Fox, Affils Huddle on Cost of NFL

Jul 14, 2003  •  Post A Comment

Two weeks after their agreement to share the costs of NFL football expired, Fox Broadcasting and its affiliates still have no new agreement. The two sides are wrestling with the network’s demand for increased reverse affiliate compensation in the wake of huge losses on the sports contract, and the network’s desire to have more flexibility in repurposing entertainment programs on cable TV.
Although both sides characterize the months of discussion as cordial and constructive, it is not clear when agreement will be reached. A conference call is scheduled for Monday. “We are looking forward to a conclusion that will benefit everybody,” said Fox Television Networks Group President Tony Vinciquerra.
Fox affiliates advisory board chairman John Tupper allowed that “the gap is narrowing,” but suggested it will take more than a week to complete the negotiations.
The biggest issue is, as always, money. Fox, which last year took a write-down of nearly $400 million on its eight-year, $4.4 billion NFL deal, hopes to collect $13 million to $15 million per year in reverse compensation from its affiliate body to defray some of its NFL costs. A deal is also expected to involve the network giving additional commercial time to the stations, which would then be expected to return some revenue generated by those spots to the network.
Other sticking points include the repurposing of network programming and Fox’s proposal to sell some advertising regionally.
The affiliates want to limit repurposing, which the network was prohibited from doing under the expired agreement. Fox had to wangle an exception from the affiliates to repurpose “24” on the Fox-owned FX cable channel. (No decision has been made on whether to repurpose “24” in the 2003-04 season.)
Since repurposing deals generally have not produced the revenue once envisioned, the networks’ interest in them has slowed in the past year; but Fox’s position is that it needs to be free to grant repurposing rights to suppliers to be able to compete for programming with ABC, CBS and NBC.
The affiliates, who tend to view repurposing as a dilution of the Fox brand, are seeking additional local inventory within the network run of any show that is repurposed. They also are asking for additional local commercial time within the NASCAR races (as opposed to time within less valuable pre- and post-race NASCAR programming).
With ABC, CBS and Fox estimated to be losing a collective $2.9 billion a year on their football deals, such discussions have become familiar. If the networks want the affiliates to cough up more cash, then the affiliates want to extract other revenue opportunities or protections in return. CBS and ABC and their affiliates reached their NFL agreements last year.
One unique issue cropped up during the Fox-affiliate talks. The affiliates raised the fear of seeing NFL programming repurposed on DirecTV after the satellite provider’s acquisition by Fox parent News Corp.
The Fox position is that DirecTV is not germane to this discussion because a) the satellite provider would remain a separate company from Fox-owned cable and broadcast operations, and b) the acquisition is not complete and the network does not wish to negotiate on a what-if basis.
Mr. Tupper somewhat morosely noted that whether or not News Corp. acquires DirecTV, it seems clear that more and more sports programming is going to be distributed via satellite headed for satellite.
Fox affiliates initially feared Fox’s plan for regionalized sales would put the network in direct competition for ad dollars in affiliates’ own markets, but the network has assured them the strategy is a limited one.
Some affiliates say that however popular NFL coverage might be, it is generally a tough sell to advertisers in smaller markets that are remote from NFL franchises, and they have suggested that Fox index the NFL agreement for small and medium markets. Such suggestions have been rebuffed by the network as well as group executives who believe large-market stations often confront the same challenges.