keep the conversation real.

“Was he direct? Yes. Was he unfair? No. Did the receivers, including myself, like the message we were getting? No. Is it reality? Yes. So deal with it,” said former affiliate board Chairwoman Marci Burdick, senior VP, broadcasting, for Schurz Communications.

But there has been some concern verbalized for the numerous stations—one person familiar with the landscape put the number at 75 to 100—that are on the bubble and for whom paying reverse comp might mean the loss of local news because the stations could no longer afford to produce it.

Since the meeting, there also have been occasional sounds of pushback from affiliates who say that if they are going to have to pay for network programming, perhaps they will consider signing up with a network whose programming lineups are stronger.

At the meeting with local stations, Mr. Zucker also raised the possibility of reducing the number of prime-time hours NBC programs. He did not say whether NBC might consider going black on one night—more than one broadcast network has pondered walking away from low-viewership Saturday nights—or during an hour at the end of some nights.

Getting any prime-time hours to program locally “would be OK with me,” Mr. Fiorile said.

For more on NBC's plans, read Michele Greppi's interview with John Eck, president of the NBC TV Network and Media Works.