In his address at Fox’s spring affiliates’ meeting Thursday, Fox Group chairman and CEO Peter Chernin complained about the slow pace of the web-affil talks over sharing costs of Fox’s pricey new NFL package.
According to a letter sent to affils last month, Fox had hoped to reach a cost-sharing agreement by June 3. Talks between Fox and its affils, however, appear to be stuck on several key points, especially the issue of program exclusivity.
“There seems to be a standoff,” said Kevin O’Brien, general manager of KTVU San Francisco.
The noises coming from the opening sesh of the two-day Fox affiliate confab echo the issues debated by the Big Three webs and their affils, which also held meetings this month.
“I am troubled by a process that has us moving slowly and trying to resolve an issue of enormous mutual importance,” Chernin said. “I hope we can have a better-defined and more collaborative process for future issues as they arise. The next time event programming becomes available, if Fox hesitates because of a worry about the financial consequences, it would be potentially disastrous for all of us.”
Fox is looking to complete a deal outlining the distribution of ad spots in the NFL games between the network and affils so that they can begin selling football ad time in the upfront.
Chernin spent much of his speech praising the performance of Fox Broadcasting Co. this season, as well as ruminating on the rising cost of programming and the increasing fragmentation in the television business.
“As the world becomes more fractionalized, the cost of compelling TV content has skyrocketed,” he said. “In the late 1980s, the average one-hour drama cost a little over $1 million to produce. Last year, ‘The X-Files’ cost more than $2.5 million per episode.”
Chernin added that the NFL package that helped boost Fox into the major leagues in 1994 ultimately forced the company to report a $350 million write-down. “Even with (affiliate) contributions and the performance of our large station group, we were still well behind financially.”
Marketing costs are also on the rise, in part because “deregulation of radio has led to an unhealthy concentration of commonly owned stations within the same markets — oftentimes owned by our own major network competitors,” he said.
On the studio side, Chernin described the process of creating hit shows as “nightmarish.”
“Access to quality talent has gotten difficult. Studios are holding networks hostage for renewals, as best exemplified by ‘ER,’ ” he noted.
To counteract the trend, Fox is working to produce many of its programs in-house, spending close to $100 million a year developing shows at 20th Century Fox TV, Chernin said.
“Any belief that (Fox Broadcasting Co.) can continue to succeed based on a traditional network-affiliate approach is outmoded and alarming,” he said.
Chernin also cited the importance of cross-promotion between Fox’s broadcast and cable outlets.
“Some of you may be concerned that you would only be promoting the competition,” Chernin said. “I contend that is myopic thinking. You would be promoting Fox, and a strong and vital Fox with multiple revenue streams is crucial to your future.”
As always, Chernin hammered Fox affils that still haven’t plunged into local news. Chernin stated flatly that the net will demand that affils commit to a launch date for a local newscast as the web renews its affil agreements.
Fox News chairman and CEO Roger Ailes told affils he is developing specials programming that could eventually evolve into a newsmagazine, but Fox won’t run out a newsmag until its ready.
On the sports side, Ed Goren, executive producer of Fox Sports, said that Fox will be in a “war” with CBS next year for football viewers.
Behind the scenes, though, the war was going on between Fox and its affils. Sources say heated words were exchanged in two closed-door meetings between Fox and its affiliate board. The two sides will meet again today, but sources were not entirely optimistic a deal will be reached before the affiliate meeting closes.
Affils feel that Fox’s plan not only requires them to foot a large portion of the football tab, but it doesn’t ensure they’ll have the games exclusively, and Fox could create a pay TV window for football and other Fox programming.
The complex formula being proposed asks affils to give back to Fox the $100 million in proceeds from the sale of their portion of Fox Kids Network. Fox would return three NFL ad posts to affils, who would sell the time, but return the proceeds (minus commission) to Fox.
Nick Clark, general manager of KCVU in Chico, Calif., called the plan “a bookeeping nightmare.”
Also upsetting affils is Fox’s proposal to make the new NFL deal for just one year with flexibility for the network to come back and ask for more money next year.
“Fox affiliates don’t get compensation like the other networks,” Clark added. “We get fewer hours of programming, so we spend more of our own money on programming. But Fox gives us a great brand, and the right demographic. I’m convinced we’ll work it out.”
(Cynthia Littleton contributed to this report.)