Fox Affiliates Eye Potentially Higher Fees for Network Programming
Fox affiliates could end up paying higher fees for network programming or risk losing their affiliations entirely, according to a letter from Fox Affiliate Sales and Marketing President Michael Hopkins sent to station owners last week. The letter came in response to a Jan. 28 letter from affiliate board Chairman Brian Brady who wrote that Fox had rejected several proposals from the board’s negotiating committee and is instead seeking to negotiate directly with each station or group. “The network values the partnership with our affiliates even while we realize that our proposal may not work for every company,” Fox’s Hopkins wrote in his Feb. 4 letter. “If that should be the case, Fox will have to pursue different distribution channels to receive a fair value for our programming and continue to run a successful network. We don’t want that to sound like a threat, but it is a fact."
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In many cases, Fox is seeking payments from affiliates that are higher than the retransmission-consent fees those affiliates collect from pay-TV distributors, Brady said in his Jan. 28 letter. “In order for stations to stay economically neutral, they would have to negotiate dramatically increased fees from MVPDs, including substantial yearly increases which the MVPDs will strongly resist,” he wrote. Fox has also identified affiliates to “use as an example,” Brady wrote: “I have no doubt that they believe if they take someone’s affiliation away, the rest of us will fall into line.” For his part, Hopkins wrote that Brady’s letter “unfairly characterizes our attempts to come to a reasonable solution.” Brady declined to comment beyond saying “it’s our hope and expectation that we can find and equitable and reasonable solution to our issues.” A Fox spokesman said: “Fox’s negotiations with our affiliates are a private business matter and as such these discussions are confidential."
The letters could present higher risk for prospective buyers of TV stations, said Robert Heymann, director of Media Services Group in Chicago. There’s a risk of limited free cash flow growth if network fees grow, he said. Furthermore, there’s a risk that a station could lose its affiliation entirely, wiping out much of its value, he said. “On top of all of this, you've got the potential of reworking the entire network affiliate relationship, with networks being able to bypass over-the-air stations and feed the cable systems directly or get to the consumer via the Internet,” he said. So far, those risks don’t seem to have affected station prices, he said: “However, these possibilities are looming in the future and shrewd buyers and sellers of stations are going to be concerned about these possibilities.”
The looming fees and risk of affiliation loss are nothing new, another broker said. Stations will probably be able to get higher fees from pay-TV distributors, making the network fee cash-flow neutral, said the broker who spoke on the condition of anonymity. “Other networks are also imposing fees on affiliates, at about the same rate,” the broker said. “Had the networks not imposed any fees and the stations were as aggressive as they should be going forward, station valuations might have been higher than they will be,” the broker said. And the risk of affiliation loss hasn’t changed, the broker said: “If stations choose not to pay the fee, they will lose affiliation. This has been the case with network fees for a long time.”