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Chernin to Fox Affils: Time to Pony Up

Las Vegas -- On the heels of its declaration that it would become a 52-week programmer, Fox is now asking affiliates to pony up some bucks to help cover the cost of some of those shows.

News Corp. president and chief operating officer Peter Chernin put Fox affiliates on notice over the weekend that they should be prepared to pay big increases in the programming support they already provide the network.

They already help pay for sports, but Chernin said they will also have to start paying up for scripted entertainment. Over time, those payments, in cash and kind (such as inventory give-backs), could translate to hundreds of millions of dollars, at least if Fox gets it way.

Chernin's comments came at the Fox affiliate meeting in Las Vegas, held in advance of the annual NATPE conference.

The meeting was closed and a Fox spokesman said executives would not comment.

Currently, affiliates contribute about $50 million a year in cash and inventory to help the network pay for the NFL.

At its closed-door affiliate session in Las Vegas Saturday (Jan. 17) Fox Sports Chairman David Hill told stations Fox will "do what it takes" as one affiliate source put it afterward, to renew the NFL deal, which has another two seasons to run. Doing what it takes will likely mean a hefty increase in the rights fee, already someabout $500 million a year range.

But at the meeting Hill tried to make the case that sports is too important a franchise at Fox to let go of.

Five of the top 10 shows this season will be baseball and football playoff games on Fox, he told affiliates. If Fox Sports were a separate network, it would be the third highest rated overall, he said.

But what the network will not accept are the kinds of losses on future sports contracts that current deals are posting--$900 million so far for the NFL and Major League Baseball contracts combined. That number could increase with two more years left on the NFL deal and three on MLB.

In private conversations with some affiliates after the meeting, "Peter made it clear the company will not let that happen again," said one affiliate source, referring to the huge losses.

Sources at the meeting said Fox also made it clear stations will be getting a bill for MLB and NASCAR rights, although the timetable has not been spelled out.

Chernin was also vague about the extent to which affiliates would have to help pay the freight for entertainment fare. "But he stressed that the business model absolutely has to and will change," said one source.

John Tupper, the immediate past chairman of the Fox affiliates board of governors characterized Fox's stand as "a real problem. It's like trying to get blood from a stone."

Ron Crowder, newly elected Fox affiliate board chairman and GM of KWKT(TV) Waco, Tex., echoed that concern. "Anytime you affect the profit-and-loss statements of the affiliates it's a little disconcerting," he said.

But he also said the affiliates took the news in stride. "Overall, it was a very cordial meeting," he said. "There was a lot of good discussion on a number of issues." Another station executive at the meeting said, "it's better to know what's coming than not to know."

Other hot-button issues discussed were use of the digital spectrum and retransmission consent.

Fox is "extremely concerned" that it lacks a plan of action on how to jointly exploit DTV business opportunities with its stations, one station source says. "The last thing they want is stations running off and doing ventures like Utah," a reference to a group of Salt Lake City stations pooling digital spectrum to create a wireless multichannel pay service to compete with cable.
But Crowder said the network stopped short of pleading with stations to forego such ventures.

The network and affiliates did form a committee to explore opportunities in the digital space. Fox is so sensitive about the subject that it made affiliates on the committee sign non-disclosure agreements, "which is why I can't talk to you about it," said Tupper, a committee member. Another member indicated there wasn't much to talk about at this point anyway.

Fox executives told stations it's critical for both their business to get full carriage of their digital signals by cable and satellite services. One affiliate source responded that if Fox expects to up the ante on program payments, one of the things it better be prepared to do is a joint network-affiliate retransmission consent deal when the current agreement is up.

"The last time around they got their cable networks cleared and left us behind," the station executive said.