Net tries to catch up in setting reverse-compensation pact with its stations

When NBC convened its annual tree-lighting ceremony last week at Rockefeller Center, there was one gift it would have liked tucked under the giant Norway spruce: reverse compensation revenue.

But even though members of the NBC affiliate board were in town to meet with top Peacock brass for an annual pow-wow covering a range of issues, a deal has yet to be signed that would allow the network to pocket a portion of their station affils’ retransmission-consent dollars.

Reverse compensation represents a relatively new revenue stream in which affiliates fork over to the network a percentage of the payments they get from cable, satellite and telco operators in exchange for carriage of their signals. It has become a commonly accepted arrangement in the broadcast business during the past two years, as there’s a general understanding that the network TV biz needs all the help it can get from the local stations that benefit from carrying high-priced network sports and entertainment fare.

Reverse comp could drive hundreds of millions of dollars to NBC, which is going to need every penny to hold onto “Sunday Night Football,” which has been a vital property for the network amid its other primetime fumbles. The NFL signaled last week in an interview with Reuters that it was seeking steep increases for all of its TV packages in the coming year.

NBC is nearing the end of a six-year deal with the NFL, which has collected about $600 million per year from the network since 2006. Earlier this year, ESPN agreed to an eight-year deal totaling $15 billion to hold onto “Monday Night Football.” The big NFL bill on the horizon adds to the urgency for NBC to reach a retrans pact with its affils. For the past nine months, NBC has been mired in negotiations with the stations that would put a new twist on the reverse-comp formula. The network is seeking to negotiate retransmission-consent deals with operators on behalf of its affiliate stations, and then keep an unspecified percentage of those proceeds.

Brian Lawlor, senior VP of E.W. Scripps & Co. stations and chairman of the NBC affiliates board, is optimistic a deal can still be reached but acknowledged negotiations have bogged down in the complexities of attempting an unprecedented framework. A deal isn’t expected this year.

“I would expect within 60-90 days either we’ll have concluded this deal or say we just couldn’t get it to work,” said Lawlor.

NBC declined comment.

But even if NBC hammers out the details, some station groups harbor reservations about following the network’s strategy of becoming the proxy negotiator for some or all of its more than 200 affiliates, according to Moody’s analyst Carl Salas, who said many NBC affiliates have privately shared their reluctance directly with him.

“They feel it’s not highly probable, and maybe near impossible, for them to envision a scenario where they would be willing to give up their rights and go into a proxy,” he said.

Regardless of what specific arrangement any broadcast network reaches, Salas projected in a research note last week that the reverse comp that all network affils are paying will send station groups into a cash crunch in 2013, once the influx of political advertising dollars from the coming election year begins to run dry.

SNL Kagan projects that reverse comp alone could grow from nearly $500 million next year to $1.3 billion by 2015. NBC is farther behind the other broadcasters in that respect, with SNL Kagan estimating that the Peacock and another Comcast-owned broadcast property, Spanish-language network Telemundo, earned just $21 million in retrans fees this year.

That lags far behind parent companies for ABC, CBS and Fox. ABC, for instance, is on track to collect $157 million this year, according to SNL Kagan.

Fox made waves earlier this year by instituting a reverse-comp plan that critics among its stations found downright draconian: Accept a flat fee that will escalate in subsequent years or reconsider your network affiliation.

Salas added that smaller stations would be more likely to sign on to NBC’s proxy proposal because they could benefit from the leverage NBC can bring to bear in retrans negotiations. “There are a handful of guys out there who would welcome this,” he said. “But as you approach the bigger publicly traded companies, they are hesitant to do it.”

NBC also has to proceed carefully with its proxy deal because the involvement of parent company Comcast Corp., the nation’s largest cable operator, risks crossing antitrust boundaries. “We probably had to spend more time than we realized researching all of that to make sure we’re in full compliance here,” Lawlor said.

Comcast’s acquisition of NBCUniversal required adhering to an FCC consent decree that keeps the conglom from engaging in discriminatory practices against competing firms.

Last month, Comcast vice chairman/CFO Michael Angelakis expressed confidence at an investor’s confab that progress was being made on a deal. “Over the next few weeks there will be clarity,” he said.

Despite expectations that NBC and its affiliate board would make progress on the proxy deal at its meeting last week, both sides agreed to table discussions to a later time. However, the affiliate board met separately that day to review the status of those talks with the execs involved in negotiation with the network, including Lawlor.

With the retrans issue set aside, last Thursday’s affil powwow at 30 Rock was primarily focused on a presentation on programming strategies by NBC Broadcasting chairman Ted Harbert, who talked up the prospect of the network improving in primetime on the strength of a midseason schedule anchored by the return of “The Voice.”

“We were excited by what we saw,” said Lawlor.

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