"Affiliate Compensation"
March 2000
The February 21 issue of Broadcasting & Cable calls it a "seismic shift" that has "unleashed shockwaves." And in undoing seven decades of business as usual, the case of NBC-KRON-KNTV is exactly what the respected trade magazine says it is.
First, some background. You know from your text that local affiliates carry their networks' programs and the commercials they house for a number of reasons, primary among them money. This money typically comes in two forms. First, networks allow affiliates to insert locally sold commercials into a certain number of specified spots in network programming. The affiliates are allowed to keep all the money they make from these local spots. Second, networks make direct payments to affiliates for airing their programs (and more to the point, the commercials they contain). For example, NBC pays compensation to its affiliates for airing Frasier.
Compensation, however, has diminished dramatically in recent years as the networks have been losing audience to cable and other video alternatives. In fact, Fox pays no compensation to any of its affiliates, many affiliates of the other networks now receive no compensation at all for some or most of the shows they carry, and the networks have even begun to ask affiliates to help them pay for high-cost programming such as professional football and some hit series.
More background. In late 1999, KRON-TV in San Francisco went up for sale (
Last month, NBC (http://www.nbc.com), which had been paying its San Francisco affiliate KRON $7.5 million a year in compensation, said it would make no compensation payments at all to the station and instead demanded a $10 million payment from KRON’s new owners as a condition of continued affiliation. Unhappy with this $17.5 million revenue turnaround, Young Broadcasting, the new owners, declined, ending a 50 year-long affiliation between the station and network.
However, the story does not end there. NBC soon found a station willing to pay it for affiliation; Granite Broadcasting (http://www.granitetv.com), owners of San José’s KNTV, Channel 11 (http://kntv.com), agreed to pay the network $36.2 million a year in reverse compensation for ten years.
Affiliates were stunned and outraged. The other networks said it was a "forward thinking move," one likely to be duplicated in the future. Many affiliates said they could make more money as independents than they could as affiliates paying that level of reverse compensation to a network. The networks said they could not continue to provide high quality fare without affiliate help. As media literate viewers, you can judge for yourself over the next few years just what this reverse compensation means to the audience.
WHAT ELSE IS NEW? As expected, the National Association of Broadcasters (http://www.nab.org) has filed suit in the U.S. Court of Appeals in Washington, DC to halt the FCC’s plans to grant hundreds of low power radio licenses to community and other nonprofit groups. The House Telecommunications Subcommittee also held hearings on the NAB’s objections. Republicans supported the industry’s desire to deny licenses to low power community operators. Committee Democrats favored the Commission’s plan (http://www.fcc.gov).
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