Affils must do Wright, web warns

Net threatens to switch to cable

While still hopeful NBC can strike new long-term deals with its affils, Peacock president and CEO Bob Wright Wednesday issued his strongest warning to date that the web is ready to switch to cable-only distribution in markets where it can’t reach such agreements.

Speaking at a panel on networks, cable and new media at the Variety/Schroders Big Picture conference, Wright said that, in order to survive, NBC, as well as its broadcasting brethren, “have to change the business model” now in place, in which barely profitable or money-losing webs pay anywhere from $100 million to $200 million annually in compensation to stations operating at huge profit margins. By contrast, most cable nets derive income from both advertising and subscriber fees paid to them by cable operators.

“We want to renew our arrangements with our affiliates, but (it has) to be in a sensible fashion,” Wright said. “And in situations where that isn’t possible, we’re not going to be looking across the street to go to another broadcast outlet. We are going to be looking to take our programming to cable as the most efficient distribution alternative.”

Wright said that raiding another web’s affils or finding another broadcast outlet in a market is not “an attractive alternative anymore. It’s too disruptive, and if you’re going to be that disruptive, you might as well go to a better business model — and I think that’s what we’re going to do. That’s not an objective, but it’s clearly the best alternative we have if we can’t negotiate longer-term relationships in a much more economically adventageous manner.”

NBC now pays about $200 million annually in affiliate compensation, and the network has been trying to reduce or eliminate those payments. Wright has made similar threats to move toward cable distribution in the past, which many affils dismiss as saber rattling. They also point out that NBC turns a healthy profit with its own station group, and cable distribution could diminish the value of NBC O&Os and could lower NBC’s national reach and ratings.

Wright told Daily Variety NBC has “had some inquiries, some (cable operators) who have come to us to say they’re interested” in providing carriage for the Peacock on cable. The cablers would be willing to pay NBC for its programming, Wright said, providing NBC with the same dual-revenue stream most cable nets currently have.

The NBC topper was quick to emphasize that no formal discussions have taken place with cablers. “We’re not negotiating with the cable industry at the same time,” he said, adding that it’s “much too early” to predict whether NBC would have to go cable in any significant fashion.

While avoiding any threats of taking CBS to cable, CBS Television prexy and CEO Leslie Moonves echoed Wright’s statements about the need for major changes in the network-affiliate relationship.

“We can’t play the same game,” Moonves said, adding that WB CEO Jamie Kellner, whose net receives payments from affils rather than the other way around, was his “hero” for structuring the net-affil relationship the way he did.

CBS prexy and CEO Mel Karmazin, speaking later in the day, agreed about the need for changes, and said the Eye — which has relatively blissful relations with its affils compared to other nets — would probably seek changes in the net-affil relationship when current affil contracts expire.

Still, Karmazin said he was “not as hung up on the ego thing” of paying a relatively small amount of money in compensation as some of his colleagues at other webs. He argued networks need to do a better job of selling ad time at higher rates.

“We’re happy (CBS affils) are making money. We’ll make ours another way,” he said.

On a related note, CBS has avoided a standoff with a Traverse City, Mich., affil which had been threatening to drop the Eye’s Sunday NFL broadcasts next season. After CBS threatened to pull all network programming, the station backed down and will now carry football, Eye sources confirmed Wednesday.

Kellner, who was part of Wednesday’s panel on network, cable and new media, predicted the traditional nets would not have an easy time finding agreement with affils. “(They’re) going to be at war for the next few years,” he said.

Cablevision Systems prexy and CE0 James Dolan told Daily Variety his company would be willing to pay broadcasters for the right to carry their programming in individual markets if the nets could offer exclusivity to cablers. “We’ve told them that,” he said.

The discussion of the tenuous state of relations between nets and their affils highlighted the dominant theme of Wednesday’s panel on nets, cable and new media, namely how new technologies will force changes in the business models which broadcasters, cablers and even advertisers live by.

Oxygen Media chairman, CEO and founder Geraldine Laybourne argued that the convergence of the Internet and television will be second nature for children growing up today. “Kids already expect to play with their televisions,” she said, noting some 3-year-olds “think a remote control is broken if all it does is change channels.”

Laybourne said women, who already lead “incredibly converged lives,” will represent a huge audience for convergence-related technologies.

While audience fragmentation has led to predictions of woe for broadcasters, most panelists argued broadcasters and cable nets alike will be able to find new ways to generate revenue by selling products directly to consumers through interactive technologies.

“It’s not just about the number of people (watching a show) anymore,” said Philip Guarascio, VP of advertising and corporate marketing for General Motors, noting that NBC and GM have struck a 10-year Olympics advertising deal that features revenue streams other than direct payment for airtime.

“You need to be able to surround customers in different ways,” he said, citing a soon-to-launch Web site from GM as one example. Guarascio also expressed hope that networks would soon be able to use interactive technologies to supply advertisers with the ability to offer consumers more information about products.