Today’s Must Read–More on the Brouhaha Between Fox Affiliates and Fox Networks on Retrans and a Program Fee. We Have Two Letters You Have to Read, Plus Links to a Hot Interview and Sensible Commentary

Feb 11, 2011  •  Post A Comment

It’s clearly the subject of the week: the ruckus between Fox and its affiliates about a program fee the network wants to charge since stations get retransmission fees.

First, like a few other publications that cover the TV industry, we have obtained two letters about this. One, sent on Jan. 28, 2011, is from Brian Brady, president and CEO of Northwest Broadcasting and the chairman of the Fox Affiliate Board, and was addressed to all Fox affiliates, general managers and owners. (These letters were initially leaked to Bloomberg.)

In it, Brady states,  "As you are all aware the Fox Affiliate Board has been attempting to work with FOX over the past year to negotiate a retrans sharing deal on behalf of the affiliate body. The goal of these negotiations would be to develop a dual revenue stream for both the stations and the Network that could be shared equitably and grown over the next ten years. Our expectation was that it would be a tough negotiation but that both sides would negotiate in good faith to accomplish an outcome that benefited both sides and would strengthen the Network/Affiliate model. Based on their recent behavior, we are now deeply concerned FOX may have no intention of negotiating such and equitable deal."

He adds, "FOX believes that no station or group alone can withstand their assault. They may try to use the leverage 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. This is why our proposal to FOX contemplated an aggregate approach, where all affiliates could participate in a deal with the Network.

"The clarion call has been sounded and the landscape of being an viable broadcast affiliate has changed and no one knows it better than you. The relationships with the networks has been inextricably altered and if we do not understand this moment and act now, we will find ourselves forever stripped of our businesses and built up values that we have taken years, if not decades to build."

In response, Mike Hopkins, president of affiliate sales & marketing for Fox Networks, sent his own letter out to the same group.

In it Hopkins says, "Many of you may have received a letter from Board president Brian Brady and the negotiating committee outlining their view of conversations with us. We believe that Brian’s letter completely and unfairly characterizes our attempts to come to a reasonable solution. In fact, we find the letter offensive. FOX has engaged in discussions with the negotiating committee for nine months and has made no progress. From our perspective, the committee has been largely non-responsive to our views and unwilling to negotiate in good faith. Rather than continue to waste time on fruitless arguments, we feel it is time to move on and negotiate an equitable and practical agreement with each of you.

"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."

We suggest you read both these letters in full. To do so, please click here.

There are two other pieces that have been published today that are well worth your time.

First, our good friend and former TVWeeker Melissa Grego, now at B&C, has interviewed Fox Networks’ Hopkins and has asked him good questions.

According to Grego’s interview, Fox is instituting a program fee that starts at 25 cents per sub and, after four years, escalates to 50 cents per sub.

We would urge you strongly to click on the link above and read Grego’s entire interview. Here’s a very interesting portion of  it:

GREGO: Some affiliates feel like you are putting them into the fire, asking them to ramp up their retrans fees – while not having the bundle that the O&Os have of the cable networks, the leverage of being News Corp. Meantime with TWC, your insurance policy with them that you’ll put the network on the air if their retrans deal falls apart, "takes their best quiver" in the fight, they say. So are you setting them up to succeed?

Hopkins: Let me take that in two parts. So the arrow and the quiver issue, we think we’ve calibrated what our asks are with all of that in mind. We aren’t saying we got x and you should get x. It’s x minus a big number is what we’re seeking. And so the other issue, we had it out there for well over a year now. We think it’s actually probably contributed to getting favorable deals done in the marketplace so far.

Grego: Is that because it’s at so high a price to initiation that for Time Warner Cable, that they wouldn’t want to pay that?

Hopkins: I guess I’d say we think that the deal with Time Warner is more helpful than harmful to the affiliates and we think that has been proven out in the last couple months.

Grego: Because they have not yet initiated that insurance policy?

Hopkins: Right.

Grego: Is that because the threshold is so much higher, essentially, in your estimation? It would just cost that much more for Time Warner to pull that lever than what you want your affiliates asking in retransmission consent?

Hopkins: I’m not sure I know the answer as to why they haven’t. We’re in a position where we have it out there, we’re disengaged from it, we’re not involved and once deals are done no one tells us what they are. I would be totally speculating as to why either side did what they did or didn’t do.

Grego: Let’s put it this way: Is it designed to function that way, to sort of motivate the distributor to make the deal with the affiliate rather than pay a much higher rate for the insurance feed?

Hopkins: Yeah. We call it a cooling off feed. It’s designed to cool everybody off and get deals done.

Finally, an excellent commentary on this bruhaha was published today by our longtime friend and former editor of B&C, Harry A. Jessel at TVNewsCheck. It’s also an excellent read.

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