Affiliates Picking OffMore Network Spots

The midterm elections revealed just how divided the nation’s electorate
is, but autumn 2010 nevertheless united a different famously
adversarial pair: TV networks and their affiliate stations.
Led by ABC’s Inventory Exchange System (IES), the three senior
broadcast networks all unveiled innovative spot deals for their
affiliates in the weeks before Election Day, designed to capture
the outsize political spending going on at the local-station level.

ABC has since taken the ad exchange model
with affiliates in dramatic new directions.

While hot-button issues such as reverse compensation
and sharing retransmission consent
cash continue to rankle some stations, the
vast majority at the local level appreciated
their networks’ efforts to maximize the stations’
taste of political cash this fall. And they are increasingly curious as to how the model
might work during other parts of the year.

“I think it’s a great concept, and it’s worked
out real well for us,” says Vincent Sadusky,
who oversees a 32-station group as president/
CEO of LIN Media. “Any time the networks
and affiliates come together like this, it’s a

New Take on a Tested Concept

The concept of networks swapping or selling
spots to affiliates is not new. But never before
have the networks made such a powerful offering
as they did prior to Election Day, with ABC,
CBS and NBC all coming up with novel ways
to wheel and deal commercial time with their
affiliates as the big day drew nearer. ABC first offered
affiliates six ad units in primetime in midand
late October, then offered a second batch
of spots in World News and prime in mid-November,
the start of the holiday shopping season.

ABC and its affils will next attempt a “reverse
exchange,” with the stations making some of
their spots in shows such as The Middle and The
available to the network during the
slower local sales period of early-to-mid-January.
“The ABC Affiliate Board has received very positive feedback about the first two exchanges,
when affiliates purchased additional inventory
from the network,” ABC affiliates board chairman
Bill Hoffman told stations in a memo. “We
are hopeful you will look at this reverse exchange
as a very welcome source of new revenue.”

Seeing the success ABC had with its inventory
exchange, the NBC affiliates board engaged
in conversations with the Peacock network
about drawing up their version of the concept
on the NBC stations’ air. The
talks resulted in the affiliates
being able to buy a 30-second
spot each evening in Nightly
from Oct. 18 to Nov. 1.
“We [saw] this as a great way
to help our affiliates meet the
demands of the marketplace,”
NBC said in a statement. “It
capitalizes on our long history
of optimizing inventory to benefit both the stations and the
network, and it builds on our
many shared successes.”

An estimated two-thirds to
three-quarters of the NBC affiliate
body is said to have opted in
for the spots in Brian Williams’ newscast. “The
reaction from affiliates was really good,” says
Brian Lawlor, NBC affiliates board chairman.
“Our board members said they thought it was
great—their stations were able to monetize it.”

NBC affiliates were also able to monetize a pair
of spots in the pre- and post-game Sunday Night
broadcast on Oct. 31. Both NBC and the
affiliates board characterized the spots as a gift
from the network.

CBS, which is enjoying
an extraordinary
primetime run that is
delivering strong audiences
to affiliates’ late
newscasts, went with
a different approach.
Affiliates were given
a spot swap, as opposed
to being able to
buy an ad unit—with
the network giving up
airtime in late October and taking equal time
back after the elections in November. Unlike
the exchanges at ABC and NBC, CBS affiliates
were not given a choice about opting in.

Speaking at the B&C Onscreen Summit in
late October, CBS Corp. President/CEO Leslie
Moonves said his network frequently engaged
in spot swaps with affiliates. “You go where the
money is, where the best economics work out,”
Moonves said. “There’s no hard and fast rule, but
this was an opportunity for the affiliates to win,
the O&Os to win and for the network to win.”

CBS swapped spots with affiliates in 60 Minutes
during election season in years past. This
fall’s offering included the 60 Minutes batch and
10 additional spots in a range of primetime
shows, including The Mentalist. Most affiliates
did well with the extra spots, said CBS affiliates
board chairman
Wayne Daugherty,
though he wouldn’t
mind board input—
or at least an earlier
heads-up from the network next time, “so we
can plan for it a little better,” he said.

The Fox network, meanwhile, did not push
a spot exchange for affiliates during election
season, though the network has had its own
“inventory buyback” program in place for
years. Fox affiliates say they must purchase
extra ad time as part of their affiliate contracts.

All four major networks of course have
sizeable O&O station
groups (though ABC’s
stands to shrink from
10 outlets to 8 when a
deal to sell WTVG Toledo
and WJRT Flint is
completed early next
year). The networkowned
station groups
play critical roles in
inventory exchanges,
cluing the networks
in as to when local demand
may exceed national, and helping the
networks establish pricing for local spots.

‘Exchange’ of Ideas

With the historic 2010 midterms in the
rear view, it will be some time before political
spending—and spending on local races in
particular—heats up once again. But the networks and their affiliate bodies are exploring
ways the inventory model could work during
other times during the year, such as ABC’s exchange
occurring the weeks of Nov. 15 and
Nov. 22, ahead of the Black Friday kickoff of
the holiday shopping season, and the reverseexchange
program planned for January.

(Lawlor and Daugherty say there have been
no discussions with their networks about
making the ad exchange a two-way street, as
ABC has done.)

ABC execs have said that high-wattage TV
events, such as March’s Oscars telecast and June’s
NBA Finals, are at least up for discussion if the
affiliates can make a case that demand for local
spots during these programs
is running particularly high.
Lawlor says conversations
with the folks at 30 Rock
about broadening NBC’s
exchange program is ongoing.
“This is the beginning of
us having regular dialogue
about the opportunity to
expand it to other dayparts,”
the NBC affiliates chief says.
“Hopefully we can brainstorm
new and different ways of doing business
that allow us both to be better. If we can identify
ways to increase cash flow for the affiliates
and develop a revenue stream for the network,
that’s really good for the relationship.”

Gluing the Model

The traditional network-affiliate model
evolves daily, and some realists speak of it imploding
at some point in the future, under the
weight of such issues as excessive reverse comp.
The inventory exchange model is evolving too,
and could meet a similar fate if networks and
affiliates don’t agree on the pricing or timing of
such transactions. “The devil is in the details,”
says one influential affiliate board member.

But concepts such as sharing retrans cash
gleaned from pay-TV operators and buying, selling
or swapping ad units to maximize their value
appear to add a considerable amount of concrete
to the decades-old network-affiliate foundation.

“It tightens the bond and strengthens the
relationship between networks and their affiliate
partners,” says Perry Sook, Nexstar
Broadcasting Group chairman/CEO. “I think
it’s a very good move.”

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Michael Malone, senior content producer at B+C/Multichannel News, covers network programming, including entertainment, news and sports on broadcast, cable and streaming; and local broadcast television. He hosts the podcasts Busted Pilot, about what’s new in television, and Series Business, a chat with the creator of a new program, and writes the column “The Watchman.” He joined B+C in 2005. His journalism has also appeared in The New York Times, The Philadelphia Inquirer, Playboy and New York magazine.