CBS

Wall Streeters typically don’t pay much attention to station maneuvers in TV markets below the top 10, but word of CBS’ plan to switch affiliates in Indianapolis caused a stir among broadcast-focused investors on Monday.

The Eye plans to shift from its longtime home on Lin Media’s WISH-TV to Tribune-owned WTTV-TV as of Jan. 1. The reason boils down to dollars and cents: Lin and CBS had been renegotiating an affiliation agreement but were not coming to terms on reverse retransmission consent fee payments. Those are the fees that station affiliates now pay networks in exchange for receiving the sports and primetime programming that allow local stations to command significant retrans coin from local MVPDs.

Tribune’s WTTV agreed to CBS’ terms, and so CBS will be moving to channel 4 in the nations 26th-largest market after decades on channel 8. The move will displace the CW, which is a CBS-Warner Bros. joint venture, from the mothership WTTV to its digital multicast channel, WTTV 4.2.

CBS’ willingness to shuffle in Indianapolis sends a clear message to other affiliates that are facing renewal negotiations. CBS has repeatedly promised Wall Street that its revenue from retrans coin earned from MVPDs by its O&Os and reverse retrans comp from station affils will reach $1 billion by 2017 and $2 billion by 2020.

The Indianapolis deal, even coming at the expense of the CW, was read by Wall Street as proof that CBS intends to use its muscle with MVPDs and affils to hit those targets. The Eye’s campaign will likely put pressure on the bottom lines of some of the mega-station groups that have been cobbled together in the merger mania of the past few years.

After announcing the Indianapolis deal, CBS shares climbed 95 cents, or 1.6%, to close at $60.18 on Thursday. Lin’s stock fell 91 cents, or 3.7%, to close at $23.81.

“The PR around this deal suggests that this is a signal from CBS to its affiliate body that it wants what it considers to be ‘fair value’ – we don’t get the sense that CBS necessarily wants a repeat of this situation in other markets,” wrote Wells Fargo Securities senior analyst Marci Ryvicker in a note Monday.

David Bank of RBC Capital Markets sees potential for CBS to exceed its own ambitious target by 2020. “If CBS is willing to flex its muscles in reverse comp discussions, it’s possible we could see upside to long-term retrans/reverse comp total targets of ($2 billion) by 2020,” Bank wrote. And the eagerness of Tribune to step up reinforces that station owners have to bank on the lure of top-tier content to bring in advertising dollars and retrans. Tribune was especially eager to access CBS’ NFL package, which includes the hometown Indianapolis Colts.

“At the end of the day, in many markets, we think if a local affiliate balks at CBS’s demands, the affiliate must recognize that other stations might step up to take over the affiliation at less attractive terms and content has “the leverage,’ ” Bank wrote.

Wall Streeters are also curious about CBS’ formula for determining its reverse retrans terms with affils. Sources say it’s a complicated process, not a one-size-fits-all fee or percentage, that takes into account the station’s ratings performance and the total value of its retrans haul from MVPDs.

CBS Corp. chief Leslie Moonves addressed the issue during the Eye’s second quarter earnings call on Aug. 7. He noted that reverse retrans is no longer rooted in a simple 50-50 split.

“We actually are now calling it a program fee, which is a more appropriate term to acknowledge that. And that 50-50 no longer is even a base that we use. We decide what we think is fair,” Moonves said. “It generally is higher than the 50% number. And we negotiate on that basis. … In looking at the station groups, they are all doing very well and they are doing well primarily because of network programming both in primetime and in sports. So we feel it’s a fair proposition for both sides.”

Moonves’ definition of “fair” may have been opaque, but it has been answered by market forces in Indianapolis. Undoubtedly, CBS’ affils have taken notice.

Lin Media itself has 10 more CBS affiliates in its group, some of which are coming up for affiliation renewals soon. A rep for Lin did not return calls seeking comment on Monday.

Filed Under:

Want Entertainment News First? Sign up for Variety Alerts and Newsletters!
Post A Comment 2