Businessweek Archives

A Power Jolt For Station Owners The Avengers


Cover Story

A POWER JOLT FOR STATION OWNERS THE AVENGERS

Edmund N. Ansin was mad as hell, but he doesn't have to take it anymore. Five years ago, Ansin's WSVN station in Miami was dumped by NBC Inc., which was buying the local CBS Inc. affiliate. Ansin assumed he would simply sign on with CBS, but instead, CBS spurned him and bought a weaker station on the cheap. Left out in the cold, Ansin had little choice but to sign up with Fox--then a little outfit notable mainly for its raunchiness and its poor ratings.

Oh, how the media world does turn. When Fox Broadcasting Co. snared 12 network affiliates on May 23 and touched off a nationwide scramble among all four networks for new stations, executives such as Ed Ansin were suddenly sitting in the catbird seat. Immediately, he and other affiliate owners began receiving humble phone calls from formerly haughty network brass--and with good reason. Ansin recently bought WHDH, the CBS affiliate in Boston. Now CBS is worried he'll take his second station to Fox, which is also courting him.

Ansin--whose Miami station earns more with Fox than it did as an NBC affiliate--is all ears. "Certainly I'm interested in hearing what any network has to say, given this turn of events," he says gleefully. "Anybody who has TV stations has to be very happy about this." Little wonder: Brian E. Cobb, a leading broker for Media Venture Partners, figures station values have climbed some 25% in recent weeks.

FATTER CHECKS. For downtrodden affiliates, the sudden shift in television's balance of power is sweet revenge. With the advent of cable, the need for their very existence was called into question. Then, cost-conscious networks, notably CBS, slashed their compensation, confident that their affiliates had no choice but to accept. Fox's emergence as a deep-pocketed suitor has changed all that. Dennis J. FitzSimons, president of Tribune Television, notes that the Fox deal made the networks realize "the importance of distribution, which is something that has been ignored recently. It shifts the leverage back to the stations." Before, adds Nicholas D. Trigony, president of Cox Enterprises Inc.'s Broadcast Div., "it was a one-sided affair in favor of the networks."

Now, a high-stakes mating ritual is under way between local TV station-owners in Boston, Buffalo, Dallas, Tampa, Phoenix, and half a dozen other cities, and CBS, NBC, ABC, and Fox. Old thinking about network loyalty and the danger of switching affiliations has flown out the window. Fox now reaches 96% of all U.S. households, nearly the same level as the 99% reach of the other networks. And instead of continuing a campaign to cut the cash compensation they pay affiliates--which can total about $2 million in such large markets as Atlanta--the old-line networks have reversed course: Now they're more likely to promise fatter comp checks or give affiliates more time to air local ads.

All told, the increased affiliate compensation could cost each network hundreds of millions of dollars a year. Adding to the frenzy: Warner Bros. Inc. and Paramount Communications Inc. are also out recruiting affiliates for their own fledgling "fifth" networks. Predicts Jack D. Rehm, CEO of Meredith Corp., which owns five television stations: "Nothing stands still at this point."

NO-NONSENSE APPROACH. Much of the seismic shift in the industry can be traced back to New World Entertainment Chief Executive William Bevins. The former Turner Broadcasting System Inc. executive decided last year that he needed to assemble a strong broadcasting group to successfully build a fully integrated TV company that both produces and airs programs.

Since then, Bevins has done deals with staccato speed. First, he bought control of seven stations last year from SCI Television. Then, since Westinghouse Electric Corp. wasn't interested in selling its five blue-chip stations, he gobbled up Great American Communications' four stations. This spring, he approached DLJ Merchant Banking Partners to make an offer for four major-market TV stations that DLJ had acquired less than a year before. He didn't lowball on price, either. His first offer was so high that DLJ accepted, and the deal was closed--with no other bids--within weeks. A similarly urgent and no-nonsense approach surrounded Bevins' negotiations with Fox, which were concluded in about 10 days of secret talks.

One result of the deal: Any company that owns TV stations--including such large corporations as Westinghouse, Scripps Howard, Meredith, Tribune, Belo, Cox, and McGraw-Hill (publisher of BUSINESS WEEK)--is faced with critical choices. Some groups, such as Meredith, are itching to expand and buy more stations, or to shuffle existing affiliations. Tribune's eight independent stations have already signed on with the new Warner Bros. network. And Cox is committed to increasing its production activities.

BARGAINING POWER. Other affiliates face a considerable struggle to emerge from the turmoil as winners. Scripps Howard Broadcasting Co., for one, owns the Fox affiliates in Kansas City, Mo., Phoenix, and Tampa. But those are all weaker UHF stations that Fox is dumping in favor of stronger stations gained from the New World deal. Still, Scripps is not entirely on the outs. The company owns the ABC affiliates in Cleveland and Detroit--both major markets where CBS is desperate to make a deal for a new affiliate. A Scripps spokesman declined to comment on whether or not the company is talking with officials at CBS.

The networks decry the local stations' new bargaining power. "More station owners [are] in the business for short-term business gain," complains CBS Broadcast Group President Howard Stringer. But the fact is that affiliates may just now be seeing the beginning of an unexpected boom. For affiliates, these are sweet days indeed.Elizabeth Lesly, with Mark Landler in New York and Richard A. Melcher in Chicago


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus